ESSAYS IN MACROECONOMICS AND HOUSEHOLD FINANCE

Abstract

The historical co-occurrence of major new innovations and asset price booms iswell established. In the first chapter of this dissertation, we empirically document this phenomenon for ”breakthrough” patents. We then propose a mechanism by which rational bubbles cause (but are not caused by) breakthrough innovation and improve welfare. Our hypothesis is that bubbles facilitate greater diversification in a new, but risky, sector. Bubbles do crowd out saving in capital, but on the other hand, they also enable productive investors to access more resources for investment in the risky sector. This, in turn, enables investment in a larger set of risky ideas, increasing the probability of successful breakthrough innovations. Successful innovations further enable capital accumulation and diversification. An economy with bubbles generates a higher steady- state level of output and consumption and a lower risk of unsuccessful investments. In the second chapter, we examine how immigration status in the U.S. influences outcomes in the mortgage market. Using ACS data, we trained machine learning classifiers to predict whether an individual is a U.S. citizen and applied these models to classify HMDA mortgage applications. We find that for Hispanic households, non-U.S. citizens face a 2.1 percentage point lower likelihood of approval, while for Asian households the effect is positive. We then further categorized applicants as authorized or unauthorized immigrants. We find that, among Hispanic households, likely non-U.S. citizens face a 1.7 percentage point lower probability of approval, while likely unauthorized immigrants face an additional 0.47 percentage point decrease in approval probability. In contrast, for asian households, likely non-U.S. citizens have a 0.8 percentage point higher probability of approval, while likely unauthorized immigrants experience a 0.37 percentage point decrease. We also match our data with Fannie Mae and Freddie Mac’s performance data and show that likely non-U.S. citizens are not riskier than their U.S. citizen counterparts; they do not have a lower credit score or a higher likelihood of delinquency or default and therefore they should not have a lower likelihood of approval.