A recurring theme in the thesis is how heterogeneity across firms and households affects economic aggregates. In the three chapters Markus studies how heterogeneity across firms affects economic growth, how heterogeneity in measured producer prices matters for total inflation, and how heterogeneity in households' portfolio investment decisions drives wealth inequality.

To address these topics, he uses quantitative methods, in particular, heterogeneous firm and household models that, e.g., model the decisions of firms on how much to produce and innovate or the decisions of households on how much to invest in risky versus safe assets. He disciplines those models using Swedish administrative data containing information on the entire population of firms or households. This allows him to apply these models for quantitative statements about economic growth or total inflation. 

Recent changes in firm dynamics and the nature of economic growth

In the first chapter, I Markus studies recent trends the Swedish economy has experienced over the last three decades. He documents that industries have become more concentrated over time and dispersion in firms' profitability has increased. Adding to these trends, he shows that firms grow in size and become profitable faster than they used to. He builds a quantitative model to understand the drivers behind the empirical trends and their implications for economic growth. To reconcile the empirical trends, the model suggests that productive firms in the economy became more efficient at distancing their competitors within their product markets through R&D. This generates a positive growth effect on the economy, despite the dispersion in markups and hence static inefficiencies increasing.

Micro PPI-based real output forensics

The second chapter of the thesis studies the producer price index (PPI) micro data in Sweden and quantifies the implications of different methods of price index construction on the aggregate inflation rate and hence on real output growth. Using the micro data underlying the PPI, Markus and his co-authors compute counterfactual price indices applying alternative index construction methods that are used around the globe. Moving from the method used in Sweden to the one used in Denmark reduces total inflation by half a percentage point per year during 2004-2019. Even more substantial differences arise when they measure inflation through a price index derived from economic theory, where the substitutability between products is estimated from the data.

Preference heterogeneity and portfolio choices over the wealth distribution

The third and final chapter of my dissertation investigates the drivers of individuals' investment decisions. We model the investment decision between assets with different risk characteristics to understand the drivers. In the model, individuals are endowed with heterogeneous preferences towards risk-taking or time discounting and face cyclical income risk. We show that preference heterogeneity and cyclical income risk are important determinants of investment decisions and, through their compositional effects, generate wealth inequality in line with the data.

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Markus will also defend his thesis on 15 June.

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