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Essays in Macroeconomics University of Pennsylvania ScholarlyCommons Publicly Accessible Penn Dissertations 2018 Essays In Macroeconomics David Zarruk Valencia University of Pennsylvania, [email protected] Follow this and additional works at: https://repository.upenn.edu/edissertations Part of the Economics Commons Recommended Citation Zarruk Valencia, David, "Essays In Macroeconomics" (2018). Publicly Accessible Penn Dissertations. 2940. https://repository.upenn.edu/edissertations/2940 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/edissertations/2940 For more information, please contact [email protected]. Essays In Macroeconomics Abstract This dissertation is composed of three chapters. In the first two chapters, I study the welfare and distributional consequences of government policies in economies with credit constraints and heterogeneous agents. Given the complexity to compute such models, the third chapter reviews the basics of parallel computing in macroeconomics. In the first chapter, I quantitatively assess the welfare maximizing policy during the Great Recession, when the government had access to two policy instruments: a) offer bailouts to banks, and b) subsidize the mortgage refinancing of households. The implementation of these instruments involves a trade-off, shaped by a dead-weight loss caused by foreclosures and an information friction on house prices. The main finding is that a subsidy-only policy would have generated welfare gains of up to 0.4% in consumption equivalent terms when compared to the HAMP and TARP benchmark. In the second chapter, I study the general equilibrium effects of government-supplied student loans in the educational markets of developing countries. Our main finding suggests that subsidized student loans can lead to a widening gap in the quality of education offered by top-10 versus top-50 educational institutions. Given the complexity to compute models with heterogeneous agents, the third chapter describes the basics of parallel computing in economics, reviews widely-used implementation routines and compares performance gains using as a test bed a standard life-cycle problem. Degree Type Dissertation Degree Name Doctor of Philosophy (PhD) Graduate Group Economics First Advisor Jesús Fernández-Villaverde Second Advisor Dirk Krueger Subject Categories Economics This dissertation is available at ScholarlyCommons: https://repository.upenn.edu/edissertations/2940 ESSAYS IN MACROECONOMICS David Zarruk Valencia A DISSERTATION in Economics Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy 2018 Co-Supervisor of Dissertation Co-Supervisor of Dissertation Jesus´ Fernandez-Villaverde´ Dirk Krueger Professor, Department of Economics Professor, Department of Economics Graduate Group Chairperson Jesus´ Fernandez-Villaverde´ Professor, Department of Economics Dissertation Committee: Guillermo Ordo´nez,˜ Associate Professor, Department of Economics ESSAYS IN MACROECONOMICS c Copyright 2018 David Zarruk Valencia This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/4.0/ To Laura, Mar´ıa Helena, Carlos and Salomon´ iii Acknowledgements First, I would like to thank my advisors Jesus´ Fernandez-Villaverde´ and Dirk Krueger for guiding me throughout these years. Their patience, support, and guidance shape the way I think about research and macroeconomics. I owe them having taught me to enjoy what I do and to tackle problems in a pragmatic way. All of this dissertation is a consequence of that. I also thank Jesus´ for giving me the opportunity to work as his Research Assistant, and to join the lectures on parallel computing in the Quantiative Macro Theory course. The third chapter of this dissertation is a consequence of our interaction during this course. For their helpful guidance and comments on the first chapter of this dissertation, I would like to thank Hal Cole, Guillermo Ordo´nez˜ and participants at the Macro Workshops at the University of Pennsylvania. I also thank the Federal Reserve Bank of San Francisco for the Dissertation Fellowship during the Summer 2017, which allowed me to significantly improve my job market paper. I would like to thank Rodrigo, Mar´ıa Jose,´ Eugenio, Minsu, Juan Herreno,˜ and Camilo Hernandez´ for their unconditional support and friendship during these years. In particular, I am extremely grateful to Rodrigo Azuero, who has been a great friend and co-author. His energy, advice, and example helped me overcome the difficult moments during the program and made my time at Penn more enjoyable. Este trabajo se lo debo, ante todo, a Laura. Su amor, paciencia, comprension´ y apoyo incondicional fueron fundamentales para culminar esta etapa. Su sonrisa y alegr´ıa me iv ayudaron a sobrellevar los momentos dif´ıciles, a ver la luz al final del tunel´ y a agradecerle a la vida cada d´ıa por todas las oportunidades que he tenido. Ella me empujo´ a dar mucho mas´ de lo que jamas´ podr´ıa haber dado solo. A mis papas´ les agradezco el apoyo en cada paso que di. Ademas´ de ser un ejemplo, me han ensenado˜ a proceder con rectitud y a poner en perspectiva cada situacion´ de la vida. Esto me ayudo´ a mantener el norte y a disfrutar cada etapa del proceso. De Salomon´ se´ que, sin importar las decisiones que yo tome, siempre recibire´ apoyo incondicional. Esto me dio confianza y fuerza para seguir adelante. v ESSAYS IN MACROECONOMICS David Zarruk Valencia Jesus´ Fernandez-Villaverde,´ Dirk Krueger This dissertation is composed of three chapters. In the first two chapters, I study the welfare and distributional consequences of government policies in economies with credit constraints and heterogeneous agents. Given the complexity to compute such models, the third chapter reviews the basics of parallel computing in macroeconomics. In the first chapter, I quantitatively assess the welfare maximizing policy during the Great Recession, when the government had access to two policy instruments: a) offer bailouts to banks, and b) subsidize the mortgage refinancing of households. The implementation of these instruments involves a trade-off, shaped by a dead-weight loss caused by foreclosures and an information friction on house prices. The main finding is that a subsidy-only policy would have generated welfare gains of up to 0.4% in consumption equivalent terms when compared to the HAMP and TARP benchmark. In the second chapter, I study the general equilibrium effects of government-supplied student loans in the educational markets of developing countries. Our main finding suggests that subsidized student loans can lead to a widening gap in the quality of education offered by top-10 versus top-50 educational institutions. Given the complexity to compute models with heterogeneous agents, the third chapter describes the basics of parallel computing in economics, reviews widely-used implementation routines and compares performance gains using as a test bed a standard life-cycle problem. vi Contents Acknowledgementsv Abstract vi Introduction 1 1 Wall Street or Main Street: Who to Bail Out? 3 1.1 Introduction..................................... 4 1.2 Related Literature.................................. 10 1.3 The Mechanism................................... 11 1.4 Quantitative Model................................. 14 1.4.1 Household’s Problem........................... 14 1.4.2 Mortgage Originators........................... 24 1.4.3 Production Firms’ Problem........................ 26 1.4.4 Government’s Problem.......................... 26 1.5 Recursive Competitive Equilibrium....................... 28 1.6 Calibration...................................... 31 1.6.1 Steady State................................. 35 vii 1.7 The Great Recession................................ 42 1.7.1 HAMP.................................... 43 1.7.2 The Information Parameter p ....................... 44 1.7.3 TARP..................................... 45 1.7.4 Results and Counter-factual Experiments................ 45 1.8 Concluding Remarks................................ 51 2 General Equilibrium Effects of Student Loans on the Provision and Demand for Higher Education 55 2.1 Introduction..................................... 56 2.2 Related Literature.................................. 61 2.2.1 The Role of Borrowing Constraints................... 62 2.2.2 General Equilibrium Effects and the Bennett Hypothesis....... 64 2.2.3 The Education firms............................ 65 2.3 A Model of the Market for Higher Education with Credit Constraints... 67 2.3.1 Households................................. 68 2.3.2 Universities................................. 77 2.3.3 Discussion.................................. 79 2.3.4 Government................................. 81 2.4 The “Revolucion´ Educativa” of Colombia.................... 83 2.4.1 Enrollment and inequality......................... 84 2.4.2 Higher Education institutions....................... 85 2.4.3 The ACCES Program............................ 87 viii 2.4.4 Product Differentiation in the Market for Higher Education..... 88 2.5 Numerical Analysis................................. 95 2.5.1 Evolution of Quality............................ 95 2.5.2 Calibration of the Model.......................... 97 2.5.3 Parameterization.............................. 99 2.5.4 Results.................................... 101 2.6 Conclusion.....................................
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