Essays in applied macroeconomics

This thesis consists of three chapters, examining the impact of technologies and policies on economic growth and macroeconomic dynamics. Chapter 1 studies the theory of leisure-enhancing technological change. In the model, two-sided businesses – platforms – invest in leisure-enhancing innovations in order to capture consumers’ time, attention and data. I show that the economy transitions endogenously from a balanced growth path with only productivity-enhancing technologies to one with leisure-enhancing innovations. Following the transition, hours worked decline at a constant rate, in line with the trend observed in the data, and growth of the economy declines, which may help account for the recent productivity slowdown. I also analyse the normative properties of the equilibrium. Chapter 2 studies how technological shifts – such as automation technologies – affect unemployment in general equilibrium. The model economy features endogenous technology choice, incomplete insurance markets and labor market frictions. I show that automation can lead to strong labor market quantities and weak wages. I uncover two novel general equilibrium feedback loops. First, automation shocks raise income inequality – wages of the wealthy increase by more than the wages of the poor – and boost the desire to save: a ’saving for higher wages’ effect. Second, with higher unemployment risk, savings rise for precautionary reasons: a ’riskmitigation effect’. Both mechanisms depress the interest rate and further raise the adoption of capital-intensive technologies. Chapter 3, co-authored with Larry Summers, concerns the secular trend in long-term real safe interest rates. The main part of the paper uses two general equilibrium models, one capturing life-cycle heterogeneity and another focusing on uninsured idiosyncratic risks and precautionary behaviour, to assess the impact of higher government debt and social security and healthcare spending on the equilibrium. We conclude that government policies have pushed interest rates up by up to 4pp since the 1970s, effectively masking even more subdued private sector interest rates. We also examine the underlying drivers of this weakness using our models. Our results are consistent with the notion that, on its own, the private sector of the developed world may indeed deliver low levels of safe interest rates in the long-run equilibrium