Two essays on the sources of business cycle fluctuations

Understand the effects of stochastic fiscal policy shocks on business cycle fluctuations. Recent work has shown a large discrepancy between the predictions of neoclassical business cycle models and empirical evidence, which suggests that the models do not account for the effects of fiscal shocks with respect to the response of consumption and hours worked. In an attempt to bring models and data into accord, I explore the role of two economic mechanisms, factor hoarding and organizational capital, in accounting for the effects of fiscal shocks. In Burnside and Eichenbaum (1996), the propagation mechanism of labor hoarding and the amplification mechanism of two intensive margins for workers and capital lead to better performance of the factor hoarding model in accounting for the effects of technology shocks than prototypical real business cycle models. However, the model-based simulation in this paper shows that these two mechanisms cause poorer performance in accounting for the effects of fiscal shocks than prototypical real business cycle models. Also, my research quantitatively demonstrates the role of organizational capital in reducing the impact of fiscal shocks on consumption and hours worked.; Re-examining contributions of the 1930s U.S. financial crisis to the Great Depression. This paper tries to resolve the litmus test of macroeconomic theories, the Great Depression. Since the work of Friedman and Schwartz (1963), the contributions of the 1930s financial crisis to the Great Depression have been mainly interpreted via the money-output link with sticky nominal wages within the monetary paradigm. However, some macroeconomists recently argue the plausibility of the monetary explanation and devaluate the effects of the financial crisis. Thus, this paper provides empirical evidence on the plausibility of the monetary explanation and re-examines the contributions of the financial crisis shock to the Great Depression. Results show that it seems difficult to support the money-output link with sticky nominal wages. Nevertheless, the data displays that the financial crisis can account for large fractions of the total variability of aggregate variables during the Great Depression, implying the plausibility of the other channel which emphasizes a reduction in real intermediated investment through the ineffectiveness of financial intermediaries.