Essays on Saving, Borrowing and Intangible Capital

Abstract: Essay I: Can an increasing importance of intangible capital in the economy explain increases in markups and profits? I use a heterogeneous firm model to show how intangible capital is related to markups and profits at the industry level. The uncertainty and scalability properties of intangible capital imply that firms that succeed in their intangible capital investment can charge high markups relative to other firms, whereas firms that fail will exit. However, the high markups do not lead to any economic profits in the industry as a whole if they only serve to cover the total fixed costs of intangible capital. To empirically examine the relationship between intangible capital, markups and profits, I study average markups and profit shares in a panel of Swedish industries. There is evidence of a positive relationship between intangible capital and average industry markups. However, the evidence of the relationship between intangible capital and profits is less conclusive.Essay II (with Carolina Lindholm and Markus Peters):  Increases in life expectancy cause challenges for defined benefit pension systems. Sweden is one of few countries having undertaken a major reform aimed at creating a financially sustainable pension system. Since the reform, the aggregate household savings rate has increased significantly. We study the effect of the pension reform on household income and savings. We construct a life-cycle model of heterogeneous agents that includes all aspects of the pension system. This model enables us to quantify the impact of the Swedish pension reform on household income and savings. We find that the reform implies a major shift of income from retirement to working age which increases the motivation to save for retirement. The model can explain about half of the observed increase in the aggregate private savings rate.Essay III: This study investigates the effect of monetary policy on household borrowing from the banking sector using Swedish data. It is important to understand the role of credit markets in the monetary policy transmission mechanism. Rapid credit growth induced by monetary policy may also be related to the build-up of financial risk in the economy. This paper combines identification of monetary policy shocks from high-frequency financial market data with local projections IV to study the effects of monetary policy on household borrowing. The results are uncertain but indicate that the stock of household loans is 1.6 percent lower two years after a one percentage point shock to the repo rate. This is a relatively modest effect considering that the stock of household loans on average grew by 7.8 percent per year over this period.