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Author: Chia-Ying Chang
Publisher:
ISBN:
Category : Liquidity (Economics)
Languages : en
Pages : 288
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Author: Chia-Ying Chang
Publisher:
ISBN:
Category : Liquidity (Economics)
Languages : en
Pages : 288
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Book Description
Author: Lei Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 192
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This dissertation contains three essays at the interaction between macroeconomics and the financial market, with an emphasis on macroeconomic implications of heterogeneous firms under financial frictions. My dissertation explores the relationships among financial market friction, firms' entry and exit behaviors, and job reallocation over the business cycle. Chapter 1 examines the macroeconomic effects of financial leverage and firms' endogenous entry and exit on job reallocation over the business cycle. Financial leverage and the extensive margin are the keys to explain job reallocation at both the firm-level and the aggregate level. I build a general equilibrium industry dynamics model with endogenous entry and exit, a frictional labor market, and borrowing constraints. The model provides a novel theory that financially constrained firms adjust employment more often. I characterize an analytical solution to the wage bargaining problem between a leveraged firm and workers. Higher financial leverage allows constrained firms to bargain for lower wages, but also induces higher default risks. In the model, firms adopt (S,s) employment decision rules. Because the entry and exit firms are more likely to be borrowing constrained, a negative shock affects the inaction regions of the entry and exit firms more than that of the incumbents. In the simulated model, the extensive margin explains 36% of the job reallocation volatility, which is very close to the data and is quantitatively significant. Chapter 2 investigates firms' financial behaviors and size distributions over the business cycle. We propose a general equilibrium industry dynamics model of firms' capital structure and entry and exit behaviors. The financial market frictions capture both the age dependence and size dependence of firms' size distributions. When we add the aggregate shocks to the model, it can account for the business cycle patterns of firm dynamics: 1) entry is more procyclical than exit; 2) debt is procyclical, and equity issuance is countercyclical; and 3) the cyclicalities of debt and equity issuance are negatively correlated with firm size and age. Chapter 3 studies the equilibrium pricing of complex securities in segmented markets by risk-averse expert investors who are subject to asset-specific risk. Investor expertise varies, and the investment technology of investors with more expertise is subject to less asset-specific risk. Expert demand lowers equilibrium required returns, reducing participation, and leading to endogenously segmented markets. Amongst participants, portfolio decisions and realized returns determine the joint distribution of financial expertise and financial wealth. This distribution, along with participation, then determines market-level risk bearing capacity. We show that more complex assets deliver higher equilibrium returns to expert participants. Moreover, we explain why complex assets can have lower overall participation despite higher market-level alphas and Sharpe ratios. Finally, we show how complexity affects the size distribution of complex asset investors in a way that is consistent with the size distribution of hedge funds.
Author: Juan Pablo Medina Guzman
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 312
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Author: Davide Maria Melcangi
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ISBN:
Category :
Languages : en
Pages : 0
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Author: Jessica Roldán Peña
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 162
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Author: C. Kim
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ISBN:
Category :
Languages : en
Pages : 0
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Author: Xiaobei He
Publisher:
ISBN:
Category :
Languages : en
Pages : 112
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Author: Nicolas Petrovsky-Nadeau
Publisher:
ISBN:
Category :
Languages : en
Pages :
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The first chapter shows that the propagation properties of the standard search and matching model of equilibrium unemployment are significantly altered when vacancy costs require some external financing on frictional credit markets. Agency problems on credit markets lead to higher costs of vacancies. When the former are counter-cyclical, this greatly increases the elasticity of vacancies to productivity through two distinct channels: (i) a cost channel - lowered unit costs during an upturn as credit constraints are relaxed increase the incentive to post vacancies; (ii) a wage channel - the improved bargaining position of firms afforded by the lowered cost of vacancies limits of the upward pressure of market tightness on wages. As a result, the model can match the observed volatility of unemployment, vacancies and labor market tightness. Moreover, the progressive easing of financing constraints to innovations generates persistence in the response of market tightness and vacancies, a robust feature of the data and shortcoming of the standard model. Extending the model to allow for endogenous job separation improves its ability to match gross labor flows statistics while preserving its propagation properties. The second chapter documents the existence of time-varying congestion in the (re)allocation of physical capital akin to what is observed on labor markets. It then builds a model with search frictions for the allocation of physical capital in order to investigate its implications for the business cycle. While the model is in principle capable of generating substantial internal propagation to small exogenous shocks, the quantitative effects are modest once it is calibrated to fit firm-level capital flows. The model is then extended to credit market frictions that lead to countercyclical default as in the data. Although countercyclical default directly affects capital reallocation, even in this extended model, search frictions in physical capital markets play only a small role for business cycle fluctuations. The final chapter models flows of foreign direct investment (FDI) in a two country, two sector DSGE framework. The allocation of capital to production capacity abroad is subject to a search-and-matching friction with endogenous capital reallocation, capturing the additional cost and time involved in adjusting production capacity abroad. The model is calibrated on observed gross inflows and outflows of FDI and leads to dynamics of net foreign direct investment consistent with the empirical evidence documented in this chapter: inward and outward net flows of FDI are positively correlated whereas a standard International Real Business Cycle model has the prediction of a negative correlation. Moreover, the model solves the aggregate investment quantity puzzle as it generates cross-country correlations in-line with the data.
Author: Christine N. Tewfik
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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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.
Author: Benjamin S. Kay
Publisher:
ISBN: 9781267401779
Category : Consumption (Economics)
Languages : en
Pages : 152
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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.
