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Essays On Financial Frictions And Heterogeneous Firms In International Economics
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Book Synopsis Essays on Financial Frictions and Heterogeneous Firms in International Economics by : Ruanjai Suwantaradon
Download or read book Essays on Financial Frictions and Heterogeneous Firms in International Economics written by Ruanjai Suwantaradon and published by . This book was released on 2008 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in International and Macroeconomics by : Junhyong Kim
Download or read book Essays in International and Macroeconomics written by Junhyong Kim and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes micro-level data and employs a general equilibrium model to study heterogeneous firm-level responses to aggregate shocks, underlying sources of the observed difference in firm's decisions, and industry and country-level implications. The first chapter investigates how cross-sectional micro-uncertainty influences the investment of small and large firms and discusses the aggregate implications of the heterogeneity in their investment decisions. Empirically, we find that large firms show less investment decline in times of heightened uncertainty. We provide empirical evidence for the underlying driver of the observed size effect: the heterogeneous responses across firms are in fact the consequence of large firms operating in multiple markets rather than their size per se. To interpret these findings, we build a heterogeneous firm model with single- and multi-unit firms subject to (i) unit-level real frictions, i.e., fixed and convex investment adjustment costs and (ii) firm-level financial frictions, i.e., costly equity issuance. In the model with unit-level frictions, an increase in uncertainty lowers the investment of both single and multi-unit firms through a `wait-and-see' effect. For a multi-unit firm, on the other hand, firm-level financial frictions generate the interdependence of investment across units within a firm, i.e., a fall in investment in one unit enlarges internal funds and so relaxes the constraint on the amount a firm can invest in the other unit. Therefore, upon uncertainty shocks, multi-unit firms lower their investment by less than single-unit firms. This is because the `wait-and-see' effect is partially offset by the relaxation of financial constraints due to the availability of larger internal funds when investment in one unit decreases. To examine the aggregate implications due to the heterogeneity in firms' responses, we compare the benchmark economy to a counterfactual economy with only single-unit firms. The result shows that the contribution of multi-unit firms is sizable in alleviating the impact of uncertainty shocks on aggregate investment. In the second chapter, with Korean firm-level and aggregated industry-level data, we uncover a balance sheet channel through which the exchange rate shock translates into domestic prices. Exploiting the quasi-natural experiment environment during the Asian Financial Crisis, we investigate how exposure to foreign currency debt prior to the crisis leads to different price dynamics. Our empirical finding suggests that when a sector had a higher level of short-term foreign currency debt ratio prior to the crisis, the price increase is more pronounced. Based on this empirical result, we build a heterogeneous firm model to study the transition path upon an unexpected real exchange rate shock, calibrated to match the real exchange rate changes in the 1996-98 period in Korea. In our model, a currency depreciation inflates the domestic value of foreign currency debt. As a consequence, firms, with a high share of their debt in foreign currency, face tighter working capital constraint and reduce their investment more, leading to higher costs of production and higher prices. The model is able to generate qualitatively consistent and quantitatively sizeable price increase upon a large depreciation of the currency, and furthermore, explain the cross-sectional variation in the sectoral price changes across industries. We also find that the interaction of strategic complementarity in firms' price settings and heterogeneity in foreign currency debt holdings across firms within an industry play an important role in amplifying the negative balance sheet effect on industry-level price dynamics.
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:
Book Synopsis Essays on Multinational Firms, Financial Frictions, and Income in Developing Countries by : Yunfan Gu
Download or read book Essays on Multinational Firms, Financial Frictions, and Income in Developing Countries written by Yunfan Gu and published by . This book was released on 2018 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation contributes to our understanding of how multinational firms and financial frictions affect income in developing countries. From a policy perspective, I find that as developing countries open up to multinational firms, financial reforms become increasingly beneficial to national income in the countries. I also find that the joint ventures of foreign multinational firms with state-owned firms, an industrial policy in China, prevent technology spillovers and suppress industrial output. The dissertation consists of three chapters. Chapter 1: Financial frictions, Multinational Firms, and Income in Developing Countries: Theoretical Analysis Financial frictions create resource misallocation across heterogeneous production units and reduce national income (GNP) in developing countries. Multinational firms, however, can largely circumvent local financial frictions by borrowing from international sources. In this chapter, I theoretically study whether the presence of multinational firms in developing countries alleviates the adverse impact of financial frictions on national income. I show that in a developing economy that is open to multinational firms, if domestic firms produce a sufficiently large (small) share of output, financial frictions will cause a larger (smaller) decline in national income than in an otherwise identical developing economy that is closed to multinational firms. Such result calls for the quantitative analysis in the next chapter. Chapter 2: Financial frictions, Multinational Firms, and Income in Developing Countries: Quantitative Analysis In this chapter, I quantitatively study how the presence of multinational firms in developing countries change the adverse impact of financial frictions on national income. Using a calibrated structural model, I find that when a developing economy is open to multinational firms, a modest financial reform that reduces financial frictions in the developing economy will increase national income by 19%, as opposed to only 11% when the economy is closed to multinational firms. Such result indicates that financial frictions become increasingly costly and financial reforms become increasingly beneficial to national income in developing countries as they open up to multinational production. Chapter 3, Joint Ventures and Technology Spillovers in China Chinese government actively promotes joint ventures of foreign multinational firms with state-owned firms. In this chapter, I study the effects of the joint ventures in promoting technology spillovers. Using firm-level data in China, I find that higher joint venture presence in a sector leads to higher productivity of firms in the upstream of that sector, but lower productivity of firms in the downstream of that sector. A quantitative analysis suggests that the later force will dominate, and joint ventures will on aggregate prevent technology spillovers and cause a significant decline in total industrial output in China.
Book Synopsis Essays on International Trade, Productivity, and Growth by : Leilei Shen
Download or read book Essays on International Trade, Productivity, and Growth written by Leilei Shen and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Financial Markets, Inequality and Economic Development by : Joaquin Blaum
Download or read book Essays on Financial Markets, Inequality and Economic Development written by Joaquin Blaum and published by . This book was released on 2012 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Chapter 1, I study the effects of wealth inequality on economies where financial markets are imperfect. I exploit the idea that inequality should have a different effect across sectors. Using a difference-in-difference strategy, I show that sectors that are more in need of external finance are relatively smaller in countries with higher income inequality. I then build a model in which sectors differ in their fixed cost requirement, agents face collateral constraints, and production is subject to decreasing returns. A calibrated version of the model is consistent with the documented facts on inequality and cross-sector outcomes. At the calibrated parameters, wealth inequality exacerbates the effect of financial frictions on the economy. Quantitatively, wealth inequality can generate losses of up to 46 percent of per capita income. In Chapter 2, co-authored with Claire Lelarge and Michael Peters, we explore the ingredients that a model of import behavior should have in order to be consistent with the firm level evidence. We build a model where firms are heterogeneous in their factor neutral productivity, and prices, fixed costs and input qualities are common across firms. Using a comprehensive dataset of French firms, we test the qualitative predictions of such model. The model fares well in describing firm's expenditure across imported varieties, but fails to account for the pattern of expenditure between domestic and foreign inputs. We conclude that a mechanism inducing firm-level heterogeneity in the relative price of domestic varieties is needed to model import demand. In Chapter 3, I study the effects of financial frictions on the pattern of cross-industry growth rates. I document two facts: (i) externally dependent sectors tend to grow faster along the economy's development path, and (ii) externally dependent sectors grow disproportionately faster in countries with better financial institutions. I argue that financial frictions can account for these facts. I build a dynamic two-sector model in which sectors differ in their liquidity requirement and agents face collateral constraints. Financial frictions generate faster growth in the sector with higher liquidity requirement. I identify conditions under which financial development leads to higher excess growth in the externally dependent sector.
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.
Book Synopsis Essays on Financial Frictions and Productivity by : Isabelle Roland
Download or read book Essays on Financial Frictions and Productivity written by Isabelle Roland and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays is Bank Competition and Credit Policy by : Gustavo Passarelli Giroud Joaquim
Download or read book Essays is Bank Competition and Credit Policy written by Gustavo Passarelli Giroud Joaquim and published by . This book was released on 2020 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis estimates the eect of competition in the financial sector using both individual level data and economic theory, and explores the role of credit policy in mitigating potential adverse effects of imperfect competition. The first essay uses heterogeneous exposure to large bank mergers to estimate the eect of bank competition on both financial and real variables in local Brazilian markets. Using detailed administrative data on loans and firms, we employ a difference-in-differences empirical strategy to identify the causal eect of bank competition. Following M&A episodes, spreads increase and there is persistently less lending in exposed markets. We also find that bank competition reduces employment. We develop a tractable model of heterogeneous firms and concentration in the banking sector and show that the observed effects in the data and predicted by the model are consistent. Among other counterfactuals, we show that if the Brazilian lending spread were to fall to the world level, output would increase by approximately 5%. The second essay develops a contract-based model of industrial organization for markets characterized by information and other frictions (Moral Hazard, Limited Commitment, Adverse Selection etc.) and dierent market structures (Monopoly, Oligopoly, Competition), the latter driven by spatial costs, idiosyncratic preferences, and number of financial service providers. We derive a likelihood estimator for the structural parameters that determine contracting frictions and market structure and apply this to the Townsend Thai data on small and medium enterprises and bank locations. Our model of production is microfounded and thus can be used for a broad set counterfactuals. The third essay explores the role of credit policies to mitigate the effects of lack of competition in the financial sector. In many emerging markets, governments try to increase credit access and stimulate economic growth by imposing caps on lending rates. We analyze these policies by extending workhorse models with financial frictions to include a banking sector with market power. Caps are beneficial as they reduce credit costs but are also harmful as they crowd out risky borrowers which can access credit only at high interest rates, and thus have an ambiguous effect in current output and capital accumulation. We show that the optimal policy to maximize steady state welfare involves relatively high caps on a large share of bank loans. The optimal policy decreases output today, but increases capital accumulation through a lower cost of credit and thus output in the future. Thanks to tractable aggregation properties, the framework can be used to analyze a broad set of alternative credit policies.
Book Synopsis Essays on the Real Effects of Financial Market Fluctuations by : Fernando Mauro Giuliano
Download or read book Essays on the Real Effects of Financial Market Fluctuations written by Fernando Mauro Giuliano and published by . This book was released on 2015 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the following essays I study the effects of disruptions in financial markets on aggregate outcomes. In the first two chapters, I study the transmission mechanisms from financial crises to the real economy in emerging countries, in environments where firms set heterogeneous markups. The introduction of heterogeneous markups is backed by data: I document that there is evidence of firms setting heterogeneous markups using microdata for Argentina and Colombia. As an endogenous source of resource misallocation across firms, markups can potentially be an important driver of aggregate productivity and output dynamics during large financial crises. The opening chapter is my first attempt to address the role of heterogeneous markups during financial crises. To investigate the extent to which this has a significant quantitative role, I adapt a model of imperfect competition where markups are a function of within-sector market shares. Using microdata from Argentina's annual manufacturing survey, I document that market shares become more disperse during the Argentine 2001-02 crisis. Through the lens of the model this results in increased variability of markups, which decreases aggregate productivity. I perform an accounting exercise and find that markup-induced misallocation can explain between 6.4$\%$ and 15.6$\%$ of the fall in aggregate productivity during the Argentine crisis, or up to one third of the overall effect of resource misallocation. In Chapter 2, joint with Gabriel Zaourak, we explicitly introduce financial frictions to analyze the interaction between credit constraints and variable markups during a credit crunch. Financial frictions take the form of a collateral constraint on working capital. A financial crisis in this framework is modeled as an exogenous shock to the maximum amount of working capital that can be financed externally. Using microdata from financial statements and manufacturing surveys, we calibrate the model to match salient features of the Colombian economy for the 1998-99 financial crisis, and evaluate the transition dynamics of aggregate variables. The model replicates the fall and subsequent recovery of aggregate output and productivity, as well as the concentration patterns observed in the data. We find that in this case variable markups partially offset the resource misallocation triggered by a credit crunch, dampening the response of aggregate variables. The reason is that under variable markups firms try not to change their price (hence quantities) as much as they would under constant markups. This is an example of the ambiguous effect of distortions in a second best world. The last chapter is an early empirical exploration of the link between price fluctuations in financial markets and aggregate labor market outcomes, using data from the United Kingdom. I build a quarterly wealth index from stock market prices and real estate prices for the 1971-2012 period. Using a VECM, I find a robust co-integrating relationship between the unemployment rate and the wealth index. Specifically, fluctuations in wealth Granger-cause the unemployment rate, but not the opposite. This relationship is true for both components of the wealth index individually, and is stable over time. This is consistent with a model where output is demand determined and fluctuations in asset prices affect the unemployment rate through changes in aggregate consumption.
Book Synopsis Essays in Macroeconomics and Dynamic Factor Models by : Ziyi Guo
Download or read book Essays in Macroeconomics and Dynamic Factor Models written by Ziyi Guo and published by . This book was released on 2013 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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.
Book Synopsis The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions by : Christiane Clemens
Download or read book The Effects of International Financial Integration in a Model with Heterogeneous Firms and Credit Frictions written by Christiane Clemens and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Financial Frictions and Business Cycles by : Jorge Salvador Bravo Tamayo
Download or read book Essays on Financial Frictions and Business Cycles written by Jorge Salvador Bravo Tamayo and published by . This book was released on 2014 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter proposes a general equilibrium model with two interrelated costly-state verification frictions à la Bernanke, Gertler and Gilchrist (1999). First between entrepreneurs and the financial sector. Second, between the financial sector and a money market for short term debt. The model generates endogenous spreads between financial intermediaries borrowing costs and the risk free rate, and between the borrowing costs of financial intermediaries and entrepreneurs. The net worth of the domestic financial sectors, as well as the net worth of entrepreneurs, matter for the model's dynamics.
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.
Book Synopsis Tariff Structure, Intermediate Goods, and China–U.S. Trade Friction by : Haichao Fan
Download or read book Tariff Structure, Intermediate Goods, and China–U.S. Trade Friction written by Haichao Fan and published by Routledge. This book was released on 2021-03-29 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on the interconnection of tariff structure, international trade and welfare evaluation, the book investigates the characteristics of tariff structures of China and the U.S. in recent years and measures the impact of the Sino–U.S. trade friction that started in 2018. The first part of the book discusses levels and evolution trends of tariff systems of China and the U.S. from 2000 to 2014 and makes a comparison between the two countries' tariff structures. The second part centers on the Sino–U.S. trade friction in 2018, analyzing its development, overall impact on welfare, and relevant impact mechanisms. The author draws on the quantitative analysis method currently prevailing in the field of international trade, taking global value chains, intermediate goods, and variable markup into consideration. In contrast to the research conclusion applying standard trade theory, the result indicates that either unilateral imposition of additional tariffs or bilateral tariff friction will give rise to the deteriorated welfare level of both countries. The book will appeal to academics and policy makers interested in international trade, China–U.S. relation and the trade friction.
Book Synopsis Dominant Currency Paradigm: A New Model for Small Open Economies by : Camila Casas
Download or read book Dominant Currency Paradigm: A New Model for Small Open Economies written by Camila Casas and published by International Monetary Fund. This book was released on 2017-11-22 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
