Essays On Informational Frictions In Macroeconomics And Finance

DOWNLOAD

Download Essays On Informational Frictions In Macroeconomics And Finance PDF/ePub or read online books in Mobi eBooks. Click Download or Read Online button to get Essays On Informational Frictions In Macroeconomics And Finance book now. This website allows unlimited access to, at the time of writing, more than 1.5 million titles, including hundreds of thousands of titles in various foreign languages. If the content not found or just blank you must refresh this page

Essays On Informational Frictions In Macroeconomics And Finance

DOWNLOAD
Author : Jennifer La'O
language : en
Publisher:
Release Date : 2010

Essays On Informational Frictions In Macroeconomics And Finance written by Jennifer La'O and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.

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 Information Friction With Application In Macroeconomics And Finance

DOWNLOAD
Author : Zhongchao Yang
language : en
Publisher:
Release Date : 2021

Essays On Information Friction With Application In Macroeconomics And Finance written by Zhongchao Yang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Bank management categories.

Essays On Information And Financial Frictions In Macroeconomics

DOWNLOAD
Author : Abolfazl Rezghi
language : en
Publisher:
Release Date : 2023

Essays On Information And Financial Frictions In Macroeconomics written by Abolfazl Rezghi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.

This dissertation examines how information and financial frictions impact firms' investment decisions and shape the effectiveness of monetary policy. The first chapter studies the response of high and low credit quality firms to expansionary monetary shocks. According to the findings, high credit quality firms respond to an expansionary shock by increasing their investment, inventory, and sales, whereas low credit quality firms experience a decrease in these variables. Moreover, their financing behavior differs, with high credit quality firms raising funds through equity while low credit quality firms are unable to issue equity or debt. To provide a theoretical explanation for these findings, a simple model is constructed with two types of firms: financially constrained firms and unconstrained firms. Financially constrained firms face a trade-off in allocating their limited funds between wage payments and investment, while unconstrained firms have greater financial flexibility. As a result of an expansionary shock, an increase in wages affects constrained firms disproportionately, leading them to cut their investment to cover the additional labor costs. Furthermore, constrained firms, due to their limited collateral, have to reduce their debt, which aligns with the empirical observations. The second chapter examines the interaction between information and financial frictions and its implications for the investment channel of monetary policy. In a model with inattentive firms facing financial frictions, constrained firms are more attentive to monetary policy as they attempt to avoid financial costs, creating a new channel for financial frictions to affect price rigidity. Since the level of price rigidity is one of the determinants of the outcome of the monetary policy, the model suggests that the investment channel of monetary policy hinges on the interaction between financial frictions and rational inattention. The research provides empirical evidence that supports the predictions of the model. Firstly, the study uses firms' expectation surveys and, taking size as a proxy for financial constraint, finds that smaller firms have more precise nowcasts and forecasts of aggregate variables. Additionally, these firms are more willing to pay for professional forecasts. Secondly, the research employs firms' balance sheet data and a proxy for aggregate attentiveness to demonstrate that higher information rigidity leads to a sluggish and dampened aggregate investment response to monetary shocks, as predicted by the model. The third chapter finds that a contractionary monetary shock would increase the number of defaults and the aggregate liability of defaulted firms in the economy. Using a DSGE model with financial intermediaries, I show that a higher rate of default negatively impacts the balance sheets of banks and leads to a decrease in the supply of credit and a rise in the interest rate of loans. This further increases the cost of production, forcing more firms to file for bankruptcy. The study demonstrates that monetary policy can effectively dampen this amplification mechanism by considering the default rate in the policy rule, thereby ensuring a more stable economic environment

Essays In Macroeconomics

DOWNLOAD
Author : Fernando A. Alvarez-Parra
language : en
Publisher:
Release Date : 2008

Essays In Macroeconomics written by Fernando A. Alvarez-Parra and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business enterprises categories.

Essays On Information Frictions And The Macroeconomy

DOWNLOAD
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 On Liquidity Informational Frictions And Monetary Policy

DOWNLOAD
Author : Kee Youn Kang
language : en
Publisher:
Release Date : 2017

Essays On Liquidity Informational Frictions And Monetary Policy written by Kee Youn Kang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Electronic dissertations categories.

The dissertation, which consists of two chapters, is devoted to exploring the role of informational friction in monetary economics and finance.Chapter I: COUNTERFEITING, SCREENING AND GOVERNMENT POLICY.In this chapter, I construct a search theoretic model of money in which counterfeit money can be produced at a cost but agents can screen for fake money also at a cost. Counterfeiting can occur in equilibrium when both costs and the inflation rate are sufficiently low. Optimal monetary policy is the Friedman rule. However, the rationale for the Friedman rule in an economy with the circulation of counterfeit money differs from the conventional mechanism that holds in the model when counterfeiting does not occur. I also study optimal anti-counterfeiting policy that determines the counterfeiting cost and the screening cost.Chapter II: CENTRAL BANK PURCHASES OF PRIVATE ASSETS: AN EVALUATIONIn this chapter, I develop a model of asset exchange and monetary policy, augmented to incorporate a housing market and a frictional financial market. Homeowners take out mortgages with banks using their residential properties as collateral to finance consumption. Banks use mortgages and government liabilities as collateral to secure deposit contracts, but they have an incentive to fake the quality of mortgages at a cost. Quantitative easing (QE) in the form of central bank purchases of mortgages from private banks has effects on the composition of assets in the economy, and on the incentive structure of the private sector. When the incentive problem is severe, the central bank can unambiguously improve welfare by purchasing mortgages. However, when it is not severe, the central bank's mortgage purchases cause a housing construction boom and sometimes can lower exchange in the economy, hence reducing welfare.

Essays On Economic Growth And Informational Frictions

DOWNLOAD
Author : Samuel Jaime Pienknagura
language : en
Publisher:
Release Date : 2011

Essays On Economic Growth And Informational Frictions written by Samuel Jaime Pienknagura and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.

This thesis consists of three chapters on Economic Growth and Informational Frictions. Chapter 1 investigates the relation between financial development, R&D expenditure and aggregate growth. It provides empirical evidence that financial development has a large positive effect on both growth and R&D, and that the effect of financial development on growth is likely to be explained by its effect on R&D. I also study a general equilibrium model in with predictions which are consistent with the empirical regularities mentioned above. In particular, aggregate growth increases as financial development increases. The model also predicts that financial development produces large welfare gains, specially at low levels of financial development. Finally I show that the model studied suggests that R&D policy is welfare improving and that policy should be conditional on the level of financial development. Chapter 2 gives an empirical assessment of the world income distribution. In particular, I take a CES production function implied by a Skill-Biased technical change model and fit this production function to the data. The calibration results give evidence of the importance of including different skills to account for the observed income differences over time. I also show that the calibration exercise is validated by the estimated values of the parameters of the model. In Chapter 3 I study a model of entry under uncertainty. In particular, I analyze an economy where potential entrants make entry decisions after receiving noisy signals of the true demand levels for the different sectors of the economy. I show that equilibrium strategies depend on the precision of the signals received by agents. When precision is low the equilibrium of the game is a pure strategy equilibrium where agents enter the sector for which they receive a higher signal. On the other hand when precision is high the optimal strategy is to randomize over which sector to enter. The model also highlights the non-monotonic relations between the discrepancy between the equilibrium and efficient entry levels and both the precision of the signal and the true relative demand between sectors.

Essays On Information Frictions In Macroeconomics

DOWNLOAD
Author : Jenny Chan
language : en
Publisher:
Release Date : 2019

Essays On Information Frictions In Macroeconomics written by Jenny Chan 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.

This dissertation consists of three chapters related to questions in macroeconomics and information frictions. In the first chapter, I relax the complete information assumption in the standard New Keynesian framework to show how the stance of monetary policy can affect the non-fundamental composition of fluctuations, introducing a novel trade-off between stabilizing output and inflation. A strong response to inflation increases the variance of non-fundamental fluctuations. In the second chapter, I study the opti-mal design of monetary policy in the presence of nominal and informational frictions. Non-fundamental fluctuations are shown to be suboptimal. The Taylor rule is no longer sufficient to rule out indeterminacy. Instead, a more lax response to inflation eliminates non-fundamental fluctuations and hence the output-inflation tradeoff. In the third chap-ter, I provide evidence that shocks to sentiments and uncertainty as identified in the literature are correlated and may not be truly structural.

Essays On Frictions In Financial Macroeconomics

DOWNLOAD
Author : Benjamin S. Kay
language : en
Publisher:
Release Date : 2012

Essays On Frictions In Financial Macroeconomics written by Benjamin S. Kay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Consumption (Economics) categories.

Building on Flavin and Nakagawa (2008), chapter one models household optimal consumption and portfolio selection when consumption services are generated by both housing and non-housing consumption. Housing is illiquid in that a non-convex adjustment cost must be paid when it is sold. It is shown that optimal consumption of housing is not a constant fraction of wealth but instead depends on the ratio of wealth to housing and the price of housing. Households adjust housing infrequently, waiting for large wealth changes before adjustment. As in models without this adjustment cost, households adjust non-housing consumption each period. Unlike in frictionless models, non-housing consumption is not a constant fraction of wealth. For particular parameters of the utility function and asset markets drawn from the literature, model simulations match aggregate consumption dynamics better than alternative frictionless models, even those with homes as assets. The simulations also predict differing responses of households with different fractions of their wealth in housing. In chapter two, stock market makers are afraid that informed insiders will take advantage of them in trade. To protect themselves, they may increase the bid-offer spread to include a fee for the adverse selection risk . If set correctly, market makers will share in profits from others trading on private information and can distribute the remaining costs among other market participants. If market makers protect themselves this way, then when the risk of informed trading is relatively low, the bid-offer spread should decline. The risk of informed trading will be relatively low when the difference in public and private information shrinks. Filings with the Securities and Exchange Commission (SEC) and conference calls where corporate earnings are announced and discussed should be events that diminish this difference. Because smaller companies attract less scrutiny, they may experience relatively larger changes in this information distance after these releases. This paper finds weak evidence that spreads diminish when this information is released and a weak size effect. It hypothesizes that the bid-offer spread seems to be unresponsive to information and company size because the adverse selection component of the spread is smaller than has previously been estimated does or possibly does not exist. Estimates of this spread are actually a statistical illusion created by the structural form of earlier estimation techniques. The recent global financial crisis suggests the post-1984 Great Moderation has come to an abrupt end. How we obtained nearly 25 years of stability and why it ended are ongoing puzzles. Chapter three depart from traditional monetary policy explanations and consider two empirical regularities in US employment : i) the decline in the procyclicality of labor productivity with respect to output and labor input and ii) the increase in the volatility of labor input relative to output. We first consider whether these stylized facts are robust to statistical methodology. We find that the widely reported decline in the procyclicality of labor productivity with respect to output is fragile. Using a new international data set on total hours constructed by Ohanina and Raffo (2011) we then consider whether these moments are stylized facts of the global Great Moderation. We document significant international heterogeneity. We then investigate whether the role of labor market frictions in the US as found in Galí and van Rens (2010) can explain the international results. We conclude that their stylized model does not appear to account for the differences with the US experience and suggest a direction for future research.

Three Essays In Financial Frictions And International Macroeconomics

DOWNLOAD
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.