Essays on macroeconomics

This thesis investigates broad macroeconomic issues in frameworks with heterogeneous agents—in an international world economy as well as in a closed economy. It consists of two chapters.;The first chapter studies, both empirically and theoretically, the dynamics of international prices and trade flows. Recent studies have found significant support for the positive link between bilateral trade intensity and business cycle comovement of output and TFP in a cross-section of industrialized country pairs. Since this feature of the data is not reproduced by the workhorse model of international business cycle, it is referred to as the trade-comovement puzzle. In this chapter, we show that the puzzle is intimately related to the failure of the standard theory to account for the high long-run price elasticity of trade flows. We do so by enriching the standard theory with frictions of building market shares and establishing trade relations, which generate low short-run price elasticity of trade coexisting with the high long-run price elasticity. We show that when the low short-run elasticity is generated by explicitly modeled frictions of building market shares, the theory can account for 50% and 78% of the trade-comovement relation in the data for output and TFP, respectively.;The second chapter studies the mechanism behind the dramatic changes in the unsecured credit market over the last two decades. It develops a theory of the credit market with market incompleteness closely resembling the key features of the credit card market in the US. A friction of targeting credit card offers to specific customers is introduced and the implications of lowering the strength of this friction are studied. The results indicate that such change—motivated by the rapid progress in information technology in the 90s—helps to quantitatively account for several observations that occurred during this period: (i) growing availability and use of revolving credit, (ii) growing indebtedness of households, (iii) rising filing rate for bankruptcy protection, (iv) rising debt discharged per bankrupt, (v) falling cost of revolving credit measured by the interest rate premium over cost of funds, (vi) massive increase in the credit card solicitations.