| Summary: | This dissertation consists of three independent essays in international economics and macroeconomics. The first chapter emphasizes the importance of persistent heterogeneity across workers in the economy's adjustment to sectoral shocks. The second chapter explains the spatial concentration of non-tradable consumption services based on consumers' trip-chaining behavior, which results in geographically correlated consumption location choices. The final chapter provides a novel mechanism by which persistent noise in signals endogenously generates optimism through dynamic learning.
The first chapter develops a sufficient statistics approach to evaluate the impact of sectoral shocks on labor market dynamics and welfare. Within a broad class of dynamic discrete choice models that allows for arbitrary time-invariant heterogeneity across workers, I show that knowledge of steady-state intersectoral worker flows over various time horizons is sufficient to evaluate labor supply responses to shocks as well as their aggregate welfare consequences. I also establish analytically that assuming away persistent worker heterogeneity---a common practice in the literature---necessarily leads to overestimation of steady-state worker flows, resulting in systematic biases in counterfactual predictions. As an illustration of our sufficient statistics approach, I revisit the consequences of the rise of import competition from China. Using US panel data to measure steady-state worker flows, I conclude that labor reallocation away from manufacturing is significantly slower, and the negative welfare effects on manufacturing workers are more severe than those predicted by models without persistent worker heterogeneity.
The second chapter shifts the focus to non-tradable consumption services market, such as restaurants and retail, in Seoul. To understand the spatial concentration of services, we first causally identify positive spillovers across services stores. We microfound these spillovers by incorporating the trip-chaining mechanism---whereby consumers make multiple purchases during their services travel---into a quantitative spatial model that endogenizes the spatial distribution of services. When calibrated to an original survey on trip chaining, this mechanism explains about one-third of the observed concentration. However, unlike standard agglomeration mechanisms, it does not lead to inefficiency nor does it exacerbate welfare inequality. Finally, we show that spatial linkages of services consumption play a crucial role in shaping the impact of the rise of work from home and of delivery services on the distribution of services.
In the third chapter, I propose a noisy rational expectations model with persistent noise. Firms learn about economic conditions from signals, and the noise in the signals is persistent rather than i.i.d. over time. Firms rationally account for the persistence of noise and update their interpretations of signals based on ex post observations of true economic conditions. I show that this process gives rise to a novel mechanism by which optimism arises endogenously, which in turn amplifies or dampens the effects of underlying shocks. In particular, this model can generate the delayed overreaction in firms' expectations documented in the literature. Moreover, strategic complementarity between firms and the resulting higher-order optimism further strengthen my mechanism. Finally, I distinguish empirically my rational theory of optimism from behavioral theories by exploiting the difference in the degree of overextrapolation between consensus and individual forecasts.
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