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Essays In Macroeconomics And Financial Market Imperfections
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Book Synopsis Essays in Macroeconomics and Financial Market Imperfections by : Alexander Wulff
Download or read book Essays in Macroeconomics and Financial Market Imperfections written by Alexander Wulff and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of four self-contained papers that deal with the implications of financial market imperfections and heterogeneity. The analysis mainly relates to the class of incomplete-markets models but covers different research topics. The first paper deals with the distributional effects of financial integration for developing countries. Based on a simple heterogeneous-agent approach, it is shown that capital owners experience large welfare losses while only workers moderately gain due to higher wages. The large welfare losses for capital owners contrast with the small average welfare gains from representative-agent economies and indicate that a strong opposition against capital market opening has to be expected. The second paper considers the puzzling observation of capital flows from poor to rich countries and the accompanying changes in domestic economic development. Motivated by the mixed results from the literature, we employ an incomplete-markets model with different types of idiosyncratic risk and borrowing...
Book Synopsis Essays in Macroeconomics by : Luigi Iovino
Download or read book Essays in Macroeconomics written by Luigi Iovino and published by . This book was released on 2012 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis studies how information imperfections affect financial markets and the macroeconomy. Chapter 1 considers an economy where investors delegate their investment decisions to financial institutions that choose across multiple investment opportunities featuring different levels of idiosyncratic risk and different degrees of correlation with the aggregate of the economy. Investors solve an optimal contracting problem to induce financial institutions to allocate their investment optimally. We then study how investment decisions are affected when financial securities are introduced that allow agents to trade their risks. Investors do not have the necessary information to understand these securities, but give incentives to financial institutions to hedge certain risks. We show that hedging idiosyncratic risks ameliorates the agency problem between investors and financial institutions and reduces aggregate volatility. On the contrary, when aggregate risk can be hedged the agency problem worsens and aggregate volatility increases. Finally, we study the efficiency properties of the equilibrium and the potential role for financial regulation. Chapter 2 studies the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in a business-cycle framework that nests the neoclassical core of modem DSGE models. Earlier lessons that were based on "beauty contests" (Morris and Shin, 2002) are found to be inapplicable. Instead, the social value of information is shown to hinge on essentially the same conditions as the optimality of output stabilization policies. More precise information is unambiguously welfare-improving as long as the business cycle is driven primarily by technology and preference shocks-but can be detrimental when shocks to markups and wedges cause sufficient volatility in "output gaps". Finally, chapter 3 studies how market signals-such as stock prices-can help alleviate the severity of the asymmetric information problem in credit and liquidity management. Asymmetric information hinders the ability of borrowers (firms, investment banks, etc) to undertake profitable investment opportunities and to insure themselves against liquidity shocks. On the equilibrium path, creditors need not learn anything from market signals because they can use a menu of contracts to screen the different types of borrowers. Nevertheless, by conditioning liquidity insurance on ex post price signals, creditors are able to provide the borrowers with better incentives for truth-telling. At the same time, prices depend on the liquidity that creditors offer to the borrowers. This two-way feedback impacts the design of the optimal contract and potentially generates multiple equilibria in financial markets.
Book Synopsis Essais Sur la Macroéconomie Des Imperfections Sur Le Marché Du Capital by : Nicolas Petrovsky-Nadeau
Download or read book Essais Sur la Macroéconomie Des Imperfections Sur Le Marché Du Capital written by Nicolas Petrovsky-Nadeau and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter shows that the propagation properties of the standard search and matching model of equilibrium unemployment are significantly altered when vacancy costs require some external financing on frictional credit markets. Agency problems on credit markets lead to higher costs of vacancies. When the former are counter-cyclical, this greatly increases the elasticity of vacancies to productivity through two distinct channels: (i) a cost channel - lowered unit costs during an upturn as credit constraints are relaxed increase the incentive to post vacancies; (ii) a wage channel - the improved bargaining position of firms afforded by the lowered cost of vacancies limits of the upward pressure of market tightness on wages. As a result, the model can match the observed volatility of unemployment, vacancies and labor market tightness. Moreover, the progressive easing of financing constraints to innovations generates persistence in the response of market tightness and vacancies, a robust feature of the data and shortcoming of the standard model. Extending the model to allow for endogenous job separation improves its ability to match gross labor flows statistics while preserving its propagation properties. The second chapter documents the existence of time-varying congestion in the (re)allocation of physical capital akin to what is observed on labor markets. It then builds a model with search frictions for the allocation of physical capital in order to investigate its implications for the business cycle. While the model is in principle capable of generating substantial internal propagation to small exogenous shocks, the quantitative effects are modest once it is calibrated to fit firm-level capital flows. The model is then extended to credit market frictions that lead to countercyclical default as in the data. Although countercyclical default directly affects capital reallocation, even in this extended model, search frictions in physical capital markets play only a small role for business cycle fluctuations. The final chapter models flows of foreign direct investment (FDI) in a two country, two sector DSGE framework. The allocation of capital to production capacity abroad is subject to a search-and-matching friction with endogenous capital reallocation, capturing the additional cost and time involved in adjusting production capacity abroad. The model is calibrated on observed gross inflows and outflows of FDI and leads to dynamics of net foreign direct investment consistent with the empirical evidence documented in this chapter: inward and outward net flows of FDI are positively correlated whereas a standard International Real Business Cycle model has the prediction of a negative correlation. Moreover, the model solves the aggregate investment quantity puzzle as it generates cross-country correlations in-line with the data.
Book Synopsis Essays on Liquidity in Macroeconomics by : Guido Lorenzoni
Download or read book Essays on Liquidity in Macroeconomics written by Guido Lorenzoni and published by . This book was released on 2001 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis includes four essays on the macroeconomic effects of financial market imperfections. The first essay studies the incentives for banks that participate in an interbank market to keep a sufficient level of reserves. It presents a model where, in presence of imperfect insurance against bank-specific shocks, banks keep an inefficiently low ratio of reserves to deposits. A consequence of this is that the interest rate on the money market will fluctuate too much from a second-best perspective. It discusses the potential benefits and risks associated to central bank intervention, and highlights the complementarity between regulatory reserve requirements and stabilization of the interest rate. The second essay (joint with C. Hellwig) studies the ability of banks to issue liquid liabilities while holding only a fraction of their activities in liquid assets. We study the possibility of self-sustaining equilibria in which banks are prevented from abusing their issuing privilege by the threat of losing it in case of default. The third essay is a contribution to the empirics of precautionary savings and shows evidence of a decreasing relationship between household wealth and the variability of consumption expenditure. The evidence is consistent with the presence of a precautionary motive for wealth accumulation. The fourth essay (joint with F. Broner) shows that the time series of the spreads on emerging market bonds appears consistent with the view that international investors supplying funds to these countries are liquidity constrained at times of large price drops.
Book Synopsis Essays on Macroeconomics by : Duksang Cho
Download or read book Essays on Macroeconomics written by Duksang Cho and published by . This book was released on 2016 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation is centered on economic heterogeneity endogenously derived from market imperfections or changes in technology. By introducing specific assumptions that capture a market imperfection or a change in technology, I study how the economic realities can affect resource distributions and aggregate outcomes in an equilibrium. Chapter 1 studies the economic impacts of business groups by focusing on their pyramidal ownership structure given capital market imperfections. An entrepreneur can alleviate financial frictions by creating a pyramidal business group in which a parent firm offers its subsidiary firm internal equity finance. This endogenous creation of pyramidal business groups can beget asymmetric financial frictions between business-group and stand-alone firms. I build a model to show that these asymmetric financial frictions can have sizable effects on resource allocation. On one hand, the financial advantage of pyramidal business groups can foster productive firms by incorporating subsidiaries. On the other hand, the asymmetrically large amount of external capital controlled by pyramidal business groups can push up the price of capital and hinder the growth of stand-alone firms. The model suggests that pyramidal business groups can improve the factor allocation of an economy with poor investor protection in which external capital markets are underdeveloped, but worsen the factor al- location of an economy with fine investor protection in which excessive capital is used up by unproductive business-group firms. Chapter 2 investigates consequence of declining labor shares in manufacture. I show that a Cobb-Douglas production function can be generated with a technology that substitutes capital for labor and decreases labor shares. A simple two-sector model is used to examine consequences of declining labor shares. The model suggests that a declining labor share in manufacture can be accompanied with an increase in the labor productivity dispersion, a decrease in the labor price, and an increase in the land price. Chapter 3 researches the possibility that changes in the number of households simultaneously purchasing durable goods can create a business cycle. Heterogeneous timings of durable goods purchases are examined as an extensive margin of aggregate consumption. I develop a model in which each household holds money to purchase durable goods and optimizes its purchase timing given adjustment costs. The model shows that a shock common to all households such as a change in the expected inflation rate or government transfers can synchronize durable goods purchases across households. I argue that altering the number of households simultaneously purchasing durable goods can generate a sizable, long- lasting business cycle without the help of sticky prices or shocks to TFP.
Book Synopsis Essays in Macroeconomics, Financial Markets, and Epidemics by : Cesar Saturnino Salinas Depaz
Download or read book Essays in Macroeconomics, Financial Markets, and Epidemics written by Cesar Saturnino Salinas Depaz and published by . This book was released on 2024 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters about how access to financial markets and composition of the labor market determine aggregate macroeconomic outcomes. The first chapter examines the macroeconomic consequences of credit uncertainty using a structural vector autoregression model with stochastic volatility (SVAR-SV). Credit supply conditions in the U.S. is captured by the banks' reports on how credit standards for approving loans have change over time (Bank Lending Standards). The empirical analysis shows that the volatility of macroeconomic and financial variables rises in response to an increase in the credit uncertainty shock. The economic activity falls and credit growth and related interest rates decrease persistently. Moreover, credit volatility shocks explain around 10% of the FEV of endogenous variables. A dissagregated analysis shows that the effect of these shocks are mainly explained by their effects on the corporate business sector. The second chapter studies the role of time-varying credit limits through the lens of a life cycle incomplete markets model calibrated for the U.S. Changes in credit card limits are explained by observable household characteristics and the estimated unobservable variation is quite large. The quantitative exercise shows that even though young households are more indebted in an economy with stochastic borrowing limits, aggregate consumption is not greatly affected by transitory or persistent shocks of this type. However, in the presence of these shocks, households lose the ability to self-insure against other uninsurable idiosyncratic shocks, e.g., labor income shocks. A disaggregated analysis shows that the loss of self-insurance capacity is mainly explained by the effects that stochastic borrowing limits have on the wealth distribution, the precautionary savings channel households have to face unexpected risks. The third chapter studies the role of informal markets to explain economic and demographic variables during a pandemic. The quantitative exercise shows that lockdown policies are less effective in economies with large informal markets, infection and death rates will not decrease as much as formal economies. Moreover, the size of the recession would be exacerbated because informal activities are not counted in the calculation of the GDP. To generate similar results to an economy with only formal markets, the economy with informal markets must implement more severe containment policies.
Book Synopsis Essays on Macroeconomic Implications of Financial and Labor Markets and Political Processes by : Karl Brunner
Download or read book Essays on Macroeconomic Implications of Financial and Labor Markets and Political Processes written by Karl Brunner and published by . This book was released on 1984 with total page 338 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Macroeconomics and Financial Markets by : Ariel Zetlin-Jones
Download or read book Essays in Macroeconomics and Financial Markets written by Ariel Zetlin-Jones and published by . This book was released on 2012 with total page 183 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Financial Market Imperfections by : Rajdeep Sengupta
Download or read book Essays in Financial Market Imperfections written by Rajdeep Sengupta and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays In Financial Market Imperfections And Institutional Responses by : Thomas Frederik Hellmann
Download or read book Essays In Financial Market Imperfections And Institutional Responses written by Thomas Frederik Hellmann and published by . This book was released on 1997 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Macroeconomics and Finance by : Tom Niklas Kroner
Download or read book Essays in Macroeconomics and Finance written by Tom Niklas Kroner and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation consists of three independent chapters focusing on empirical questions in macroeconomics and finance. In Chapter 1, I study the role of firms’ uncertainty in the transmission of forward guidance to investment. To do so, I employ a quarterly firm-level panel of U.S. publicly traded firms. I measure forward guidance shocks based on unexpected changes in the slope of the yield curve in a 30-minute window around Federal Reserve announcements. I show that firms which are more uncertain adjust their investment as if they are more pessimistic. More uncertain firms adjust their investment relatively more downward for expected monetary tightenings and relatively less upward for expected loosenings. To explain my empirical findings, I construct a New Keynesian model with a high-uncertainty and a low-uncertainty sector. Agents in the high-uncertainty sector are ambiguous (Knightian uncertain) about the informativeness of forward guidance, and choose to take a pessimistic stance due to their ambiguity aversion. The model implies that expansionary forward guidance is less powerful in recessions due to a larger share of uncertain agents. In Chapter 2, joint with Christoph Boehm, we provide evidence for a causal link between the US economy and the global financial cycle. Using a unique intraday dataset, we show that US macroeconomic news releases have large and significant effects on global risky asset prices. Stock price indexes of 27 countries, the VIX, and commodity prices all jump instantaneously upon news releases. The responses of stock indexes co-move across countries and are large—often comparable in size to the response of the S&P 500. Further, US macroeconomic news frequently explains more than 15% of the quarterly variation in foreign stock markets. The joint behavior of stock prices and long-term bond yields suggests that systematic US monetary policy reactions to news do not drive the estimated effects. Instead, the evidence is consistent with a direct effect on investors’ risk-taking capacity. Our findings show that a byproduct of the United States’ central position in the global financial system is that news about its business cycle has large effects on global financial conditions. In Chapter 3, joint with Christoph Boehm, we are trying to better understand how FOMC announcements affect the stock market. A large literature uses high-frequency changes in interest rates around FOMC announcements to study monetary policy. These yield changes have puzzlingly low explanatory power for the stock market—even in a narrow 30-minute window. We propose a new approach to test whether the unexplained variation represents monetary policy news or just noise. In particular, we allow for a latent “Fed non-yield curve shock”, which we estimate via a heteroskedasticity-based procedure. Using a test for weak identification, we show that our shock is well identified, that is, the unexplained variation is not just noise. We then go on to show that the shock, signed to increase stock prices, leads to sizable declines in the equity and variance premium, an increase in the 10-year term premium, an increase in short-run inflation expectations, as well as a dollar depreciation against multiple non-safe-haven currencies. Hence, the evidence supports the interpretation that the shock affects risk-appetite and leads to a reverse “flight-to-safety” effect. Lastly, using a method from the computational linguistics literature, we show that our shock can be linked to specific topics discussed in FOMC statements, suggesting that it reflects written communication by the Federal Reserve
Book Synopsis Essays on Macroeconomics with Financial Frictions by : Matthew Knowles
Download or read book Essays on Macroeconomics with Financial Frictions written by Matthew Knowles and published by . This book was released on 2017 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation consists of three essays concerning the macroeconomic implications of financial market frictions that limit the ability of firms to obtain external finance. Each of the three chapters employs a theoretical macroeconomic model, combined with some empirical analysis, to study unanswered questions in the literature related to the importance of these financial market frictions for the wider economy. The three chapters consider, in turn, the effect of banking crises on investment, output and employment, the implications of financial market frictions for optimal capital taxation, and the effect of banking deregulation on the distribution of income. The first chapter studies the long slumps in output and employment following banking crises. In a panel of OECD and emerging economies, I find that recessions are associated with larger initial drops in investment and more persistent drops in output if they occur simultaneously with banking crises. Furthermore, the banking crises that are followed by more persistent output slumps are associated with particularly large initial drops in investment. I show that these patterns can arise in a model where a financial shock temporarily increases the costs of external finance for investing entrepreneurs. This leads to a drop in investment and a persistent slump in output. Critical to the model is the distinction between different types of capital with different depreciation rates. Intangible capital and equipment have high depreciation rates, leading these stocks to drop substantially when investment falls after a financial shock. If wages display some rigidity, this induces a slump in output and employment that persists for roughly a decade, through the contribution of the decline in equipment and intangibles to declining production and labor demand. I find that this mechanism can account for almost a third of the persistent drop in output and employment in the US Great Recession (2007-2014). In the model, TFP and government spending shocks lead to relatively smaller declines in investment and less persistent drops in output; so the model is also consistent with the more transitory output drops seen after non-financial recessions, where such shocks may have been more important. The second chapter, based on work co-written with Corina Boar, considers the implications of financial market frictions for optimal linear capital taxation, in a setting where the government is concerned with redistribution. By including financial frictions, we emphasize the effect of a new channel affecting the equity-efficiency trade-off of redistribution: taxes affect the allocative efficiency of capital and, ultimately, total factor productivity. We find that high tax rates can be optimal, provided that they are applied to wealth, rather than risky capital. Under plausible parameter values, we find that the optimal tax on risky capital is lower than that on wealth, and roughly in line with current U.S. levels. This suggests welfare gains from taxing wealth at a higher rate than risky capital. The third chapter, based on work co-written with Corina Boar and Yicheng Wang, studies the effect of banking deregulation in the US on the distribution of income, from both a theoretical and empirical perspective. We focus on the effect of the removal of interstate banking and branching restrictions over the 1970-1994 period. We present a theoretical model based on Greenwood and Jovanovic (1990) to illustrate the channels through which this deregulation may affect the income distribution. In the model, income inequality rises after banking deregulation for some values of the parameters--because deregulation decreases the cost of borrowing, which primarily benefits wealthy firm-owners. We empirically estimate the effect of interstate banking and branching deregulation on income inequality by exploiting variations in the timing of deregulation across states. We find that the removal of banking restrictions increased the Gini coefficient by 6 percent in the long run."--Pages ix-xi.
Book Synopsis Three Essays in Macroeconomics and Finance by : David Henry Bowman
Download or read book Three Essays in Macroeconomics and Finance written by David Henry Bowman and published by . This book was released on 1993 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Macroeconomics, Development and Financial Markets by : Erick Sager
Download or read book Essays on Macroeconomics, Development and Financial Markets written by Erick Sager and published by . This book was released on 2013 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Macroeconomics by : Vladimir A. Asriyan
Download or read book Essays in Macroeconomics written by Vladimir A. Asriyan and published by . This book was released on 2014 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research presented in this dissertation has been motivated by the Great Recession that has shown us once again how the financial system can amplify and propagate relatively mild economic shocks into larger scale recessions. In the past decade, we witnessed what many may call the worst crisis since the Great Depression that appears to have resulted from a perverse interaction between real estate markets and borrowers' balance sheets. The three chapters of this dissertation are an attempt to shed light on the mechanisms that may have allowed for such perverse effects to arise. I believe that to understand crisis episodes such as the recent one, it is imperative to study why some economic agents become overly exposed to risk, why financial markets fail to function at times, and what policy makers can do to ameliorate the incidence and repercussions of such adverse events. In Chapter 1, "A Theory of Balance Sheet Recessions with Informational and Trading Frictions," I propose a novel theory to rationalize the limited risk-sharing that drives balance sheet recessions as a result of informational and trading frictions in financial markets. I show that borrowers and creditors will find it costly to share macroeconomic risk in environments where creditors value the liquidity of financial claims but where information about the future states of the economy is dispersed and the secondary markets for financial claims feature search frictions. As a result, borrowers will optimally choose to retain disproportionate exposures to macroeconomic risk on their balance sheets, and adverse shocks will be amplified through the balance sheet channel. I show that the magnitude of this amplification becomes closely linked to the level of information dispersion and the severity of search frictions in financial markets. In this setting, I study the implications of the theory for macro-prudential regulation and find that subsidizing contingent write-downs of borrowers' liabilities can be welfare improving. In Chapter 2, "Informed Intermediation over the Cycle," a joint work with Victoria Vanasco, we construct a dynamic model of financial intermediation in which changes in the information held by financial intermediaries generate asymmetric credit cycles as the ones documented by Reinhart and Reinhart (2010). We model financial intermediaries as "expert'' agents who have a unique ability to acquire information about firm fundamentals. While the level of "expertise'' in the economy grows in tandem with information that the "experts'' possess, the gains from intermediation are hindered by informational asymmetries. We find the optimal financial contracts and show that the economy inherits not only the dynamic nature of information flow, but also the interaction of information with the contractual setting. We introduce a cyclical component to information by supposing that the fundamentals about which experts acquire information are stochastic. While persistence of fundamentals is essential for information to be valuable, their randomness acts as an opposing force and diminishes the value of expert learning. Our setting then features economic fluctuations due to waves of "confidence'' in the intermediaries' ability to allocate funds profitably. In Chapter 3, "Credit Crises, Liquidity Traps, and Demand Externalities," I extend the work of Eggertsson and Krugman (2012) to study welfare implications of households' consumption-saving decisions in New Keynesian economies with incomplete asset markets. My contribution is to show that due to aggregate demand externalities the amount of debt pre-contracted in such economies is generally excessive, and that the amount of "over-borrowing" is increasing in the Central Banker's inflation-aversion. This externality arises because an individual household does not internalize its contribution to the overall fragility as the latter is only a function of aggregate indebtedness of all borrowers. These findings suggest that macro-prudential policies geared towards limiting household leverage can indeed be welfare improving.
Book Synopsis Essays on Incomplete Markets and Macroeconomics by : Juan Carlos Aquino Chavez
Download or read book Essays on Incomplete Markets and Macroeconomics written by Juan Carlos Aquino Chavez and published by . This book was released on 2018 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essays on Incomplete Markets and Macroeconomics consists of contributions of theoretical and empirical nature in the sub-field of Macroeconomics through two chapters. In the first chapter, titled Liquidity Regulation in a Monetary Economy, although it is commonly argued that the prevention of bank runs is the main reason to regulate banks' asset portfolios, I show that a market failure that justifies such regulation lies on the incompleteness of financial markets when there is risk about the aggregate distribution of transaction types. I develop a framework in which outside (fiat, government-provided) and inside (plastic, bank-created) money co-exist as means of payment under either complete or incomplete financial markets for aggregate risk. The welfare analysis is reduced to comparing only two parameters: the currency-to-liability ratio [delta] which is set by the government and the fraction [rho] of banks' depositors engaged in cash-only transactions (inside money cannot be accepted). In equilibrium, when [delta]
Book Synopsis Essays on Financial Markets and Macroeconomics by : Chia-Yi Yen
Download or read book Essays on Financial Markets and Macroeconomics written by Chia-Yi Yen and published by . This book was released on 2024* with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
