Essays on macroeconomics
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This dissertation studies firm behavior in the context of macroeconomics. Although firms are a key building block of macroeconomics, their behavior has not been fully understood in the literature of economics. This dissertation is intended to build a deeper knowledge of firms. In particular, I extensively study firm-level markup and the firm's response to financial market disturbances. There are three research questions: how does firm-level markup evolve over the firm life cycle? what are the properties of firm-level markup? and do all firms respond to financial market disturbances similarly? The first chapter examines the evolution of firm-level markup over the firm life cycle. By using longitudinal microdata on Korea manufacturing industries, I document two empirical findings. First, firm-level markup increases over the life cycle. The estimated cumulative increase in markup over 30 years is 18% and most increases take place during the first 10 years of the life cycle. Second, the growth profile differs depending on the number of customers firms target. Firms that target a large number of customers more rapidly increase markup during the early stage of the life cycle, whereas firms that target a small number of customers increase markup more gradually for a longer period. To explain these findings, I develop a firm life cycle model with customer capital as the form of deep-habit formation. I find that by allowing type-specific deep-habit parameters the model can match the empirical findings. The second chapter studies the properties of firm-level markup. By using the same data in the first chapter, I document six findings on firm-level markup. First, firm-level markup is unconditionally countercyclical. Second, countercyclicality differs depending on the types of goods industries produce. Third, industries in which the number of firms is more procyclical exhibit stronger countercyclicality. Fourth, firms that trade more with affiliated firms set lower markup. Fifth, innovative firms set higher markup. Sixth, firms that more rely on regular workers exhibit stronger countercyclicality than firms that rely on non-regular workers. These findings indicate that firm and industry characteristics affect firm-level markup in various ways. The third chapter analyzes the response of small and large manufacturing firms to two financial market disturbances. By using the standard VAR approach, I find that there is heterogeneity in responses between small and large firms and depending on types of shocks. Specifically, the shocks to credit markets mainly tighten large firms' financial constraints through commercial paper markets. The cumulative decrease in large firms' short-term debts is 2.5 times larger. On the other hand, financial uncertainty shocks only tighten small firms' financial constraints through short-term bank borrowings. Besides, I find evidence that large firms use cash holdings to finance inventories after the shocks to credit markets.