Studies on dynamic micro founded macroeconomics

Abstract

This dissertation consists of five studies on dynamic micro founded macroeconomics. Micro founded macroeconomics is a flexible paradigm. It can be enriched by micro data, assess drivers of economic fluctuations, and is particularly suited for policy analysis. The studies contained in this dissertation contribute to all of these aspects. Chapter 1 outlines the contribution to contemporary scholarship and connects the five studies through their shared scientific paradigm. Chapter 2 provides a novel experimental design that allows to test preferences of people over the temporal resolution of consumption uncertainty. Our experimental design does not require any structural assumptions and measures these attitudes directly in a model-free way. Preferences regarding the temporal structure of uncertainty play a key role in recursive utility models. They constitute a central ingredient in macrofinancial studies and beyond. In a laboratory experiment, we find that, on average, subjects only weakly prefer an early resolution of uncertainty. Surprisingly, recursive utility has no predictive power in explaining preferences over the temporal resolution of consumption uncertainty. The remaining chapters apply dynamic micro founded models to macroeconomic research questions, which are at the center of contemporary discussions. Chapter 3 explores the effects of technological advances in automation technology on growth and inequality. For this purpose, the study builds a novel macroeconomic model with household (skill) heterogeneity, in which automation capital serves as a production input. The model suggests that automation amplifies aggregate growth but generates substantial inequality when skillshares are fixed. Endogenous education choice reduces rising inequality via general equilibrium effects. The chapter discusses potential policy responses in the form of taxes on machines, corporate income taxation, and education subsidies. Chapter 4 asks what drives protracted low inflation in the post-crisis euro area. The estimation of a non-linear dynamic stochastic general equilibrium (DSGE) model of the global economy finds that weak domestic demand, in combination with the zero lower bound, explains a large share of the inflation slowdown. Labor market developments have put additional downward pressure on prices. However, a DSGE model, which focuses on domestic shocks, cannot tell the whole story: External price developments, related to substantial swings in commodity prices and declining euro area (EA) import prices, play a significant role in the post-crisis inflation process. Chapter 5 estimates a multi-region DSGE model to study the fiscal policy implications of downward nominal wage rigidity (DNWR) for an individual country in a currency union. Non-linear methods explicitly account for an endogenous occasion-