Topics in macroeconomics with frictions

The first essay of this dissertation is a joint work with Fabrizio Perri in which we address one of the major shortcomings of real business cycle models: their lack of an internal propagation mechanism of the shocks. We thus develop an open economy two-sector model and show that is able to generate significative persistence of output and investment growth. The novel feature that drives the result is the interplay between international and intersectoral reallocation of resources in response to productivity differentials across countries. In this model resources have to be first reallocated between the domestic and the export sector in order to be reallocated across countries. This friction enables the model to generate autocorrelation functions for investment and output growth in the home country that resemble those found in the data. In the second essay I suggest an explanation for the emergence and persistence of different labor market institutions in Europe and US. In particular I show that different degrees of credit market imperfections may lead to endogenously different degrees of employment protection through their effect on the family structure. First, evidence is presented showing that, in countries with high employment protection policies, credit market imperfections are more severe and young people live longer in the family. Then a general equilibrium, overlapping generations model is developed to explicitly capture the relationship between degree of employment protection, family structure and credit market imperfections. In this context, the endogenous response of the family structure to credit market imperfections, gives rise to conditions in which differences in labor market rigidities emerge as the outcome of a dynamic and repeated bargaining process between generations