Three essays in dynamic macroeconomics

Abstract

This thesis consists of three essays on dynamic macroeconomics. The first essay focuses on the relationship between government policy, education and wage inequality in a theoretical environment similar to the ones described in Acemoglu (1998, 2002). Analytical solution of the theoretical model indicates that the decentralized equilibrium of a two-sector economy where technological progress is fueled by invention of new technologies that are sold in a monopolistically competitive market is not socially optimal. The socially optimal government strategy involves the subsidization of the two sectors at the same rate as favoring one sector over the other subsidizing it at a higher rate distorts relative prices of intermediate goods substantially and hampers economic growth. The second article explores the relationship between the degree of central bank independence and inflation both empirically and theoretically. Empirical analysis shows a non-linear pattern between the two variables, and a game theoretical model taking place between the government and central bank is used to show that the potential informational asymmetry between the two player regarding the cost of fiscal expansion can successfully generate such a non-linear relationship. The third essay investigates the intergenerational educational mobility patterns in Europe using European Social Survey Dataset. The results of the econometric analysis show that educational mobility patterns show heterogeneity across countries, birth cohorts, genders and parent structure.