Essays in Macroeconomics

Abstract

This thesis consists of two independent chapters. The first chapter investigates the effects of a change in the taxation system from joint to separate taxation on households’ labour supply, patterns of human capital formation, and intra-household allocations of consumption between primary and secondary earners. Household behaviour is described by an inter-temporal version of the collective household model, where household members’ relative bargaining power determines intra-household allocations of consumption. Household members have limited commitment over future allocations, and their bargaining power evolves endogenously in response to changes in the gains from marriage. The tax reform is shown to cause an internal redistribution of consumption from primary to secondary earners in households where the bargaining power of secondary earners is low. Following a switch from joint to separate taxation, secondary earners’ labour supply and stock of human capital are increased, which raises their value of divorce against the value of staying in the marriage. This translates into a higher bargaining power in the couple, and thus a higher share of secondary earners’ consumption in the household. The second chapter studies optimal monetary policy under loose commitment in a model with staggered price and wage setting. Under loose commitment, the policymaker commits to a policy plan but occasionally reneges on past promises with an exogenously given probability. The probability of commitment is common knowledge to the rational agents in the model, which makes central bank credibility imperfect. The loose commitment framework allows the researcher to investigate the relationship between credibility and welfare losses, measured by deviations of output gap and inflation from their targets. When a central bank marginally increases its credibility, welfare losses are reduced. The welfare gain is largely independent on the initial credibility level. Moreover, the output-inflation stabilisation trade-off and the response of endogenous variables to exogenous shocks change with the degree of commitment.