Essays in macroeconomic policy and behavioural bias

This thesis comprises three papers that examine the tension between macroeconomic policy and retirement policy in the context of behavioural bias. In the first paper, joint work with Patrick Moran, we develop a theoretical model to assess the distributional and welfare implications of granting early access to retirement accounts as a means of stimulating consumption, contrasting this approach with traditional fiscal stimulus measures. Using a heterogeneous agent model, we demonstrate that while household liquidity policy is an effective and popular stimulus tool, it burdens the poorer and more present-biased workers with the future costs of stimulus, making it more regressive than conventional fiscal policy. In the second paper, we explore how self-control issues influenced participation in an early withdrawal program during the COVID–19 pandemic, confirming that such behavioural factors played a significant role—a critical insight given that the typical illiquidity of retirement systems is often justified by concerns over individuals’ self–control limitations. In the third paper, I compare two approaches to modelling present bias— quasi-hyperbolic discounting and temptation preferences. By recasting the latter in continuous time, I can directly compare the two frameworks, showing that quasi–hyperbolic discounting is a special case of temptation preferences under some common assumptions. Whilst being behaviourally equivalent, they are not welfare equivalent and so distinguishing between them is important. Differences in the behaviour of biased agents who are sophisticated provide opportunities for identification between the two approaches.