Essays on macroeconomic policy

This thesis contains three chapters. All chapters study different aspects of macroeconomic policy. The first chapter studies discretionary monetary policy in an economy where economic agents have quasi-hyperbolic discounting. It demonstrates that a benevolent central bank is able to keep inflation under control for a wide range of discount factors. If the central bank, however, does not adopt the household's time preferences and tries to discourage early-consumption and delayed-saving, then a marginal increase in steady state output is achieved at the cost of a much higher average inflation rate. Indeed, it shows that it is desirable from a welfare perspective for the central bank to quasi-hyperbolically discount by more than households do. Welfare is improved because this discount structure emphasizes the current-period cost of price changes and leads to lower average inflation. It contrasts the results with those obtained when policy is conducted according to a Taylor-type rule. The second chapter analyses the effect of endogenous discounting on wealth inequality in an endowment economy with heterogeneous agents, subject to occasionally binding borrowing constraint. It demonstrates that introduction of Uzawa-type preferences may launch a strong redistribution mechanism leading to high equilibrium real interest rate and a more dispersed wealth distribution in comparison to the model with standard preferences. The third chapter studies macroprudential policy in a macro-model with a heterogeneous banking sector, prone to asymmetric information and moral hazard a la Boissay et.al. (2016). This model is shown to generate financial crises when a sequence of small positive technology shocks can lead to an increase in lending, as well as to a reduction in all market rates. This paper investigates a scope for a macroprudential policy that would reduce probability of a financial crisis, but not lead to a too sharp reduction in a social welfare. It demonstrates that the introduction of a direct proportional tax on interbank lending can substantially reduce the amount of credit and reduce probability of a financial crisis