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Essays in Macroeconomics and the Role of Household Heterogeneity in the Great Recession

Larkin, Kieran P.; (2019) Essays in Macroeconomics and the Role of Household Heterogeneity in the Great Recession. Doctoral thesis (Ph.D), UCL (University College London). Green open access

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Abstract

This thesis studies the role that household heterogeneity plays in macroeconomic dynamics. It tackles this topic by focusing on consumption behaviour during the Great Recession. Its overarching argument is threefold: Firstly, that heterogeneity is crucial for understanding the patterns observed in the data. Secondly, that the state of the economy and preceding environment has a first order impact on how the economy responds to shocks. Thirdly, inaction and illiquidity matter and by focusing on this margin we can gain a better understanding of consumer behaviour. In the three chapters I consider the role that labor market sorting, household portfolio choice, shocks to the availability of credit, and changes in the future path of expected income played in understanding the Great Recession. The first chapter investigates the role that labor market tranquillity prior to the Great Recession played in the magnitude of the subsequent consumption decline. It highlights the interaction between labor market sorting and the household portfolio choice in the determination of the economy’s response to shocks. The second chapter looks at the role of credit conditions in household consumption dynamics. It argues that much of the literature has misunderstood the effect of a decline in credit availability during the Great Recession. It instead emphasizes the inaction response generated due to a tightening of the collateral constraint, which provides a better account of the Great Recession and of the borrowing behaviour of households in the micro data. The final chapter focuses on the car market and car purchasing behaviour during the last three US recessions, documenting important unusual features of the consumption response during the Great Recession. It uses these responses as an identification mechanism to uncover the importance of the shocks hitting the economy during the crisis, finding an important role for asset price shocks and a decline in the expected growth rate of household incomes in replicating the consumption dynamics.

Type: Thesis (Doctoral)
Qualification: Ph.D
Title: Essays in Macroeconomics and the Role of Household Heterogeneity in the Great Recession
Event: UCL (University College London)
Open access status: An open access version is available from UCL Discovery
Language: English
Additional information: Copyright © The Author 2019. Original content in this thesis is licensed under the terms of the Creative Commons Attribution 4.0 International (CC BY 4.0) Licence (https://creativecommons.org/licenses/by/4.0/). Any third-party copyright material present remains the property of its respective owner(s) and is licensed under its existing terms. Access may initially be restricted at the author’s request.
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
URI: https://discovery.ucl.ac.uk/id/eprint/10080233
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