UCLA

This dissertation studies the effects macroeconomic policies and events on economic outcomes and welfare, using a combination of empirical analysis and quantitative modeling. The first chapter examines the effects of negative interest rate policies implemented by central banks in the aftermath of the Great Recession. The second chapter studies the timing of the Industrial Revolution and the sources of business cycle fluctuations prior to the Great Depression. Both chapters contribute to our understanding of how economic policies and events impact economic welfare.

The first chapter studies the impact of negative interest rate policies on bank lending, investment, and employment, taking into account the role of capital-labor substitution in production. Using matched firm-bank data from seven euro area countries and employing a difference-in-differences approach, I find that following the introduction of these policies, firms linked to banks with higher deposit ratios receive less credit relative to their counterparts associated with banks with lower deposit ratios. These firms also invest less but tend to hire more employees, especially in industries with high capital-labor substitutability. These findings highlight the role of capital-labor substitution in shaping the effects of negative interest rate policies. To further analyze these findings in a general equilibrium framework and to quantify the aggregate effects of these policies, I use a DSGE model that incorporates bank lending and a CES production function. I find that negative interest rate policies increase lending, investment, employment, and welfare in consumption equivalent units. This model also reveals that higher capital-labor substitutability surprisingly leads to larger declines in output and bank equity following a negative capital productivity shock. Based on this insight, I show that welfare gains from implementing negative interest rate policies increase with capital-labor substitution, and even slight variations in capital-labor substitution elasticity can have significant implications for both the economy and banks.

The second chapter provides quantitative analyses of two striking historical episodes, the timing of the Industrial Revolution in England, and the sources of U.S. economic fluctuations between 1889-1929. Applying data from 1245-1845 within the ``Malthus to Solow'' framework shows that the timing of the Industrial Revolution reflects a subtle interplay between large changes in TFP and deaths from plagues. We find that U.S. economic fluctuations, including the Panics of 1893 and 1907, were driven primarily by volatile TFP, and that growth during the ``Roaring Twenties'' should have been even stronger, reflecting a large labor wedge that emerged around World War I.