Essays On Macroeconomic Policy With Heterogeneous Agents And Digital Assets

This dissertation has three chapters. In the first chapter, I build a three-agent preferred-habitat New Keynesian (PHANK) model. I show that the fiscal multiplier decreases in the presence of countercyclical QE policies after a fiscal expansion since countercyclical QE implies that the central bank sells government bonds, leading to higher expected returns on these bonds, which in turn incentivizes the bondholders to save more. However, since bondholders save more, they consume less, and as a result, consumption inequality between the savers and the non-savers falls, but wealth inequality increases. The qualitative results are similar in a medium-scale heterogeneous agents New Keynesian (HANK) model. In the three-agent model, I also solve for the optimal fiscal and QE policies at the zero lower bound, and I find that both are expansionary. The optimal increase in central bank asset purchases allows the government to increase government spending by less relative to the case where QE follows a countercyclical rule, so lower tax revenues are needed. In the second chapter, I study how US QE programs affect the US economy and the emerging market economies regarding their macro aggregates and asset prices. First, using Bayesian VAR models, I find that expansionary QE has positive and statistically significant effects in the US economy and the emerging market economies; real GDP, real investment, the price level, and asset prices rise. However, in emerging market economies, the currencies appreciate, the current account-to-GDP ratios deteriorate, the money supply increases, and the government bond yields increase. Then, I build a two-country HANK model that matches the empirical responses. Through the model, I examine how wealth inequality evolves both in the US economy and in the emerging market economy after a positive QE shock. Wealth inequality increases in the short run but decreases over the medium run in both countries. Also, I study the effects of policies that aim to reduce the leverage in the financial sector of the emerging market economy, such as capital controls, and I find that this policy indeed reduces the capital flows and leverage. However, economic activity also falls, and the welfare effects are mixed across households.The last chapter resulted from my strong interest in digital assets that emerged during my last year in the program. In this chapter, which results from collaborative work with Iason Ofeidis, Georgios Palaiokrassas, and Leandros Tassiulas, we examine the effects of unexpected changes in US monetary policy on digital asset returns, and on DeFi-related variables such as borrowing rates, outstanding debt, and TVL. We also examine the effects that the FOMC statement releases and the Minutes releases have on the volatility of digital asset returns. Finally, we examine how DeFi activity evolves around the FOMC announcements. The results from this chapter show first that the returns on digital assets are significantly affected by the unexpected part of the FOMC announcements. The volatility of the returns is also significantly affected by the FOMC releases but less significantly affected by the Minutes releases. Second, the DeFi-related variables are also affected by unexpected changes in monetary policy. Lastly, we find that the most significant spikes in DeFi activity occur on the FOMC announcement days or days very close to the announcement days.