Essays On Financial Frictions In Macroeconomic Models
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Essays On Financial Frictions In Macroeconomic Models
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Author : Fernando Jerico Mendo Lopez
language : en
Publisher:
Release Date : 2019
Essays On Financial Frictions In Macroeconomic Models written by Fernando Jerico Mendo Lopez and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Essays On Disciplining Financial Frictions In Macroeconomic Models
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Author : Robert Jacob Kurtzman
language : en
Publisher:
Release Date : 2015
Essays On Disciplining Financial Frictions In Macroeconomic Models written by Robert Jacob Kurtzman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This dissertation examines the role that financial frictions play in the propagation of aggregate shocks, and the extent to which they are detrimental for firm value and welfare. The first chapter in this dissertation estimates a general equilibrium model of firm dynamics with endogenous leverage, bankruptcy, innovation, and entry decisions to quantify the private and public gains from resolving the debt overhang problem. The second chapter incorporates aggregate shocks to TFP, the level of idiosyncratic asset volatility, and the retained value of the firm upon bankruptcy in the model in chapter one, and analyzes the extent to which alleviating the debt overhang problem changes how aggregates and firm decisions respond to these different aggregate shocks. The third chapter develops a novel decomposition of changes in aggregate productivity that does not require the identification of firm-level TFP or production function coefficients, and implements this decomposition on U.S. public non-financial firms over the period of 1972-2012.
Three Essays In Macroeconomics And International Economics
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Author :
language : en
Publisher:
Release Date : 2005
Three Essays In Macroeconomics And International Economics written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
This dissertation examines two issues in international economics and macroeconomics. The first is to understand the response of productivity to major real exchange rate appreciations and the second concerns how to compare the fits of different calibrated macroeconomic models. In the first chapter, I construct a model to clarify how the increased competition due to an exchange rate appreciation provides incentive for firms to improve productivity. However, if a firm is in an industry shielded by a high trade cost, then the incentive is weaker. In industries with fewer firms, profits are more responsive to productivity improvements, therefore, firms are more likely to invest more heavily in productivity improvement. Empirical analysis of Canadian manufacturing data from 1997 to 2006 finds evidence consistent with the model predictions. The second chapter presents testing procedures for comparison of misspecified calibrated models. The proposed tests are of the Vuong-type (Vuong, 1989; Rivers and Vuong, 2002). In the framework here, an econometrician selects values for the parameters in order to match some characteristics of the data with those implied by the theoretical model. We assume that all competing models are misspecified, and suggest a test for the null hypothesis that all considered models provide equal fit to the data characteristics, against the alternative that one of the models is a better approximation. The Carlstrom and Fuerst (1997) model and the Bernanke, Gertler and Gilchrist (1999) model are two leading models that study financial frictions in macroeconomic models. In particular, these models show that due to financial frictions, net worth plays an important role in obtaining external finance, and that at an aggregate level, net worth can propagate technology shocks and monetary shocks. However, neither paper examines whether the models can reproduce cyclical properties of net worth. The third chapter addresses this issue by applying the comparison.
Essays On Macroeconomics With Financial Frictions
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Author : Matthew Knowles
language : en
Publisher:
Release Date : 2017
Essays On Macroeconomics With Financial Frictions written by Matthew Knowles and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Banks and banking categories.
"This dissertation consists of three essays concerning the macroeconomic implications of financial market frictions that limit the ability of firms to obtain external finance. Each of the three chapters employs a theoretical macroeconomic model, combined with some empirical analysis, to study unanswered questions in the literature related to the importance of these financial market frictions for the wider economy. The three chapters consider, in turn, the effect of banking crises on investment, output and employment, the implications of financial market frictions for optimal capital taxation, and the effect of banking deregulation on the distribution of income. The first chapter studies the long slumps in output and employment following banking crises. In a panel of OECD and emerging economies, I find that recessions are associated with larger initial drops in investment and more persistent drops in output if they occur simultaneously with banking crises. Furthermore, the banking crises that are followed by more persistent output slumps are associated with particularly large initial drops in investment. I show that these patterns can arise in a model where a financial shock temporarily increases the costs of external finance for investing entrepreneurs. This leads to a drop in investment and a persistent slump in output. Critical to the model is the distinction between different types of capital with different depreciation rates. Intangible capital and equipment have high depreciation rates, leading these stocks to drop substantially when investment falls after a financial shock. If wages display some rigidity, this induces a slump in output and employment that persists for roughly a decade, through the contribution of the decline in equipment and intangibles to declining production and labor demand. I find that this mechanism can account for almost a third of the persistent drop in output and employment in the US Great Recession (2007-2014). In the model, TFP and government spending shocks lead to relatively smaller declines in investment and less persistent drops in output; so the model is also consistent with the more transitory output drops seen after non-financial recessions, where such shocks may have been more important. The second chapter, based on work co-written with Corina Boar, considers the implications of financial market frictions for optimal linear capital taxation, in a setting where the government is concerned with redistribution. By including financial frictions, we emphasize the effect of a new channel affecting the equity-efficiency trade-off of redistribution: taxes affect the allocative efficiency of capital and, ultimately, total factor productivity. We find that high tax rates can be optimal, provided that they are applied to wealth, rather than risky capital. Under plausible parameter values, we find that the optimal tax on risky capital is lower than that on wealth, and roughly in line with current U.S. levels. This suggests welfare gains from taxing wealth at a higher rate than risky capital. The third chapter, based on work co-written with Corina Boar and Yicheng Wang, studies the effect of banking deregulation in the US on the distribution of income, from both a theoretical and empirical perspective. We focus on the effect of the removal of interstate banking and branching restrictions over the 1970-1994 period. We present a theoretical model based on Greenwood and Jovanovic (1990) to illustrate the channels through which this deregulation may affect the income distribution. In the model, income inequality rises after banking deregulation for some values of the parameters--because deregulation decreases the cost of borrowing, which primarily benefits wealthy firm-owners. We empirically estimate the effect of interstate banking and branching deregulation on income inequality by exploiting variations in the timing of deregulation across states. We find that the removal of banking restrictions increased the Gini coefficient by 6 percent in the long run."--Pages ix-xi.
Essays On Financial Frictions And Macroeconomic Dynamics With Heterogeneous Agents
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Author : Lini Zhang
language : en
Publisher:
Release Date : 2014
Essays On Financial Frictions And Macroeconomic Dynamics With Heterogeneous Agents written by Lini Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation develops dynamic stochastic general equilibrium (DSGE) models in which financial frictions interact with rich household heterogeneity to study the implication of financial shocks for aggregate fluctuations.
Three Essays In Financial Frictions And International Macroeconomics
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Author : Alexandre Kopoin
language : en
Publisher:
Release Date : 2014
Three Essays In Financial Frictions And International Macroeconomics written by Alexandre Kopoin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation investigates the role of financial frictions stemming from asymmetric information in financial markets on the transmission of shocks, and the fluctuations in economic activity. Chapter 1 uses the targeted factor modeling to assess the contribution of national and international data to the task of forecasting provincial GDPs in Canada. Results indicate using national and especially US-based series can significantly improve the forecasting ability of targeted factor models. This effect is present and significant at shorter-term horizons but fades away for longerterm horizons. These results suggest that shocks originating at the national and international levels are transmitted to Canadian regions and thus reflected in the regional time series fairly rapidly. While Chapter 1 uses a non-structural, econometric model to tackle the issue of transmission of international shocks, the last two Chapters develop structural models, Dynamic Stochastic General Equilibrium (DSGE) models to assess spillover effects of the transmission of national and international shocks. Chapter 2 presents an international DSGE framework with credit market frictions to assess issues regarding the propagation of national and international shocks. The theoretical framework includes the financial accelerator, the bank capital and exchange rate channels. Results suggest that the exchange rate channel, which has long been ignored, plays an important role in the propagation of shocks. Furthermore, with these three channels present, domestic and foreign shocks have an important quantitative role in explaining domestic aggregates. In addition, results suggest that economies whose banks remain well-capitalized when affected by adverse shock experience less severe downturns. These results highlight the importance of bank capital in an international framework and can be used to inform the worldwide debate over banking regulation. In Chapter 3, I develop a two-country DSGE model in which banks grant loans to domestic as well as to foreign firms to study effects of these cross-border banking activities in the transmission of national and international shocks. Results suggests that cross-border banking activities amplify the transmission of productivity and monetary policy shocks. However, the impact on consumption is limited, because of the cross-border saving possibility between the countries. Moreover, results suggests that under cross-border banking, bilateral correlations become greater than in the absence of these activities. Overall, results demonstrate sizable spillover effects of cross-border banking in the propagation of shocks and suggest that cross-border banking is an important source of the synchronization of business cycles.
Essays On The Role Of Durables And Financial Frictions In Business Cycles And International Trade
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Author : Dong Cheng
language : en
Publisher:
Release Date : 2018
Essays On The Role Of Durables And Financial Frictions In Business Cycles And International Trade written by Dong Cheng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with Electronic dissertations categories.
Essays On The Macroeconomic Implications Of Financial Frictions
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Author : Yan Ji (Ph. D.)
language : en
Publisher:
Release Date : 2017
Essays On The Macroeconomic Implications Of Financial Frictions written by Yan Ji (Ph. D.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This thesis consists of three chapters on the macroeconomic implications of financial frictions. The first chapter investigates the implications of student loan debt on labor market outcomes. I begin by analytically demonstrating that individuals under debt tend to search less and end up with lower-paid jobs. I then develop and estimate a quantitative model with college entry, borrowing, and job search using NLSY97 data to evaluate the proposed mechanism under the fixed repayment plan and the income-based repayment plan (IBR). My simulation suggests that the distortion of debt on job search decisions is large under the fixed repayment plan. IBR alleviates this distortion and improves welfare. In general equilibrium, debt alleviation achieved through IBR effectively offers a tuition subsidy that increases college entry and encourages firms to post more jobs, further improving welfare. The second chapter, joint with Winston Dou, proposes a dynamic corporate model in which firms face imperfect capital markets and frictional product markets. We highlight the importance of the endogeneity of the marginal value of liquidity in determining the interactions between investment, financing and product price setting decisions. The model implies several testable predictions: (1) financially constrained firms are more inclined to increase their desired markups of products; (2) firms facing larger price stickiness tend to issue less external equity and conduct less big payouts; and (3) a large part of the cost from price stickiness is induced by financial frictions. Lastly, we provide stylized facts consistent with our model's predictions. The third chapter (joint with Era Dabla-Norris, Robert Townsend, and Filiz Unsal) develops a general equilibrium model with three dimensions of financial inclusion, depth, and intermediation efficiency. We find that the economic implications of financial inclusion policies vary with the source of frictions. In partial equilibrium, we show analytically that relaxing each of these constraints separately increases GDP. However, when constraints are relaxed jointly, the impacts on the intensive margin (increasing output per entrepreneur with access to credit) are amplified, while the impacts on the extensive margin (promoting credit access) are dampened. In general equilibrium, we discipline the model with firm-level data from six countries and quantitatively evaluate the policy impacts.
Essays On Information Frictions And The Macroeconomy
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Author : Andras Komaromi
language : en
Publisher:
Release Date : 2015
Essays On Information Frictions And The Macroeconomy written by Andras Komaromi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This dissertation is a compilation of three essays on the role of information frictions in macroeconomics. The first essay contributes to the literature on the impact of uncertainty on the business cycle. The cross-sectional dispersion of firm-level outcomes, such as sales growth or stock returns, is markedly countercyclical. Recent papers have framed this fact as evidence that exogenous "uncertainty shocks" are important drivers of business cycles. This paper provides empirical evidence that the co-movement of various dispersion measures with the business cycle is better understood as the economy's endogenous response to traditional first moment shocks - dispersion is the effect, not the cause. It then develops a theoretical model that links the cross-sectional dispersion of micro-level outcomes to the aggregate state of the economy. The mechanism is based on time-varying rational inattention. In bad times, firms pay more attention to idiosyncratic shocks hitting their business environment. More precise micro- level information about the underlying heterogeneity leads to higher dispersion in realized outcomes. In line with the empirical findings, the model generates countercyclical dispersion without relying on exogenous second moment (uncertainty) shocks. The second essay uses survey expectations to assess the microfoundations of an important class of macroeconomic models. Many theoretical macro models try to explain the pervasive nominal and real stickiness in the data by assuming rational decision-making under imperfect information. The behavior of consensus (average) forecasts is consistent with the predictions of these models, which can be seen as supportive empirical evidence for the models' microfoundations (Coibion and Gorodnichenko, 2012). This paper demonstrates, however, that the individual-level data underlying the consensus forecasts are at odds with this interpretation. In particular, I document that individual expectations in the Survey of Professional Forecasters do not pass a very weak test of rational expectations: current forecast revisions are strong predictors of subsequent forecast errors. Information frictions alone cannot explain this pattern. I go on to propose a simple modification of the noisy information framework that allows for a particular form of non-rational expectations: agents may incorrectly weight new information against their prior. I show that this parsimonious model can match the survey data along several dimensions. Using the structure of the model, I estimate the direction and size of inefficiencies in the expectations formation process. I find that in most cases agents put too much weight on their private information, which can be interpreted as overconfidence in the precision of private information. I also show that there is substantial heterogeneity across agents in the deviation from rational expectations, and I relate these differences to observable characteristics. Finally, I discuss potential interpretations of my empirical results and their implications for macroeconomic theory. The third essay explores the potential trade-off between competition and systemic stability in financial intermediation. Why do banks feel compelled to operate with such high leverage despite the risks this poses? Using a simple model, I argue that the degree of competition goes a long way in explaining capital structure decisions. On the one hand, information frictions (adverse selection) render debt a cheaper form of financing than equity. On the other hand, more reliance on debt increases the probability of bankruptcy, which results in the loss of the bank's charter value. The degree of competition affects charter values, and hence changes the way banks balance between these two forces. A panel analysis of European banks' capital structure around the introduction of the euro reveals statistically and economically significant effects consistent with this hypothesis. Banks, in particular smaller banks, decreased their equity ratios after entering the currency area. Complementary evidence suggests that this effect can be attributed to increased competitive pressures boosted by the euro.
Essays In Macroeconomics And Financial Frictions
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Author : Christine N. Tewfik
language : en
Publisher:
Release Date : 2017
Essays In Macroeconomics And Financial Frictions written by Christine N. Tewfik and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
My dissertation is comprised of three papers on the causes and consequences of the U.S. Great Recession. The emphasis is on the role that financial frictions play in magnifying financial shocks, as well as in informing the effectiveness of potential policies. Chapter 1, "Financial Frictions, Investment Delay and Asset Market Interventions," co-authored with Shouyong Shi, studies the role of investment delay in propagating different types of financial shocks, and how this role impacts the effectiveness of asset market interventions. The topic is motivated by the observation that, during the Great Recession, governments conducted large-scale asset market interventions. The aim was to increase the level of liquidity in the asset market and make it easier for firms to obtain financing. However, firms were observed to have delayed investment by hoarding liquid funds, part of which were obtained through the interventions. We construct a dynamic macro model to incorporate financial frictions and investment delay. Investment is undertaken by entrepreneurs who face liquidity frictions in the equity market and a collateral constraint in the debt market. After calibrating the model to the U.S. data, we quantitatively examine how aggregate activity is affected by two types of financial shocks: (i) a shock to equity liquidity, and (ii) a shock to entrepreneurs' borrowing capacity. We then analyze the effectiveness of government interventions in the asset market after such financial shocks. In particular, we compare the effects of government purchases of private equity and of private debt in the open market. In addition, we examine how these effects of government interventions depend on the option to delay investment. In Chapter 2, "Housing Liquidity and Unemployment: The Role of Firm Financial Frictions," I build upon the role that firms' ability to obtain funding plays in the severity of the Great Recession. I focus specifically on how the housing crisis reduced the ability of firms to obtain funding, and the consequences for unemployment. An important feature I focus on is the role of housing liquidity, or how easy it is to sell or buy a house. I analyze how an initial fall in housing market liquidity, linked to rising foreclosure costs for banks, affects labor market outcomes, which can have further feedback effects. I focus on the role that firm financial frictions play in these feedback effects. To this end, I construct a dynamic macro model that incorporates frictional housing and labor markets, as well as firm financial frictions. Mortgages are obtained from banks that incur foreclosure costs in the event of default. Foreclosure costs also affect the ease with which firms can borrow, and this influences their hiring decisions. I calibrate the model to U.S. data, and find that a rise in foreclosure costs that generates a 10% fall in the firm loan-to-output ratio results in a 3 percentage point rise in the unemployment rate. The rise in unemployment makes it more difficult for indebted owners to avoid defaulting on their mortgage. This rise in default, on the order of 20 percent, creates further slack in the housing market by both increasing the number of houses on the market and reducing the amount of buyers. Consequently, there are large drops in housing prices and in the size of mortgage loans. Notably, when firm financial frictions are absent, I observe a counter-factual fall in the unemployment rate, which mitigates the effects on the housing market, and even results in a fall in the mortgage default rate. The results highlight the importance of the impact of the housing market crisis on a firm's willingness to hire, and how firms' limited access to credit magnifies the initial housing shock. In Chapter 3, "Housing Market Distress and Unemployment: A Dynamic Analysis," I add to the contributions of my second paper, and extend the analysis to determine the dynamic effects of the housing crisis on unemployment. In Chapter 2, I focused on comparing stationary equilibria when there is a rise in the foreclosure costs associated with mortgage default. However, a full analysis must also take into account the dynamic effects of the shock. In order to do the dynamic analysis, I modify the model in my job market paper to satisfy the conditions of block recursivity. I do this by incorporating Hedlund's (2016) technique of introducing real estate agents in the housing market that match separately with buyers and sellers. Doing this makes the model's endogenous variables independent of the distribution of households and firms. Rather, the impact of the distribution is summarized by the shadow value of housing. This greatly improves the tractability of the model, and allows me to compute the dynamic response to a fall in a bank's ability to sell a foreclosed house, thus raising the costs of mortgage default. I find that the results are largely dependent on the size and persistence of the shock, as well as the level of firm financial frictions that are present. When firm financial frictions are high, as represented by the presence of an interest rate premium charged to firms, and the initial shock is large, the shock is transferred to firms via an endogenous rise in the cost of renting capital. Firms scale back on production and reduce employment. The rise in unemployment increases the debt burden for households with large mortgages. They can try and sell, but find it difficult to do so because they must sell at a high price to be able to pay off their debt. If they fail, they are forced to default, thus further raising the mortgage costs of banks, further reducing resources to firms, and propagating the initial shock. However, the extent of the propagation is limited; once the shock wears off, the economy recovers to its pre-crisis levels within two quarters. I discuss the reasons why, and what elements would be needed for greater persistence.