Essays in macro-finance
- This dissertation analyzes various aspects of financial markets and fiscal policy. The first chapter, Public Employee Pensions and Municipal Insolvency, studies how municipal governments jointly manage spending, credit market borrowing, and a public employee pension system. I model governments as levered investors who must meet non-defaultable pension obligations and may value government spending more than citizens. I quantify the model using data on California cities, including a new record of fiscal emergencies, tax increases required to maintain essential city services. After the financial crisis depleted pension funds, cities engaged in excessive risk-taking: the fiscal emergency option encouraged gambling for resurrection that kept cities vulnerable to shocks well into the recovery. To correct this problem, a spending cap works better than a restriction on risk-taking. The second chapter, Subjective Cash Flow and Discount Rate Expectations, is co-authored with Stanford PhD student Ricardo De la O. This chapter focuses on a central question in finance: why do stock prices vary? Using survey forecasts, we find that cash flow growth expectations explain most movements in the S& P 500 price-dividend and price-earnings ratios, accounting for at least 93% and 63% of their variation. These expectations comove strongly with price ratios, even when price ratios do not predict future cash flow growth. In comparison, return expectations have low volatility and small comovement with price ratios. Short-term, rather than long-term, expectations account for most price ratio variation. We propose an asset pricing model with beliefs about earnings growth reversal that accurately replicates these cash flow growth expectations and dynamics. The third chapter, Sovereign Debt, Government Spending Cycles, and Back-loaded Pension Reforms, studies the effect of public pension obligations on a sovereign government's commitment to repaying debt. In the model, the government can renege on its pension promises but suffers a cost from losing the trust of households about future pensions. Large pension promises act as a commitment device for debt because they require the government to have regular access to credit markets. The government's decision to default is driven by its total obligations, not just its debt. Thus, there is a range of pension obligations large enough to act as a commitment device without raising total obligations to the point of default. This otherwise deterministic economy has an endogenous cycle in which periods of high spending and increasing debt are followed by periods of pension reform and debt reduction. The model successfully produces high debt in excess of 100% GDP without default and back-loaded pension cuts that match salient features of recent reforms in six EU nations
|Type of resource
|electronic resource; remote; computer; online resource
|1 online resource
|Myers, Sean Alexander
|Schneider, Martin, (Professor of economics)
|Degree committee member
|Stanford University, Department of Economics.
|Statement of responsibility
|Submitted to the Department of Economics
|Thesis Ph.D. Stanford University 2020
- © 2020 by Sean Alexander Myers
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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