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Author: Yankun Wang
Publisher:
ISBN:
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Languages : en
Pages : 79
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Book Description
In this dissertation I explore the relationship between the frictions in a country's financial market and its business cycle movements. It is well known that the financial market is far from perfect, and shocks originating in such market could have sizable impact on the real economy. On the other hand, evolvement in the financial market could also be a reflection of the real economy. For example, economic downturn often leads to high borrowing cost for a country in the international financial market. The essays in this dissertation present an analysis of this two-way relationship, both qualitatively and quantitatively. The first essay studies the link between country credit spreads - defined as the difference between a home country's cost of borrowing from the international credit market and the world riskless interest rate - and the domestic business cycle fluctuations. By combining both empirical and theoretical analysis, this essay shows that deteriorating credit markets are both reflections of a declining economy and a major factor that depresses economic activity. This study uses a quarterly dataset over the period 1972Q1 to 2010Q1 for South Korea. The second essay probes the importance of financial shocks in creating business cycles in the United States. It starts from a theoretical dynamic stochastic generating equilibrium model, which identifies positive financial shocks as those that drag down the corporate net worth while raising domestic output. An empirical analysis later uses this property to identify financial shocks and study their importance in creating business cycle movement for the U.S. in the past fifty years. This property is in stark contrast to technological shocks, which raise both corporate net worth and total output.
Author: Yankun Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 79
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Book Description
In this dissertation I explore the relationship between the frictions in a country's financial market and its business cycle movements. It is well known that the financial market is far from perfect, and shocks originating in such market could have sizable impact on the real economy. On the other hand, evolvement in the financial market could also be a reflection of the real economy. For example, economic downturn often leads to high borrowing cost for a country in the international financial market. The essays in this dissertation present an analysis of this two-way relationship, both qualitatively and quantitatively. The first essay studies the link between country credit spreads - defined as the difference between a home country's cost of borrowing from the international credit market and the world riskless interest rate - and the domestic business cycle fluctuations. By combining both empirical and theoretical analysis, this essay shows that deteriorating credit markets are both reflections of a declining economy and a major factor that depresses economic activity. This study uses a quarterly dataset over the period 1972Q1 to 2010Q1 for South Korea. The second essay probes the importance of financial shocks in creating business cycles in the United States. It starts from a theoretical dynamic stochastic generating equilibrium model, which identifies positive financial shocks as those that drag down the corporate net worth while raising domestic output. An empirical analysis later uses this property to identify financial shocks and study their importance in creating business cycle movement for the U.S. in the past fifty years. This property is in stark contrast to technological shocks, which raise both corporate net worth and total output.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 182
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Author: Seungho Nah
Publisher:
ISBN:
Category :
Languages : en
Pages : 129
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Abstract: In the first essay, 'Financial Frictions, Intersectoral Adjustment Costs, and News-Driven Business Cycles', I show that an RBC model with financial frictions and intersectoral adjustment costs can generate sizable boom-bust cycles and plausible responses of stock prices in response to a news shock. Booms in the labor market, which make it possible for both consumption and investment to increase in response to positive news, are caused through two channels: the increases in value of marginal product of labor and the increases in value of collateral. Both of these channels enable firms to hire more workers. Intersectoral adjustment costs contribute to both channels by increasing the relative price of output and capital during expansions. Financial frictions enter in the forms of collateral constraints on firms, which influence the latter channel, and the financial accelerator mechanism driven by agency costs, which amplifies all the key variables. My model differs from previous studies in its ability to generate boom-bust cycles without restricting the functional form of consumption in household preferences and without requiring investment adjustment costs, variable capital utilization, or any nominal rigidities. In the second essay, 'Financial and Real Frictions as Sources of Business Fluctuations', I show that a negative shock to a financial or real friction in an economy can generate quantitatively significant and persistent recessions, even without a decrease in exogenous aggregate total factor productivity in a heterogeneous agents DSGE model. The increase in uncertainty that a firm is facing when it makes capital adjustment, however, is found to have a limited or dubious influence on economic activities. The roles of collateral constaints as a financial friction and nonconvex capital adjustment costs as a real friction in aggregate fluctuations are examined in this propagation mechanism. When these frictions become strengthened, the degree of capital misallocation is intensified, which leads to a drop of endogenous aggregate total factor productivity. As agents expect that the return to investment and endogenous TFP decrease, they reduce aggregate investment sharply, which also leads to a drop in employment. Interruption of efficient resource allocation coming from these two frictions is found out to be enough to generate a large and persistent aggregate flucutations even without introducing heterogeneity in firm-level productivity.
Author: Julian Karl Douglas Wright
Publisher:
ISBN:
Category :
Languages : en
Pages : 212
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Author: Philip A. Klein
Publisher: Routledge
ISBN: 131549227X
Category : Business & Economics
Languages : en
Pages : 253
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Book Description
This "Festschrift" honours Geoffrey H. Moore's life-long contribution to the study of business cycles. After some analysts had concluded that business cycles were dead, renewed economic turbulence in the 1970s and 1980s brought new life to the subject. The study of business cycles now encompasses the global economic system, and this work aims to push back the frontiers of knowledge.
Author: Thomas F. Cooley
Publisher: Princeton University Press
ISBN: 9780691043234
Category : Business & Economics
Languages : en
Pages : 452
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Book Description
This introduction to modern business cycle theory uses a neoclassical growth framework to study the economic fluctuations associated with the business cycle. Presenting advances in dynamic economic theory and computational methods, it applies concepts to t
Author: Andrés Fernández Martin
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 386
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Author: Jennifer La'O
Publisher:
ISBN:
Category :
Languages : en
Pages : 220
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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.
Author: Shen Guo
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This thesis studies business cycles driven by agents' expectation of future technology changes. The first chapter explores the effects which nominal rigidities and monetary policies have on the generation of Pigou cycles. The optimal response of the central bank is analyzed under circumstances when agents receive a signal indicating the technology change in the future. To achieve these objectives, I introduce nominal rigidities and monetary policy into a standard two-sector model with non-durable and durable goods. The optimal reaction of the central bank is found by solving the Ramsey optimization problem. I find that nominal rigidities tend to amplify the responses to the expectation and monetary policies affect the expectation driven business cycles by affecting the real interest rate and user cost of durable goods. Another interesting result is that a simple policy rule reacting to the inflation rates in both non-durable and durable sector with appropriate weights can closely mimic the performance of the Ramsey policy. The second chapter estimates a sticky price two-sector model with home production and capital adjustment costs to assess the significance of the news shocks in generating aggregate fluctuations. The analysis suggests that news shocks account for about 34% of the fluctuations in the aggregate output, 25% of the fluctuations in consumption-sector output and 38% of the fluctuations in investment-sector output. The third chapter explores the booms and busts induced by news shocks in a model economy with financial market frictions. With the presence of financial market frictions, firms have to pay an external finance premium which depends inversely on their net values. This provides firms with an incentive to build up capital stocks now to lower the external finance premium in the future. When firms receive news indicating a future technology improvement, they anticipate the need for more capital and so more external finance in the future; they could lower their future external finance costs by building up their capital and net values now. By adding financial market frictions into an otherwise standard RBC model, the model in chapter 3 succeeds in generating a boom when a news shock hits the economy.
Author: Jeremy Rastouil
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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During the Great Recession, the interactions between housing, labor and entry highlight the existence of narrow propagation channels between these markets. The aim of this thesis is to shed a light on labor market interactions with firm entry and financial business cycles, by building on the recent theoretical and empirical of DSGE models. In the first chapter, we have found evidence of the key role of the net entry as an amplifying mechanism for employment dynamics. Introducing search and matching frictions, we have studied from a new perspective the cyclicality of the mark-up compared to previous researches that use Walrasian labor market. We found a less countercyclical markup due to the acyclical aspect of the marginal cost in the DMP framework and a reduced role according to firm's entry in the cyclicality of the markup. In the second chapter, we have linked the borrowing capacity of households to their employment situation on the labor market. With this new microfoundation of the collateral constraint, new matches on the labor market translate into more mortgages, while separation induces an exclusion from financial markets for jobseekers. As a result, the LTV becomes endogenous by responding procyclically to employment fluctuations. We have shown that this device is empirically relevant and solves the anomalies of the standard collateral constraint. In the last chapter, we extend the analysis developed in the previous one by integrating collateral constrained firms in order to have a more complete financial business cycle. The first result is that an entrepreneur collateral constraint integrating capital, real commercial estate and wage bill in advance is empirically relevant compared to the collateral literature associated to the labor market which does not consider these three assets. The second finding is the role of the housing price and credit squeezes in the rise of the unemployment rate during the Great Recession. The last two chapters have important implications for economic policy. A structural deregulation reform in the labor market induces a significant rise in the debt level for households and housing price, combined with a substantial rise of firm debt. Our approach allows us to reveal that a macroprudential policy aiming to tighten the LTV ratio for household borrowers has positive effects in the long run for output and employment, while tightening LTV ratios for entrepreneurs leads to the opposite effect.
