Essays in Macroeconomics

The first chapter of this dissertation focuses on the link between fiscal stimulus, asset prices, and financial frictions in a theoretical New Keynesian model with collateral requirements, housing, and distortionary taxation. My findings, based on fiscal multipliers, suggest an expansionary role for fiscal interventions that is larger on impact for changes in government expenditures compared to tax instruments (lump-sum, labor, and capital income tax). The model also predicts a drop in the price of the collateral asset (housing), induced by the increase in the real interest rate, as a result of higher government debt and the monetary response to the initial stimulus effects. The change in housing prices reduces the borrower agents' net worth and the volume of credit they can access, which in turn creates a drop in consumption at longer horizons. The existence of the financial channel, accounts for a relatively weaker role of fiscal policy in this framework compared to models where the non-Ricardian agents do not have access to the capital market. I conduct counterfactual experiments in order to assess the sensitivity of the results to financial conditions, different financing methods for government debt, and alternative calibrated values for key structural parameters.

In the second chapter, I use a regime-switching SVAR model to study the impact of government spending shocks on output, consumption and house prices under two different credit regimes (difficult and relaxed). The results show a reduced effect for expansionary fiscal policy under difficult financial conditions, as opposed to a relaxed financial regime. In this particular state, increases in government spending have a negative, short run impact, on output, private consumption, and house prices. At longer horizons, both output and asset prices start to recover. This result is compatible with the existence of a credit channel, as outlined in theoretical models of the financial accelerator, that links the government financing needs to the private terms of credit.

My findings, based on fiscal multipliers, suggest an expansionary role for fiscal interventions that is larger on impact for changes in government expenditures compared to tax instruments (lump-sum, labor, and capital income tax).