Search

We apply the Business Cycle Accounting framework to the COVID-19 recession in the Euro Area and the United States. We conclude that the efficiency wedge had the most important role in the Euro Area, followed by the labor and investment wedges. In the United States, the labor wedge was most crucial, with the investment wedge taking a second place. We present hypotheses, supported by our theoretical framework, for the dichotomy of the role of the efficiency wedge between the studied regions.Keywords:Economics,COVID-19, Business Cycle Accounting, Macroeconomics, Financial Crises, Financial Frictions, Wedges

Since 1980, income and wealth inequality increased gradually in the U.S.. Several solutions have been proposed, namely the introduction of a Universal Basic Income (UBI) system. In order to assess whether a UBI financed by a progressive labor tax is a viable solution to reduce inequality, we develop an overlapping generations model, with multiple sources of technological change and four different occupations. Calibrating the model to the U.S. we find that the welfare-maximizing level of UBI is actually quite low, 0.5% of GDP. Event hough a higher UBI would decrease income and wealth inequality, it would negatively affect economic efficiency and make all types of agents worse off. The main mechanism is the distortionary effect of higher labor income taxation on capital accumulation which prevents the economy from incorporating the gains from investment-specific technological progress.

We claim that changes in the interest rate impose impacts on multipliers of fiscal consolidations programs. We use the database and extend the regression in Alesina et al. (2015a)with interest rates to check the relationship with fiscal multipliers. Then, we adapt the overlapping generations model with incomplete markets used in Brinca et al. (2021) and fix the wage and interest rate. Using that adaptation of the model, we assess the impact of a change in the interest rates of three calibrated European economies. We then test the mechanism and compare the impacts based on countries’ different Gini coefficients and percentage of agents constrained. For both analysis we conclude that there is a negative relationship between the interest rate and fiscal consolidation multipliers under a fixed wage and interest rate environment. We also conclude that countries with higher percentage of agents constrained are more resistant to changes on interest rates.

The Business Cycle Accounting method by Chari, Kehoe, and Mc Grattan (2007) helps identify theories that have quantitative promise in explaining economic fluctuations. In this work project, it will be applied to Germany to study the impact of the COVID-19 pandemic. The efficiency wedge primarily drove Germany’s recession. The extensive lockdowns that prevented existing production factors such as labor and capital from producing at their full potential can explain the productivity loss. This suggests that the lock downs are well identified as significant drivers of the reduction in economic activity and that their end would predict a sharp recovery in Germany.

Mestrado em Economia A comunidade cientifica tem examinado a economia portuguesa na procura por uma possível justificação para a década perdida e, mais recentemente, a crise da dívida soberana. Nesta dissertação dedico-me a medir e avaliar as flutuações da economia portugesa através de um método chamado Business cycle Accounting. Na aplicação deste método foco-me em três períodos chave, que resultam da subdivisão do período entre 1992 e hoje. Após obter o resultado que a Investment wedge foi a distorção que melhor explica as flutuações da economia portuguesa entre 1992 e 2001, e entre 2007 e 2014 e a efficiency wedge a que melhor explica esta evolução para o período entre 2001 e 2007, dedico me a procurar na literatura explicações plausíveis para este resultado. Em conclusão, estes resultados obtidos discordam com literatura passada na aplicação deste método à economia portuguesa. The Portuguese economy has been submitted to a thorough evaluation by the scientific community, in a search to explain the Portuguese ?lost decade? and, more recently, the sovereign-debt crisis following the Great Recession. In this dissertation I measure and evaluate the fluctuations in the Portuguese economy using the Business-Cycle Accounting (BCA) method. I especially focus on three economic crises that hit the Portuguese economy from 1992 to the present day. I also provide some context on the shape of the Portuguese economy, mainly by checking what were the biggest obstacles to growth according to the literature. Applying the BCA procedure to the Portuguese economy led to the conclusion that the investment wedge had the largest role in explaining the fluctuations of the economy as a whole for both the 1992-2001 and 2007-2014 periods and that the efficiency wedge played a major role in the 2001-2007 slump. According to Portugal and Blanchard (2017) there is a cycle throughout 1992-2013. The period studied on this dissertation will focus on this cycle and its boom, slump and recession sub-periods. The conclusions obtained are somewhat different from those in the previous BCA literature on the Portuguese economy. Namely, the efficiency wedge is the main explainer in both Iskrev (2013) and Cavalcanti (2007), although providing a similar result to the period in study they disregard the importance of the investment wedge. info:eu-repo/semantics/publishedVersion