Essays in macroeconomic theory and optimal policies

This thesis contributes to modern macroeconomic theory. It is composed of three chapters that investigate the role of household heterogeneity and the design of monetary and fiscal policies in shaping macroeconomic outcomes. The first chapter studies the link between labour market risks and equilibrium in the market for durable goods. It develops a quantitative model in which households optimally choose nondurable consumption, the accumulation of durable goods, and holdings of financial assets.
The model is used to show that, when unemployment risk increases, precautionary savings motives and the implied portfolio rebalancing towards liquid assets lead to decreases in the resale price of durables, a feature that is consistent with empirical observations. The second chapter investigates the properties of optimal taxes and transfers in a framework where household heterogeneity is explicitly accounted for.
We describe how the introduction of heterogeneity alters the prescriptions of the model when compared to its representative agent counterpart. We also propose an empirical application of the theory to show that heterogeneity brings the model predictions closer to their counterpart in the data. The third chapter proposes a framework of optimal monetary policy in the case where government debt sustainability may be a constraint for the central bank.
In the case where optimal policy exhibits "debt concerns" monetary policy becomes subservient to fiscal policy, and needs to partially give up on the objective of stabilizing inflation and the output gap. We link our results to the ones obtained in the literature on monetary and fiscal policy interactions, in which policies are usually summarized by exogenous feedback-rules. Applications of our theory to concrete policy scenarios are also provided.