Abstract
This doctoral dissertation consists of four self-contained chapters. Chapter 1 argues that since public debt helps the private sector to insure idiosyncratic risk, it is relevant for inflation dynamics due to its effects on interest rates. I study this channel using a quantitative Heterogeneous Agent New Keynesian (HANK) model. Once properly calibrated, my framework suggests the mechanism to be important for explaining the post-2022 “last mile” inflation in the US.
Chapter 2 develops a rich HANK model with Seach-and-Matching (SaM) frictions on the labor market. With the framework, we revisit the question whether unemployment risk-driven precautionary saving is making economic downturns worse. We find the impact to be moderate and highlight its dependence on model assumptions requiring better discipline.
In Chapter 3, I find that hybrid perturbation, a relatively simple numerical method, is useful for analyzing business cycle models with SaM-frictions. I show that it can accurately solve a well-known benchmark model and may thus be an alternative to global solution methods.
In Chapter 4, we study theoretically how a potential new monetary policy tool, interest rates on Central Bank Digital Currencies (CBDC), can affect the macroeconomy. We find its effects to depend importantly on the competitive situation in the deposit market.