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Essays On Banking And Financial Intermediation
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Book Synopsis Essays on Banking and Financial Intermediation by : Felipe Anderson De Souza Netto
Download or read book Essays on Banking and Financial Intermediation written by Felipe Anderson De Souza Netto and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In an empirical application of our model, we estimate the PPP's effectiveness and compare it with alternative policies. A policy targeted at the smallest firms could have increased the program's effectiveness significantly.
Book Synopsis Essays on Banking and Financial Intermediation by : Yuteng Cheng (Ph.D.)
Download or read book Essays on Banking and Financial Intermediation written by Yuteng Cheng (Ph.D.) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 1 uses a mix of theory and data to study the unintended consequences of mandatory retention rules in securitization. The Dodd-Frank Act and the EU Securitization Regulation both impose a 5% mandatory retention requirement in securitization to motivate financial intermediaries to screen and monitor their borrowers more carefully. To better understand the impact of the policy, this chapter studies two related research questions. First, can mandatory retention have unintended consequences? Second, is the current level of retention optimal? To answer those questions, I propose a novel trade-off model in which retention strengthens monitoring but may also encourage banks to shift risk. I go on to provide empirical evidence supporting this unintended consequence: in the data, banks shifted toward riskier portfolios after the implementation of the retention rules embedded in Dodd-Frank. Furthermore, the model provides clear testable predictions about policy and corresponding consequences. I show in the data that stricter retention rules caused banks to monitor and shift risk simultaneously. According to the model prediction, such a simultaneous increase can only occur when the retention level is above optimal, which suggests that the current rate of 5% in the US is too high. Chapter 2Chapter 2 studies the source of fragility of OTC-natured interbank markets. Most research on the fragility of interbank markets -in the sense of multiplicity of equilibria driven by adverse selection-relies on a competitive market structure. By contrast, this chapter accounts for the OTC market nature and the market power of some players. Under adverse selection alone, markets are not fragile; that is, the equilibrium is unique. However, when adverse selection is combined with moral hazard on the borrowers' side, multiple equilibria arise again, and the bad equilibrium exhibits troubled banks gambling for resurrection. An interest rate floor eliminates the bad equilibrium. More generally, policies to reduce fragility should address moral hazard rather than adverse selection. Chapter 3Chapter 3 studies the contracting differences between corporate loans that are sold in the secondary market and that are securitized in the CLO market. With secondary loan sales and CLO markets being the two markets for corporate loan commoditization, empirical studies find that banks add additional restrictive covenants to loans sold and looser covenants to loans securitized. Why is it so? This chapter builds a theoretical model to explain such contracting differences in these two markets. The key mechanism is that the bank alleviates the borrowers' moral hazard problem via public monitoring and charges higher interest rates due to the relaxing of incentives provided. Those high interest rates facilitate loan sales because the information problem embedded in loan sales is lessened. In contrast, adverse selection is less severe in securitization since the bank retains the information-sensitive tranche.
Book Synopsis Essays on Banking and Financial Intermediation by : Yuteng Cheng (Ph.D.)
Download or read book Essays on Banking and Financial Intermediation written by Yuteng Cheng (Ph.D.) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 1 uses a mix of theory and data to study the unintended consequences of mandatory retention rules in securitization. The Dodd-Frank Act and the EU Securitization Regulation both impose a 5% mandatory retention requirement in securitization to motivate financial intermediaries to screen and monitor their borrowers more carefully. To better understand the impact of the policy, this chapter studies two related research questions. First, can mandatory retention have unintended consequences? Second, is the current level of retention optimal? To answer those questions, I propose a novel trade-off model in which retention strengthens monitoring but may also encourage banks to shift risk. I go on to provide empirical evidence supporting this unintended consequence: in the data, banks shifted toward riskier portfolios after the implementation of the retention rules embedded in Dodd-Frank. Furthermore, the model provides clear testable predictions about policy and corresponding consequences. I show in the data that stricter retention rules caused banks to monitor and shift risk simultaneously. According to the model prediction, such a simultaneous increase can only occur when the retention level is above optimal, which suggests that the current rate of 5% in the US is too high. Chapter 2Chapter 2 studies the source of fragility of OTC-natured interbank markets. Most research on the fragility of interbank markets -in the sense of multiplicity of equilibria driven by adverse selection-relies on a competitive market structure. By contrast, this chapter accounts for the OTC market nature and the market power of some players. Under adverse selection alone, markets are not fragile; that is, the equilibrium is unique. However, when adverse selection is combined with moral hazard on the borrowers' side, multiple equilibria arise again, and the bad equilibrium exhibits troubled banks gambling for resurrection. An interest rate floor eliminates the bad equilibrium. More generally, policies to reduce fragility should address moral hazard rather than adverse selection. Chapter 3Chapter 3 studies the contracting differences between corporate loans that are sold in the secondary market and that are securitized in the CLO market. With secondary loan sales and CLO markets being the two markets for corporate loan commoditization, empirical studies find that banks add additional restrictive covenants to loans sold and looser covenants to loans securitized. Why is it so? This chapter builds a theoretical model to explain such contracting differences in these two markets. The key mechanism is that the bank alleviates the borrowers' moral hazard problem via public monitoring and charges higher interest rates due to the relaxing of incentives provided. Those high interest rates facilitate loan sales because the information problem embedded in loan sales is lessened. In contrast, adverse selection is less severe in securitization since the bank retains the information-sensitive tranche.
Book Synopsis Essays on Financial Intermediation and Monetary Policy by : Abolfazl Setayesh Valipour
Download or read book Essays on Financial Intermediation and Monetary Policy written by Abolfazl Setayesh Valipour and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My research revolves around financial institutions. In this essay, I aim to further our understandings of the internal workings of financial intermediaries, how they interact in financial networks, and how they affect monetary policy and the macroeconomy. In the first chapter, James Peck and I study a bank run model where the depositors can choose how much to deposit. In the many years and many published articles following the bank runs paper of Diamond and Dybvig (1983), only a few papers have modeled the decision of whether to deposit, much less the decision of how much to deposit. The questions we address here are, how does the opportunity for consumers to invest outside the banking system- in investments that do not provide liquidity insurance- (1) affect the nature of the final allocation, (2) affect the nature of the optimal deposit contract, and (3) affect the fragility of the banking system? We extend the Diamond and Dybvig (1983) model so to incorporate sequential service constraint and the opportunity of outside investments and show that under certain conditions the equilibrium entails partial deposits, thus arguing for the optimality of limited banking. One might think that when depositors are allowed to invest a fraction of their endowments outside the banking system, they would be hedging against the risk of a run occurring, but losing out on some of the services provided by banks. Thus, one might think that this would improve the stability of the financial system at the expense of lost efficiency. However, we show that the opposite could be true, with reduced stability (runs more likely) but higher efficiency! In the second chapter, I study the strategic behavior of heterogeneous banks in a network and its implications on the stability of the financial system. I construct a model alas Allen and Gale (2000) wherein banks differ in whether they are hit by an uninsurable excess liquidity demand. I show that in such a framework banks that are already facing a high liquidity demand are more likely to incur the burden of excess liquidity shocks even when that shock has not directly hit them, i.e. relatively healthier banks strategically pass liquidation costs to relatively less healthy banks. I also show that private bailouts arise endogenously in this framework. If the strategic behavior of a bank results in the other bank's failure, the first bank may choose to incur the burden of the liquidity shock by itself to let the other bank survive and, thus, to control the indirect costs of failure feeding back to its portfolio. I also show that for some economies the financial network becomes more stable as the level of cross-deposits is increased from the minimum level that fully insures banks against liquidity demand uncertainty up to a threshold level. In the third chapter, I study the role of financial intermediaries in the transmission of monetary policy in low interest rate environments. The global financial crisis not only proved our understanding of intermediaries were inaccurate and in many ways misleading but also provided an unprecedented opportunity to investigate the questions in ways that were not possible before. Among those, was the behavior of economic players in ultra-low and even negative market rates. I study the internal workings of intermediaries by exploiting geographical variation in market concentration and provide the first explanation for the gradual deterioration of monetary policy power in low market rates that does not rely on bank-specific characteristics and similarly applies to non-bank intermediaries. I show that- in stark contrast to the textbook view but consistent with my mechanism- in low market rates more concentrated banks respond to market rate falls by reducing their deposit supply as well as their loan supply by more than those of less concentrated banks. I argue this behavior is the response of banks to loan and deposit demand becoming less elastic to market rate changes in low market rates which itself is due to the shift of household assets from the ones that are fully responsive to market rate changes (e.g. money market funds) to those less responsive (e.g. deposits) or irresponsive (e.g. cash) in low market rates. As the market rate falls, The downward pressure of the increased market power and the upward pressure of the traditional channels, cause the non-monotonic response of banks to market rate changes. The results help explain the puzzling slow recovery of the economy as well as stable inflation after the global financial crisis. I also show that local house prices become less responsive to market rate changes in low market rates in the counties that are exposed to high-market-power banks.
Book Synopsis Essays on Banking and Financial Intermediation by : Jiayin Hu
Download or read book Essays on Banking and Financial Intermediation written by Jiayin Hu and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In a coordination game model a la Angeletos and Werning (2006), I show that the floating net asset value, which allows investors to redeem shares at market-based price rather than book value, may lead to more self-fulfilling runs. Compared to stable net asset value, which becomes informative only when the regime is abandoned, the floating net asset value acts as a public noisy signal, coordinating investors’ behaviors and resulting in multiplicity. The destabilizing effect increases when investors’ capacity of acquiring private information is constrained. The model implications are consistent with a surge in the conversion from prime to government institutional funds in 2016, when the floating net asset value requirement on the former is the centerpiece of the money market fund reform.
Book Synopsis Essays on Financial Intermediation and Deposit Insurance by : George W. Fenn
Download or read book Essays on Financial Intermediation and Deposit Insurance written by George W. Fenn and published by . This book was released on 1988 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Banking, Financial Intermediation and Financial Markets by : Miguel Sarmiento
Download or read book Essays on Banking, Financial Intermediation and Financial Markets written by Miguel Sarmiento and published by . This book was released on 2019 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Banking and the Macroeconomic Effects of Financial Intermediation by : Martin Jose Rostagno Sanchez
Download or read book Essays on Banking and the Macroeconomic Effects of Financial Intermediation written by Martin Jose Rostagno Sanchez and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Financial Intermediation by : Lily Hua Fang
Download or read book Essays on Financial Intermediation written by Lily Hua Fang and published by . This book was released on 2003 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Financial Intermediation and Banking by : Elizabeth Ellen Foote
Download or read book Essays in Financial Intermediation and Banking written by Elizabeth Ellen Foote and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Banks' role as intermediaries between short term investors and long term borrow- ers has dominated the literature. Whilst this is an important feature, there are many other characteristics of banks. Each chapter in this PhD explores a different aspect of banking, from other forms of lending to banks' role in payment services. The first, and principal, chapter considers credit lines: `commitments' to lend if required. These remain off the bank's balance sheet until drawn upon. As off-balance sheet items, unused commitments face low capital charges under existing capital regulation. I ex- plore how this regulatory feature incentivises banks to build up exposure to these lines. This may lead to a suboptimal allocation of credit, ex post, following a market shock, as high drawdowns cause the balance sheet to balloon and the capital requirement to bind. In the second chapter, I consider banks as agents in large-value payment systems. In choosing the optimal time to settle a payment, banks trade off delay costs against the risk of having insuffcient liquidity to make future payments. With banks participating in multiple systems, I show how default in one system may spill over into another, through the strategic behaviour of multi-system participants. I explore how this risk varies with the degree of information asymmetry between agents in different systems. The third chapter focuses on retail banking. In joint work, we examine how the provision of consumer credit, either through current account overdrafts, or through credit card credit lines, affects the way in which debit and credit card networks com- pete. We find that, even when debit and credit cards compete, there are elements of complementarity between them. Banks providing debit cards and current accounts benefit when the consumer delays withdrawal of funds from her current account by using a credit card. This leads to surprisingly high debit merchant fees.
Book Synopsis Three Essays on Financial Intermediation and Growth by : Ranajoy Ray Chaudhuri
Download or read book Three Essays on Financial Intermediation and Growth written by Ranajoy Ray Chaudhuri and published by . This book was released on 2012 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: My dissertation explores the impact of financial development, as well as regulatory changes in the financial sector, on economic growth. Recent literature on growth has often focused on the importance of financial intermediation and institutional quality. Advocates of financial development say that the development of the banking sector and stock markets increase the financing available to firms, raising productivity. The "institutions hypothesis" proponents suggest that institutions jointly determine the growth rate and the policy choice, while policies themselves bear no causal connection to growth. Such hypothesis is difficult to test empirically because the change in institutional quality is, with a few historic exceptions, very slow. For the most part, therefore, a country's economic performance can end up being attributed to a random cause. Using a cross-country data set and numerous financial indicators, institutional quality variables and growth measures, I find that this is not true of financial development. Financial variables have a significant effect on growth that is distinct from that of institutions like private property and rule of law. I also consider this issue in the context of the fifty U.S. states. States differ with respect to financial indicators like the number of banks, assets, equity, loans and deposits. They also vary in terms of their regulatory environments. States like Delaware, Texas and Nevada have very high scores for economic freedom; Mississippi, New Mexico and West Virginia have very low ones. The results again underscore the importance of financial deepening in order to achieve economic growth. Taking up from this point, the final essay studies the impact of U.S. banking deregulation on growth. Many states relaxed restrictions on intra-state bank branching beginning in the early 1960s, both by allowing bank holding companies to convert subsidiaries into branches and by permitting statewide de novo branching. This increased competition in the banking sector forced banks to become more efficient. The existing literature suggests that one of the channels through which this worked was bank lending. Different industries have varying degrees of dependence on external financing, and industries that have greater dependence should grow faster in the post-deregulation period. Using a panel data set, I find this not to be the case for the U.S.; industries that borrow less from banks actually grew at a faster rate after deregulation. This could reflect commercial banks losing market share to other sources of external financing, the general decline in the U.S. manufacturing sector and the terms of trade moving in favor of agriculture. I also consider the effect of deregulation on various banking indicators and find the strongest impact to be on the number of commercial banks operating in the state. Contrary to existing research, these regulatory changes slowed down growth in the number of bank branches and offices, as well as other measures of bank performance like assets, equity, loans and deposits. This suggests that the gains from deregulation are short-lived, and also indicate unprofitable smaller banks shuttering their operations and the emergence of credit unions and other alternatives to commercial banks.
Book Synopsis Essays on Financial Intermediation in a Dynamic Setting by : Ronaldo Carpio
Download or read book Essays on Financial Intermediation in a Dynamic Setting written by Ronaldo Carpio and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis of 2007-2009 demonstrated that financial intermediaries play a critical, if not yet well-understood, role in the economy. However, our theoretical understanding of what intermediaries do is currently incomplete. The papers in this dissertation seek to improve our theoretical knowledge by introducing models that explicitly capture the activities of a financial intermediary in a dynamic setting. The first paper tackles two fundamental theoretical questions about banks. The first question seems simple but is still unresolved: how should we model a banking firm? We develop a dynamic model of a banking firm based on the notion of banking as the inventory management of cash. A bank that makes loans and takes deposits is a dynamic, stochastic inventory management problem. The second question is an old issue that has again become relevant in the wake of the financial crisis: why do banks engage in maturity mismatch, the process of "borrowing short and lending long". We show how profit-maximizing behavior in an inventory management model can result in maturity mismatch. We present the dynamic model, solve it numerically, and use simulation to predict the bank's behavior in different environments. A limitation of this model is that interest rates and the supply of deposits are taken as exogenous. The second paper endogenizes these quantities for a simple model of an inventory-theoretic financial firm, a Ponzi scheme. As with an ordinary monopolistic firm, the "bank" faces a demand schedule and chooses the price it offers; here, the price is the interest rate, and demand is generated by an OLG population that chooses to borrow or lend using standard models of savings and portfolio choice. In this way we seek to endogenize interest rates, quantities of credit, and financial risk. An issue that arises in dynamic optimization models such as the ones above is that analytic solutions are rare and we must resort to numerical computation, Standard methods of solving dynamic programming problems are computationally expensive; the third paper presents two promising approaches that can potentially provide dramatic speedups in speed. The first method is based on pre-computing the inverse gradient and Lagrange multipliers of a known utility function; subsequent calls can simply look up the pre-computed maximizers, instead of having to call a numeric root-finding routine each time. The second method exploits the duality between concave functions and their Legendre-Fenchel transforms. The Bellman operator in primal space is isomorphic to a tractable scaling and addition operation in dual space. In special cases, we can obtain the value function of the solution in closed form; even when we cannot obtain a closed form solution, we can gain theoretical insight into the properties of the solution.
Book Synopsis Essays in Financial Intermediation by : Jiakai Chen
Download or read book Essays in Financial Intermediation written by Jiakai Chen and published by . This book was released on 2015 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two chapters that concern financial intermediation. Many shadow banks rely heavily on bank-sponsored private credit and liquidity support instead of government guarantees. Bank capital regulation cannot be effective without explicitly considering these facilities. In the first chapter of the dissertation, I use a continuous time model with maturity mismatch and bank moral hazard to study the impact of credit and liquidity guarantees on bank capital structure. I focus on a particular type of shadow banking called asset-backed commercial paper (ABCP). When banks provide credit guarantees to ABCP conduits, assuming that the validity of the guarantees is ensured by rating agencies, the commercial paper becomes risk free and is always priced at par. Rolling over the commercial paper is thus costless, so that frequently rolling over the short term ABCP to fund long term assets--a maturity mismatch--has no impact on bank value. Regulators can eliminate a bank's moral hazard by imposing a simple capital ratio requirement. However, the capital ratio requirement is no longer valid if banks use liquidity guarantees in their ABCP conduit funding because the funding maturity becomes important. Moreover, a liquidity guarantee becomes as costly as a credit guarantee when the maturity shortens. Using Moody's ABCP conduit data, I confirm that shorter ABCP maturity causes the bank's return to be more sensitive to the conduit credit loss. Thus, when banks have significant exposure to a liquidity guarantee, the search for a single appropriate risk weight is futile. More sophisticated tests, such as model-based tests are not only necessary but also have to be carried out under stressed scenarios. The second chapter studies the current London Interbank Offered Rate (LIBOR). Recent investigation reveals banks might have manipulated the London Interbank Offer Rate (LIBOR). With banks concern about derivative position, net interest income and signaling effect, the equilibrium reporting strategy is a monotonic non-linear function of borrowing cost. Current trimming mechanism cannot block tacit collusion: when banks benefit from lower LIBOR, tacit collusion leads to downward biased LIBOR quotes. Signaling effect causes further depressed LIBOR. Equilibrium submissions do cluster together, as people have observed from the data. Comparative statics suggest LIBOR bias spikes during the crisis, due to more dispersed borrowing costs and consumers' less confidence in banks. I propose a direct and \emph{ex ante} budget balanced LIBOR fixing mechanism. Finally, by calibrating the model to the ratio of dispersion among banks' LIBOR submissions to their CDS spreads, I come up with an initial estimation, which matches practitioner's opinions back in 2008, about LIBOR bias during the recent crisis.
Book Synopsis The Theory of Financial Intermediation by : Bert Scholtens
Download or read book The Theory of Financial Intermediation written by Bert Scholtens and published by . This book was released on 2003 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Financial Intermediation by : Igor Salitskiy
Download or read book Essays on Financial Intermediation written by Igor Salitskiy and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three studies. In the first study I This paper extends the costly state verification model from Townsend (1979) to a dynamic and hierarchical setting with an investor, a financial intermediary, and an entrepreneur. Such a hierarchy is natural in a setting where the intermediary has special monitoring skills. This setting yields a theory of seniority and dynamic control: it explains why investors are usually given the highest priority on projects' assets, financial intermediaries have middle priority and entrepreneurs have the lowest priority; it also explains why more cash flow and control rights are allocated to financial intermediaries if a project's performance is bad and to entrepreneurs if it is good. I show that the optimal contracts can be replicated with debt and equity. If the project requires a series of investments until it can be sold to outsiders, the entrepreneur sells preferred stock (a combination of debt and equity) each time additional financing is needed. If the project generates a series of positive payoffs, the entrepreneur sells a combination of short-term and long-term debt. In the second study I I study optimal government interventions during asset fire sales by banks. Fire sales happen when a large portion of banks receive liquidity shocks. This depletes bank balance sheets directly and indirectly because these assets are used as collateral. The government can respond by buying distressed assets or buying stock from banks. Stock purchases do not deprive banks of collateral, but may have a lower effect on asset prices. The optimal policy depends on the elasticity of asset prices to asset supply and the amount of assets held by banks. Calibration to the recent financial crisis is provided. In the third study conducted with Attila Ambrus and Eric Chaney we use ransom prices and time to ransom for over 10,000 captives rescued from two Barbary strongholds to investigate the empirical relevance of dynamic bargaining models with one-sided asymmetric information in ransoming settings. We observe both multiple negotiations that were ex ante similar from the uninformed party's (seller's) point of view, and information that only the buyer knew. Through reduced-form analysis, we test some common qualitative predictions of dynamic bargaining models. We also structurally estimate the model in Cramton (1991) to compare negotiations in different Barbary strongholds. Our estimates suggest that the historical bargaining institutions were remarkably efficient, despite the presence of substantial asymmetric information.
Book Synopsis Handbook of Financial Intermediation and Banking by : Anjan V. Thakor
Download or read book Handbook of Financial Intermediation and Banking written by Anjan V. Thakor and published by Elsevier. This book was released on 2008-07-07 with total page 605 pages. Available in PDF, EPUB and Kindle. Book excerpt: The growth of financial intermediation research has yielded a host of questions that have pushed "design" issues to the fore even as the boundary between financial intermediation and corporate finance has blurred. This volume presents review articles on six major topics that are connected by information-theoretic tools and characterized by valuable perspectives and important questions for future research. Touching upon a wide range of issues pertaining to the designs of securities, institutions, trading mechanisms and markets, industry structure, and regulation, this volume will encourage bold new efforts to shape financial intermediaries in the future. Original review articles offer valuable perspectives on research issues appearing in top journals Twenty articles are grouped by six major topics, together defining the leading research edge of financial intermediation Corporate finance researchers will find affinities in the tools, methods, and conclusions featured in these articles
Book Synopsis Essays on Financial Intermediation and International Finance by : Paula Andrea Beltran Saavedra
Download or read book Essays on Financial Intermediation and International Finance written by Paula Andrea Beltran Saavedra and published by . This book was released on 2022 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters on financial intermediation and international finance that contribute to our understanding and identification of the transmission of aggregate shocks in imperfect financial markets. The first chapter studies the effect of an aggregate funding supply shock in a lending network in times of distress in a quantitative framework for the money market funds industry in the U.S. The second chapter identifies the effect of cross-border banking flows on macroeconomic and financial outcomes for emerging economies. The third chapter studies the identification of the impact of foreign exchange interventions under a limited risk-bearing capacity of financial intermediaries. The first chapter studies the implications of network frictions for the allocative efficiency of funding provision of the U.S. Money Markets Funds Industry. I build a tractable model of financial intermediation that features an incomplete network of counterparties and bilateral bargaining within a network. I use the quantitative model to assess the effect of a large supply shock of funding in the money market funds industry. I provide an identification framework to estimate the model's parameters and discipline the model using portfolio data of the money market funds industry. I assess a counterfactual taking as primitives the drop in assets under management at the onset of the COVID-19 pandemic and show that the model can account for price dispersion and funding allocation observed in the data. The second chapter assesses the effect of capital flows in emerging countries. We focus on the impact of cross-border banking flows and leverage the size distribution at the bilateral level to construct an instrument for capital inflows. We build a granular instrumental variable to identify the effects on macroeconomic and financial conditions for 22 emerging countries. Cross-border bank credit causes higher domestic activity in EMEs and looser financial conditions. We also show that the effect is heterogeneous across different levels of capital inflow controls. The third chapter studies the effects of foreign exchange intervention. We estimate the causal effect of foreign exchange intervention. Theoretically, the impact of foreign exchange intervention depends on the imperfect asset substitution that relates to the limited risk-bearing capacity of financial intermediaries. To identify the risk-bearing capacity, we use the variation from information free flows of passive investors around rebalancing dates. These flows are plausibly exogenous with respect to domestic conditions and act as a shock to the risk held by financial intermediaries. We show that information-free flows have effects on UIP and CIP deviations. Our preliminary estimates show that the required foreign exchange intervention to achieve a 10% foreign exchange depreciation in one week is between $0.02-$5.06 billion dollars.
