Essays in Empirical Macroeconomics

Abstract

This thesis consists of three self-contained chapters in empirical macroeconomics and analyzes important issues related to monetary policy and labor supply. The first chapter deals with the problem of weak identification in the estimation of inflation dynamics and a monetary policy rule. We suggest <br /> constructing additional instruments by estimating factors from a large macroeconomic data set. The rationale underlying the use of the factor-augmented instrument set is that a central banker relies on a large information set in his forecasts of important macroeconomic variables. In the final two parts of this thesis, the focus shifts to the aggregation and estimation of labor supply elasticities. The second chapter develops an aggregation procedure for the Frisch elasticity of labor supply. The exact size of this particular elasticity matters a lot when macroeconomists try to assess the quantitative implications of certain types of policies on employment and hours worked. A particular emphasis is laid on worker heterogeneity in observables and unobservables and applicability to an individual labor supply function with non-employment as a possible outcome. The third chapter treats the estimation of micro elasticities of labor supply for the entire conditional hours distribution. Not only economists but also policy-makers are interested in estimates of the Marshallian and the Hicks elasticities: the responsiveness of hours worked to changes in the wage rate induced by tax increases determines the amount of tax revenue raised.