Essays on Economic Volatility and Financial Frictions

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ISBN 13 :
Total Pages : 202 pages
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Book Synopsis Essays on Economic Volatility and Financial Frictions by : Hongyan Zhao

Download or read book Essays on Economic Volatility and Financial Frictions written by Hongyan Zhao and published by . This book was released on 2012 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays in macroeconomics. The first one essay discusses the reasons of Chinese huge foreign reserves holdings. It contributes to the literature of sudden stops, precautionary saving and foreign assets holdings. In the second essay, I study the price volatility of commodities and manufactured goods. I measure the price volatility of each individual goods but not on the aggregated level and therefore the results complete the related study. The third essay explores the correlation between the relative volatility of output to money stock and financial development. It extends the application of financial accelerator model. In the first essay, I address the question of China's extraordinary economic growth during the last decade and huge magnitude of foreign reserves holdings. The coexistence of fast economic growth and net capital outflow presents a puzzle to the conventional wisdom that developing countries should borrow from abroad. This paper develops a two-sector DSGE model to quantify the contribution of precautionary saving motivation against economic sudden stops. The risk of sudden stops comes from the lagged financial reforms in China, in which banks continue to support inefficient state-owned enterprises, while the more productive private firms are subject to strong discrimination in credit market, and face the endogenous collateral constraints. When the private sector is small, the impact on aggregate output of binding credit constraints is limited. However, as the output share of private sector increases, the negative effect of financial frictions on private firms grows, and it is more likely to trigger a nation-wide economic sudden stop. Thus, the precautionary savings rise and the demand for foreign assets also increases. Our calibration exercise based on Chinese macro data shows that 25 percent of foreign reserves can be accounted for by the rising probability of sudden stops. The second essay studies the relative volatility of commodity prices with a large dataset of monthly prices observed in international trade data from the United States over the period 2002 to 2011. The conventional wisdom in academia and policy circles is that primary commodity prices are more volatile than those of manufactured products, although most existing studies do not measure the relative volatility of prices of individual goods or commodities. The literature tends to focus on trends in the evolution and volatility of ratios of price indexes composed of multiple commodities and products. This approach can be misleading. The evidence presented here suggests that, on average, prices of individual primary commodities are less volatile than those of individual manufactured goods. Furthermore, robustness tests suggest that these results are not likely to be due to alternative product classification choices, differences in product exit rates, measurement errors in the trade data, or the level of aggregation of the trade data. Hence the explanation must be found in the realm of economics, rather than measurement. However, the challenges of managing terms of trade volatility in developing countries with concentrated export baskets remain. The third essay tries to understand why the relative volatility of nominal output to money stock is negatively related to countries' financial development level from cross-country evidence. In the paper I modify Bernanke et al. (1999)'s financial accelerator model by introducing the classic money demand function. The calibration to US data shows that the model is able to replicate this empirical pattern quite well. Given the same monetary shocks, countries with poorer financial system have larger output volatility due to the stronger effect of financial accelerator mechanism.

Essays on Financial Frictions and Financial Integration

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ISBN 13 :
Total Pages : 58 pages
Book Rating : 4.:/5 (813 download)

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Book Synopsis Essays on Financial Frictions and Financial Integration by : Ahrang Lee

Download or read book Essays on Financial Frictions and Financial Integration written by Ahrang Lee and published by . This book was released on 2012 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation addresses two questions regarding international financial market integration and financial frictions. Does stock market volatility in a country raise that in other countries? To answer this question, I conduct two types of empirical exercises. I fit a simple bivariate vector augoregressions (VAR), which show a persistent positive response of domestic volatility to a shock in external volatility. In addition, I run two stage least squares on domestic volatility to resolve the problem of an endogenous explanatory variable. Disaster shocks are used as the instrument for external volatility. I find that international spillovers do occur in stock markets. In particular, one standard deviation increase in external volatility raises domestic volatility by at least 0.3 standard deviations. Moreover, I show that disaster shocks are a valid and robust instrument for volatility. To the best of my awareness, this is the first work addressing the issue of endogeneity in international stock markets with instrument variables. The second question asks if fixed costs to using financial intermediation are quantitatively important in explaining income differences across-countries. I introduce fixed costs into an entrepreneurship model with financial frictions where agents are heterogeneous in their financial assets, entrepreneurial ability and labor productivity. I find that the fraction of agents using financial intermediation substantially decreases as fixed costs increase. Fixed costs as low as 11 per cent of typical year's income lower the intermediated population from almost one to one fifth. Fixed costs also reduce accumulation of capital by 20 per cent as they restrict the intermediated population. Lastly, barriers to financial intermediation play an important role in increasing wealth inequality within an economy and across economies. The aforementioned fixed costs raise the wealth Gini index from 0.78 to 0.92 and reduce aggregate income by 10 per cent. That is, the fixed costs alone can explain 10 per cent of income difference between, for example, Belgium and Guyana.

Three Essays on the Role of Frictions in the Economy

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ISBN 13 :
Total Pages : 165 pages
Book Rating : 4.:/5 (952 download)

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Book Synopsis Three Essays on the Role of Frictions in the Economy by : Meradj Morteza Pouraghdam

Download or read book Three Essays on the Role of Frictions in the Economy written by Meradj Morteza Pouraghdam and published by . This book was released on 2016 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis I have investigated three aspects of market frictions. Chapter 1 is about financial frictions, i.e. frictional forces prevailing in the financial lending markets and how monitoring and legal fines imposed on banks affect financial fragility. Chapter 2 explores the frictional labor market, i.e. frictional forces that prevent the smooth matching process between employees and employers in labor markets. In this chapter I investigate the sources of fluctuations in labor market volatility. Chapter 3 investigates the asymmetrical information in lending markets and how bankruptcy law could potentially affect this asymmetrical information between a borrower and its lenders. In Chapter 1, I have investigated the implications of legal fines and partial monitoring in a macro-finance model. This primary motivation of this work was the unprecedented level of fines banks faced in recent years. The research in this field is very sparse and this work is one of the few to fill in the void. I have tried investigating the implications of fines and partial monitoring in static and dynamic frameworks. There is partial monitoring in the sense that dubious behavior of intermediaries is not always observed with certainty. Moreover intermediaries can pay some litigation fees to mitigate the punishment for their conduct should they get caught. Several insights can be drawn from introducing such concepts in static and dynamic frameworks. Partial monitoring and legal fines make the incentive constraint of intermediaries more relaxed, in the sense that bankers are required to pledge less collateral to raise fund. This decrease in the asset pledgeability pushes the corporate spread down. In a dynamic set-up due to changes in asset qualities caused by such possibilities, recovery in output and credit become sluggish in response to an adverse financial shock. The dynamic implications of the model for the post-crisis period are investigated. This paper calls for further research to broaden our understandings in how legal settlements interact with banks' behaviors. In Chapter 2 (joint with Elisa Guglielminetti) I have investigated the time-varying property of job creation in the United States. Despite extensive documentation of the US labor market dynamics, evidence on its time-varying volatility is very hard to find. In this work I contribute to the literature by structurally investigating the time-varying volatility of the U.S. labor market. I address this issue through a time-varying parameter VAR (TVP-VAR) with stochastic volatility by identifying four structural shocks through imposing robust restrictions based on a New Keynesian DSGE model with frictional labor markets and a large set of shocks. The main findings are as follows. First, at business cycle frequencies, the lion share of the variance of job creation is explained by cost-push and demand shocks, thus challenging the conventional practice of addressing the labor market volatility puzzle à la Shimer under the assumption that technology shocks are the main driver of fluctuations in hiring. Second, technology shocks had a negative impact on job creation until the beginning of the '90s. This result is reminiscent of the "hours puzzle" à la Gali. In Chapter 3 (joint with Garence Staraci) I provide an additional rationale why creditors include covenants in their contracts. The central claim is that covenants are not only included as a means of shifting the governance from debtors to creditors, but also to potentially address the concerns creditors might have about how the bankruptcy law is practiced. To investigate this claim, I take advantage of the fact that covenants are nullified inside bankruptcy. This fact permits us to show that any change to the bankruptcy law affects the spread through changes that it brings to the contractual structure...

Essays in Applied Macroeconomic Theory

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (862 download)

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Book Synopsis Essays in Applied Macroeconomic Theory by : Hugo Vega

Download or read book Essays in Applied Macroeconomic Theory written by Hugo Vega and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains three essays that employ macroeconomic theory to study the implications of volatility, financial frictions and reserve requirements. The first essay uses an imperfect information model where agents solve a signal extraction problem to study the effect of volatility on the economy. A real business cycle model where the agent faces imperfect information regarding productivity is used to address the question. The main finding is that the variance of the productivity process components has a small negative short run impact on the economy's real variables. However, imperfect information dampens the effects of volatility associated to permanent components of productivity and amplifies the effects of volatility associated to transitory components. The second essay presents a partial equilibrium characterization of the credit market in an economy with partial financial dollarization. Financial frictions (costly state verification and banking regulation restrictions), are introduced and their impact on lending and deposit interest rates denominated in domestic and foreign currency studied. The analysis shows that reserve requirements act as a tax that leads banks to decrease deposit rates, while the wedge between foreign and domestic currency lending rates is decreasing in exchange rate volatility and increasing in the degree of correlation between entrepreneurs' returns and the exchange rate. The third essay introduces an interbank market with two types of private banks and a central bank into a New-Keynesian DSGE model. The model is used to analyse the general equilibrium effects of changes to reserve requirements, while the central bank follows a Taylor rule to set the policy interest rate. The paper shows that changes to reserve requirements have similar effects to interest rate hikes and that both monetary policy tools can be used jointly in order to avoid big swings in the policy rate or a zero bound.

Essays on Information, Liquidity and Financial Frictions

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ISBN 13 :
Total Pages : 139 pages
Book Rating : 4.:/5 (936 download)

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Book Synopsis Essays on Information, Liquidity and Financial Frictions by : Wukuang Cun

Download or read book Essays on Information, Liquidity and Financial Frictions written by Wukuang Cun and published by . This book was released on 2015 with total page 139 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation seeks to understand how financial frictions arise and how they can affect the economy, and explores the implications of financial frictions for monetary policy during crises. Specifically, Chapter 2 and 3 study the endogenous nature of information asymmetry and explore its implications for financial markets and the macro economy. Chapter 4 studies the potential side effects of large scale asset purchase by central banks. In Chapter 2, I study a dynamic economy in which the information on asset quality is asymmetric and the degree of information asymmetry endogenously varies with the macro-economy, which amplifies the effects of shocks. In the model, firms hold assets of heterogeneous quality and borrow for operating expenses. Production is subject to idiosyncratic shocks, which may force the firms to liquidate their assets to pay off debts. Firms are initially uninformed of the qualities of their assets, but they can acquire private information on their own assets at a cost. Private information is individually beneficial, but it creates a lemons problem that lowers market liquidity and distorts economic decisions. Adverse shocks trigger private information acquisition, which exacerbates the lemons problem. As results, market liquidity drops and economic activity declines. The model can generate larger fluctuations in financial and macroeconomic variables than an otherwise the same model with the level of information asymmetry being fixed. In Chapter 3, I provide a possible explanation for the countercyclical movements in the measures of asset return volatility. In the model, external financing is costly due to the information asymmetry between borrowers and lenders. When the borrowers' financial conditions are worsened, the costs of external financing rise. Borrowers respond by increasing their transparency to outside investors to mitigate information asymmetry, which helps reduce the external financing cost. As a result, returns on external financing instruments disperse and fluctuate more as more information is disclosed, leading to increases in the cross sectional dispersion and the time series volatility of returns. This model can generate countercyclical dispersion, volatility in returns and external finance premium, with correlation coefficients between pairs of these measures quantitatively in line with the data. In Chapter 4, I explore the potential side effects of central bank asset purchase. In the model, commercial banks and shadow banks hold liquid assets as part of their operations. Asset purchases by the central bank decreases the supply of liquid assets that shadow banks can directly hold. When commercial banks do not face binding leverage constraints, shadow banks respond by increasing their deposits in or credit lines from commercial banks and central bank asset purchases are neutral. In the presence of a binding leverage constraint, however, asset purchases create distortions that decrease shadow banks' liquidity holdings and their lending. While conventional wisdom says that central bank asset purchases should be expansionary, I show that central bank asset purchases are necessarily contractionary when the level of bank reserves is high.

Essays on Uncertainty and Credit Market Frictions

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ISBN 13 :
Total Pages : 280 pages
Book Rating : 4.:/5 (11 download)

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Book Synopsis Essays on Uncertainty and Credit Market Frictions by : Givi Melkadze

Download or read book Essays on Uncertainty and Credit Market Frictions written by Givi Melkadze and published by . This book was released on 2019 with total page 280 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation comprises of three chapters. The first chapter studies the role of credit market frictions in transmitting time-varying aggregate uncertainty to economic activity. First, we document that changes in country-specific aggregate volatility are positively correlated with the current account dynamics but negatively correlated with investment, output and credit flows. Then we build an International Real Business Cycle model with credit market frictions that matches these empirical facts. The version of the model with no financial frictions can only account for positive correlation between volatility and current account, but implies counterfactual predictions for the other correlations. In the second chapter we analyze banking crises and lending of last resort (LOLR) in a quantitative model of financial frictions with bank defaults. We find that the LOLR, even if it induces an increase in banks' leverage, is beneficial for small open economies. We show that pools of small economies cannot be successful LOLRs for empirically reasonable levels of liquidity support: They need too many uncorrelated countries or large initial levels of reserves to be sustainable. A country with ample reserves like China can be a sustainable international LOLR. The third chapter analyzes supranational deposit insurance in a quantitative model of financial and sovereign debt crisis. We show that the common deposit insurance fund can bring about sizable economic benefits by weakening an adverse link between domestic banking sector stress and sovereign default risk. The model simulations suggest that the sustainability of such a fund requires a certain number of participating countries with strong fundamentals, while feasibility calls for risk-based insurance premiums. These results can inform the design of the common European deposit insurance fund.

Essays on the Role of Durables and Financial Frictions in Business Cycles and International Trade

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ISBN 13 :
Total Pages : 191 pages
Book Rating : 4.:/5 (14 download)

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Book Synopsis Essays on the Role of Durables and Financial Frictions in Business Cycles and International Trade by : Dong Cheng

Download or read book Essays on the Role of Durables and Financial Frictions in Business Cycles and International Trade written by Dong Cheng and published by . This book was released on 2018 with total page 191 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Three Essays on Monetary Policy in Economies with Financial Frictions

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ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (654 download)

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Book Synopsis Three Essays on Monetary Policy in Economies with Financial Frictions by : Rahul Anand

Download or read book Three Essays on Monetary Policy in Economies with Financial Frictions written by Rahul Anand and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this dissertation is to understand the role of financial frictions in the transmission of shocks and their effect on the monetary policy transmission mechanism. To accomplish the task, we develop Dynamic Stochastic General equilibrium models with financial frictions. In the first chapter, we develop a model to analytically determine the appropriate price index to target in the presence of financial frictions (where a fraction of households are constrained to consume their wage income each period). The analysis suggests that in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting-i.e. a headline inflation target but with some weight on the output gap. These results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit constrained. In the second chapter, we develop a small open economy model with macrofinancial linkages. The model includes a financial accelerator - entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt - to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks to productivity, interest rates and net worth of firms. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and to assess the optimality of the current monetary policy rule. In the third chapter, we develop a small open economy New Keynesian model with financial frictions and an active banking sector for India. We find that the presence of a monopolistic banking sector with sticky interest rate setting attenuates the shocks. However, if the interest rates are flexible it results in the amplification of shocks. We also find that an unexpected reduction in bank capital can have a substantial impact on the real economy and particularly on investment. Use of nonmonetary policy tools result in greater volatility as compared to when central banks use traditional monetary tightening.

Essays in International Finance and Macroeconomics

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ISBN 13 :
Total Pages : 234 pages
Book Rating : 4.:/5 (81 download)

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Book Synopsis Essays in International Finance and Macroeconomics by : Matteo Maggiori

Download or read book Essays in International Finance and Macroeconomics written by Matteo Maggiori and published by . This book was released on 2012 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the relationship between international financial markets, financial frictions, and the real economy. In particular, the dissertation focuses on the role of the United States of America (US) as the key country in the global financial architecture. The research presented here advances the study of international finance and macroeconomics by analyzing how the combination of two factors, the greater financial development of the US and financing frictions, leads to the special global roles of the US funding markets and the US dollar. In the first Chapter of the dissertation, I develop a model of financial intermediation in a closed economy, which is also the key building block of the open economy analysis in the second Chapter. In an economy with savers and financial intermediaries where financing frictions are present, the state of the financial sector becomes the key state variable. The financing frictions, modeled as the limited enforceability of deposit contracts, prevent capital from flowing freely from savers to the financial intermediaries that ultimately allocate capital to productive real assets. When financial intermediaries are well capitalized, their capital acts as a safety buffer for potential investment losses and, consequently, financing frictions are alleviated. In this state of the world, financial markets closely resemble those of the standard frictionless asset pricing framework. When, on the other hand, intermediaries are poorly capitalized, concerns for potential losses of capital disrupt the financing markets. In this state of the world, capital does not flow smoothly from savers into productive assets via financial intermediaries. In general, risky assets' prices fall and their volatility increases, thus replicating typical features of financial crises. Interestingly, these effects are highly non-linear. In the second Chapter, I provide a framework for understanding the global financial architecture as an equilibrium outcome of the risk sharing between countries with different levels of financial development. The country that has the most developed financial sector takes on a larger proportion of global fundamental and financial risk because its financial intermediaries are better able to deal with funding problems following negative shocks. This asymmetric risk sharing has real consequences. In good times, and in the long run, the more financially developed country consumes more, relative to other countries, and runs a trade deficit financed by the higher financial income that it earns as compensation for taking greater risk. During global crises, it suffers heavier capital losses than other countries, exacerbating its fall in consumption. This country's currency emerges as the world's reserve currency because it appreciates during crises and so provides a good hedge. The model is able to rationalize these facts, which characterize the role of the US as the key country in the global financial architecture. In the third Chapter, I provide empirical evidence on the role of the US dollar as a global safe asset. This empirical evidence provides one of the stylized facts analyzed in my theoretical work. I show that the US dollar earns a safety premium versus a basket of foreign currencies and that this premium is particularly high in times of global financial stress. These findings support the view that the dollar acts as the reserve currency for the international monetary system and that it is a natural safe haven in times of crisis, when a global flight to quality toward the reserve currency takes place. During such episodes, investors are willing to earn negative expected returns as compensation for holding safe dollars. I estimate the time varying dollar safety premium by using instrumental variable techniques to condition information down.

Essays on Informational Frictions in Macroeconomics and Finance

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ISBN 13 :
Total Pages : 220 pages
Book Rating : 4.:/5 (655 download)

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Book Synopsis Essays on Informational Frictions in Macroeconomics and Finance by : Jennifer La'O

Download or read book Essays on Informational Frictions in Macroeconomics and Finance written by Jennifer La'O and published by . This book was released on 2010 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of four chapters analyzing the effects of heterogeneous and asymmetric information in macroeconomic and financial settings, with an emphasis on short-run fluctuations. Within these chapters, I study the implications these informational frictions may have for the behavior of firms and financial institutions over the business cycle and during crises episodes. The first chapter examines how collateral constraints on firm-level investment introduce a powerful two-way feedback between the financial market and the real economy. On one hand, real economic activity forms the basis for asset dividends. On the other hand, asset prices affect collateral value, which in turn determines the ability of firms to invest. In this chapter I show how this two-way feedback can generate significant expectations-driven fluctuations in asset prices and macroeconomic outcomes when information is dispersed. In particular, I study the implications of this two-way feedback within a micro-founded business-cycle economy in which agents are imperfectly, and heterogeneously, informed about the underlying economic fundamentals. I then show how tighter collateral constraints mitigate the impact of productivity shocks on equilibrium output and asset prices, but amplify the impact of "noise", by which I mean common errors in expectations. Noise can thus be an important source of asset-price volatility and business-cycle fluctuations when collateral constraints are tight. The second chapter is based on joint work with George-Marios Angeletos. In this chapter we investigate a real-business-cycle economy that features dispersed information about underlying aggregate productivity shocks, taste shocks, and-potentially-shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative short-run response of employment to productivity shocks; (iii) imply that productivity shocks explain only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and (vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none of these properties requires significant uncertainty about the underlying fundamentals: they rest on the heterogeneity of information and the strength of trade linkages in the economy, not the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart from undoing monopoly distortions or providing the agents with more information, no policy intervention can improve upon the equilibrium allocations. The third chapter is also based on joint work with George-Marios Angeletos. This chapter investigates how incomplete information affects the response of prices to nominal shocks. Our baseline model is a variant of the Calvo model in which firms observe the underlying nominal shocks with noise. In this model, the response of prices is pinned down by three parameters: the precision of available information about the nominal shock; the frequency of price adjustment; and the degree of strategic complementarity in pricing decisions. This result synthesizes the broader lessons of the pertinent literature. However, this synthesis provides only a partial view of the role of incomplete information: once one allows for more general information structures than those used in previous work, one cannot quantify the degree of price inertia without additional information about the dynamics of higher-order beliefs, or of the agents' forecasts of inflation. We highlight this with three extensions of our baseline model, all of which break the tight connection between the precision of information and higher-order beliefs featured in previous work. Finally, the fourth chapter studies how predatory trading affects the ability of banks and large trading institutions to raise capital in times of temporary financial distress in an environment in which traders are asymmetrically informed about each others' balance sheets. Predatory trading is a strategy in which a trader can profit by trading against another trader's position, driving an otherwise solvent but distressed trader into insolvency. The predator, however, must be sufficiently informed of the distressed trader's balance sheet in order to exploit this position. I find that when a distressed trader is more informed than other traders about his own balances, searching for extra capital from lenders can become a signal of financial need, thereby opening the door for predatory trading and possible insolvency. Thus, a trader who would otherwise seek to recapitalize is reluctant to search for extra capital in the presence of potential predators. Predatory trading may therefore make it exceedingly difficult for banks and financial institutions to raise credit in times of temporary financial distress.

Essays on Financial Market Volatility and Real Economic Activity

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ISBN 13 :
Total Pages : 130 pages
Book Rating : 4.:/5 (922 download)

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Book Synopsis Essays on Financial Market Volatility and Real Economic Activity by : Sang Yup Choi

Download or read book Essays on Financial Market Volatility and Real Economic Activity written by Sang Yup Choi and published by . This book was released on 2015 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies how financial market volatility or uncertainty in the U.S. economy affects real economic activity both in the U.S. and other open economies. Chapter 1 critically examines a stylized fact about the effects of uncertainty shocks on the U.S. economy. A link between uncertainty and firms' investment, hiring, and production decisions has drawn much attention in contemporary discussions after the 2008 financial crisis. Bloom (2009) showed that uncertainty events, identified by spikes in stock market volatility, triggered immediate falls in output and employment, followed by rapid rebounds. I show that such stock market volatility shocks failed to produce this same pattern of responses after 1983. Chapter 2 studies the effects of risk aversion shocks, measured by increases in the VIX, on emerging market economies (EMEs). By estimating a structural vector autoregression (VAR) model, I find that, although risk aversion shocks do not have much impact on U.S. output, they do have a noticeable impact on the output of EMEs. To explain the contrast between the impact of risk appetite shocks on EMEs and the impact on the U.S. economy, a credit channel is proposed as a propagation mechanism. In the model, an increase in the VIX is translated to a risk-aversion shock that generates a "flight to quality." As international investors pull their money from EMEs, borrowing costs increase and domestic credit falls as a consequence of credit market imperfections. Higher borrowing costs, in turn, lead to a fall in investment that causes a real depreciation and a decline in total output through sectoral linkages. Finally, Chapter 3, which is co-authored with Prakash Loungani, studies the effect of uncertainty shocks on unemployment dynamics by separating out the role of aggregate and sectoral channels. Using SP500 data from the first quarter of 1963 through the third quarter of 2014, we construct a separate index to measure sectoral uncertainty and compare its effects on the unemployment rate with that of aggregate uncertainty in a standard VAR model, augmented by a local projection method. We find that aggregate uncertainty shocks lead to an immediate increase in unemployment, followed by swift reversals. In contrast, sectoral uncertainty shocks have a long-lasting impact on unemployment, with the peak impact occurring after two years. Our findings highlight an additional channel through which uncertainty shocks have persistent effects on unemployment by requiring substantial inter-industry labor reallocation.

Essays in International Macroeconomics

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (11 download)

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Book Synopsis Essays in International Macroeconomics by : Anurag Singh

Download or read book Essays in International Macroeconomics written by Anurag Singh and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The third chapter looks at one of the key financial frictions in emerging and poor economies—the presence of credit constrained households—and the way they affect consumption-to-output volatility ratio in these countries. A higher than one ratio of consumption-to-output volatility in emerging and poor countries is at odds with the observation that emerging and poor countries are also the countries where a big fraction of consumers do not have access to financial services. This is because consumers with no access to financial services cannot smooth consumption and can only have a consumption volatility to output volatility ratio of one. Therefore, in the presence of credit constrained households, the consumption volatility to output volatility ratio in the theoretical models should move closer to one rather than going up and away from one. This chapter, therefore, incorporates credit constrained households in an augmented real business cycle (RBC) model to study their effect on economic fluctuations in a set on 75 countries.

Essays on Macroeconomics and Finance

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ISBN 13 :
Total Pages : 310 pages
Book Rating : 4.:/5 (14 download)

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Book Synopsis Essays on Macroeconomics and Finance by : Andres Schneider

Download or read book Essays on Macroeconomics and Finance written by Andres Schneider and published by . This book was released on 2018 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter one---Risk Sharing and the Term Structure of Interest Rates I propose a general equilibrium model with heterogeneous investors to explain the key properties of the U.S. real and nominal term structure of interest rates. I find that differences in investors' willingness to substitute consumption across time are critical to account for nominal and real yields dynamics. When the endogenous amount of credit supplied by risk-tolerant investors is low, the aggregate price of risk and the real interest rate are high. Thus, real bonds are risky. I study nominal bonds under both exogenous and endogenous (Taylor rule) inflation. I find that when the Taylor loading on inflation is greater than one, the nominal term structure is upward sloping regardless of the correlation between nominal and real shocks. I use the model to shed light on two salient interest rate puzzles: (1) the secular decline of long-term real and nominal rates since the 1980s, and (2) the sudden spike in real yields at the height of the Great Recession. Chapter 2---Endogenous and Exogenous Risk Premia In this second chapter, I investigate how levered balance sheets amplify the effects of exogenous aggregate volatility shocks on asset prices. Risk premia are determined by the interaction of exogenous time-varying fundamentals with the endogenously determined levered balance sheets. When macro-volatility shocks hit the economy, asset prices decline, levered agent loses relatively more net worth and aggregate risk aversion rises endogenously. I find that this feedback between balance sheets and macro-volatility produces six times more volatile premiums than an economy with only cash flow shocks, thus improving the model's ability to match the data. However, the effects on investment and growth are mild. Chapter 3---Liquidity Shocks, Business Cycles and Asset Prices The third chapter is joint work with Saki Bigio. In the aftermath of the Great Recession, macro models that feature financing constraints have attracted increasing attention. Among these, Kiyotaki and Moore 2008 is a prominent example. In this paper, we investigate whether the liquidity shocks and financial frictions proposed by Kiyotaki and Moore 2008 can improve the asset pricing predictions of the frictionless RBC model. We study the quantitative business cycle and asset pricing properties in an economy in which agents feature recursive preferences, are subject to a liquidity constraint, and suffer liquidity shocks. We find that the model predicts highly nonlinear time variation and levels of risk premia, which are driven by endogenous fluctuations in equity prices. However, the model fails to account for a basic fact: Periods of scarce liquidity are associated with high asset prices and low expected returns. Chapter 4---A Macrofinance View of U.S. Sovereign CDS Premiums The forth and last chapter of the dissertation is joint work with Mikhail Chernov and Lukas Schmid. Premiums on U.S. sovereign CDS have risen to persistently elevated levels since the financial crisis. We ask whether these premiums reflect the probability of a fiscal default a state in which budget balance can no longer be restored by raising taxes or eroding the real value of debt by raising inflation. We develop an equilibrium macrofinance model in which the fiscal and monetary policy stance jointly endogenously determine nominal debt, taxes, inflation and growth. We show how CDS premiums reflect endogenous risk-adjusted fiscal default probabilities. A calibrated version of the model is quantitatively consistent with the observed CDS premiums.

Macroeconomics and the Financial System

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Author :
Publisher : Macmillan
ISBN 13 : 1429253673
Total Pages : 642 pages
Book Rating : 4.4/5 (292 download)

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Book Synopsis Macroeconomics and the Financial System by : N. Gregory Mankiw

Download or read book Macroeconomics and the Financial System written by N. Gregory Mankiw and published by Macmillan. This book was released on 2011 with total page 642 pages. Available in PDF, EPUB and Kindle. Book excerpt: Watch this video interview with Greg Mankiw and Larry Ball discussing the future of the intermediate macroeconomics course and their new text. Check out preview content for Macroeconomics and the Financial System here. The financial crisis and subsequent economic downturn of 2008 and 2009 was a dramatic reminder of what economists have long understood: developments in the overall economy and developments in the financial system are inextricably intertwined. Derived and updated from two widely acclaimed textbooks (Greg Mankiw’s Macroeconomics, Seventh Edition and Larry Ball’s Money, Banking, and the Financial System), this groundbreaking text is the first and only intermediate macroeconomics text that provides substantial coverage of the financial system.

Essays in Financial Economics

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Author :
Publisher : Emerald Group Publishing
ISBN 13 : 1789733898
Total Pages : 168 pages
Book Rating : 4.7/5 (897 download)

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Book Synopsis Essays in Financial Economics by : Rita Biswas

Download or read book Essays in Financial Economics written by Rita Biswas and published by Emerald Group Publishing. This book was released on 2019-10-24 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.

The Economics of World War I

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Publisher : Cambridge University Press
ISBN 13 : 1139448358
Total Pages : 363 pages
Book Rating : 4.1/5 (394 download)

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Book Synopsis The Economics of World War I by : Stephen Broadberry

Download or read book The Economics of World War I written by Stephen Broadberry and published by Cambridge University Press. This book was released on 2005-09-29 with total page 363 pages. Available in PDF, EPUB and Kindle. Book excerpt: This unique volume offers a definitive new history of European economies at war from 1914 to 1918. It studies how European economies mobilised for war, how existing economic institutions stood up under the strain, how economic development influenced outcomes and how wartime experience influenced post-war economic growth. Leading international experts provide the first systematic comparison of economies at war between 1914 and 1918 based on the best available data for Britain, Germany, France, Russia, the USA, Italy, Turkey, Austria-Hungary and the Netherlands. The editors' overview draws some stark lessons about the role of economic development, the importance of markets and the damage done by nationalism and protectionism. A companion volume to the acclaimed The Economics of World War II, this is a major contribution to our understanding of total war.

Amendment to International Accounting Standard IAS 19, Employee Benefits

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Publisher :
ISBN 13 :
Total Pages : 54 pages
Book Rating : 4.E/5 ( download)

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Book Synopsis Amendment to International Accounting Standard IAS 19, Employee Benefits by : International Accounting Standards Board

Download or read book Amendment to International Accounting Standard IAS 19, Employee Benefits written by International Accounting Standards Board and published by . This book was released on 2004 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: