|Dr. Ibrahima Kaba
Aggregate Fluctuations and Development: Essays on Macroeconomic Volatility and Economic Growth
Théophile Azomahou and Bart Verspagen
This dissertation is about the empirical analyses of macroeconomic fluctuations and economic growth. It contributes to fragments of larger questions and addresses different aspects of the development puzzle in two parts. Part I is a collection of two essays focusing on the empirics of business cycles inherent to consumption series. Part II consists of two essays on the empirics of growth volatility and the theoretical aspects of stochastic shocks on the steady-state economic growth and on the balanced growth path’s speed of convergence. The first essay takes stock of the recent developments in the Optimum Currency Area (OCA) debate and draws on different parametric and nonparametric models, to posit that the welfare cost of business cycles is between 11 and 48 percent higher for sub-Saharan African countries outside the CFA Franc Zone than those inside the union. However, a parametric two-sample t-test shows that these results are not sufficiently robust to means difference comparisons. The second essay combines a robust recursive preference framework and a strong structural algorithm to infer on both the welfare gains from entirely eliminating aggregate consumption fluctuations and the welfare gains from an additional percentage point increase of consumption growth forever. It consistently shows that the latter transcend the former. Furthermore, it also shows that structural breaks do not matter for the welfare gains from eliminating consumption fluctuations while they do for the gains from an additional percentage point of consumption growth. The third essay examines the multiplex relationships between structural characteristics of economic development and macroeconomic volatility, using both a linear panel model and a threshold panel approach. We found that higher shares of manufacturing, high and increasing shares of the modern sector and a more diversified structure of the production structure all contribute to a reduced volatility of the growth patterns. Furthermore, while using the threshold model, we found evidences for potential non-linearities in the impact of economic structure on growth volatility. The fourth and final essay proposes a new stochastic model of rare disasters and investigates their overarching economic implications. A rare disaster affects the steady-state economic growth through the expected value of the equilibrium interest rate and it disrupts the balanced growth path’s speed of convergence through the elasticity of output with respect to the steady-state intensive-form physical capital. The direction and amplitude of this disruption depend on how the new value of the elasticity compares to the share of physical capital in total output in the absence of shocks.