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Author: Weiling Liu
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Languages : en
Pages : 0
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Author: Weiling Liu
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Category :
Languages : en
Pages : 0
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Author: Andrada Bilan
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Category :
Languages : en
Pages :
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Author: Ameya Sanjay Muley
Publisher:
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Category :
Languages : en
Pages : 125
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In this thesis, I explore the consequences of frictions in financial intermediation. I theoretically analyse two financial contracts commonly found in the modern shadow banking system-rehypothecation and securitisation. Rehypothecation is the direct repledging of the collateral received in a debt contract by the intermediate lender, while securitisation is the use of the debt contract itself as collateral. I show that rehypothecation enables more efficient reuse of the collateral by the intermediate lender. I emphasise the role of the limited pledgeability of the intermediary in differentiating between the two contracts. In what has significant implications for monetary policy, I also show that open market operations undertaken with the intention of increasing liquidity and investment will take away collateral from the rehypothecation chain and be counterproductive to investment down the chain. I also examine the possibility of distortions created by large global financial institutions on emerging financial markets. In the context of India, I find that prices of firms that receive foreign institutional investor flows are not differentially affected relative to the firms that don't.
Author: Gabriele Camera
Publisher: Springer Science & Business Media
ISBN: 3540295003
Category : Business & Economics
Languages : en
Pages : 268
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Assembles theoretical contributions to monetary theory, banking and finance. This book includes papers spanning themes from monetary policy to the optimal design of financial systems, and from the study of the causes of financial crises to payment systems design. It serves as a reference to researchers interested in the study of financial systems.
Author: Matteo Maggiori
Publisher:
ISBN:
Category :
Languages : en
Pages : 234
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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.
Author: Pragyan Deb
Publisher:
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Category :
Languages : en
Pages :
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The aim of my thesis is to investigate the effect of competition on financial intermediaries in light of the conflicts of interest and perverse incentive structures that exist in the financial system. The first chapter of my thesis, Credit Rating and Competition investigates the conflict of interest arising from the issuer pay compensation model of the credit rating industry using a theoretical model of competitive interaction. Rating agencies balance the benefits of maintaining reputation (to increase profits in the future) and inflating ratings today (to increase current profits). Our results suggest that, unless new entrants have a higher reputation vis-a-vis incumbents, rating agencies are more likely to inflate ratings under competition relative to monopoly, resulting in lower expected welfare. The second chapter, Market Frictions, Interbank Linkages and Excessive Interconnections, studies banks' decision to form financial interconnections. I develop a model of financial contagion that explicitly takes into account the possibility of crisis. This allows me to model the network formation decision as optimising behaviour of competitive banks. I show that regulatory intervention in the form of deposit insurance and more implicit too big to fail type perceptions of government guarantees creates a wedge between social and private optimality. In the presence of these implicit and explicit guarantees, competitive banks find it optimal to form socially suboptimal interconnections in equilibrium. The final chapter, Competition, Premature Trading and Excess Volatility, attempts to explain the empirically observed excess asset price volatility as a consequence of competitive interaction between market participants. Our model shows that in the presence of competitive pressures, market participants find it optimal to act prematurely on unverified, noisy information. This premature reaction leads to lower total profits, excess market volatility and spike in volatility at the closing time of the market.
Author: Julian Karl Douglas Wright
Publisher:
ISBN:
Category :
Languages : en
Pages : 212
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Author: Sofia Kalantzi
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 224
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This dissertation focuses on how fiscal, and macro-prudential policies interact with financial market frictions. In particular, it addresses some of the key facts of the recent global financial crisis and provides an intuition of why different policies were implemented by many countries in order to mitigate the adverse effects of the financial crisis and how those policies are transmitted in the presence of financial market imperfections. This dissertation opens the discussion of the different welfare implications of alternative policies that seek to stabilize the economy as well as their different real effects in the economy. The dissertation consists of three main chapters. In the first chapter I document empirically a negative relationship between shocks to government spending and credit spreads. Using a SVAR methodology on US data, I show that after a positive shock to government spending, credit spreads drop up to 14 basis points. The analysis shows that it is in particular government investment that has a negative effect on the spreads as opposed to government consumption. Given this empirical evidence, in the second chapter, I examine the interaction between productivity-enhancing government spending and credit spreads. In the context of a costly state verification framework, increased borrowing to expand production increases the threshold productivity level below which firms choose to default, and thus, entails higher risk premium. However, when government spending contributes to aggregate production, the threshold level of default and, thus, the probability of default, decrease, leading to a lower risk premium. In the last chapter I address two main questions: how does the economy respond in a crisis experiment when credit frictions originate from both the supply-side and the demand-side of credit markets? How are alternative unconventional credit policies different in their real effects in an environment where both types of credit frictions are present? I show that higher aggregate risk results in increased leverage for both firms and financial intermediaries, leading to an endogenous amplification mechanism which appears much stronger than what predicted by the benchmark financial accelerator framework. Furthermore, I find that, following a severe recession, a credit policy entailing equity injections into the banking system performs better than one involving direct lending to non-financial firms.
Author: Yifei Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Martin Oehmke
Publisher:
ISBN: 9780549968290
Category :
Languages : en
Pages : 268
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The third chapter, joint work with Markus Brunnermeier, examines predatory short selling of equity in financial institutions. We show that when the stock of a leverage-constrained financial institution is shorted aggressively, this can trigger liquidations of long-term investments at fire-sale prices. Predatory short selling can emerge in equilibrium when a financial institution is (i) close to its leverage constraint (the vulnerability region) or (ii) violates its leverage constraint even in the absence of short selling (the constrained region). The model provides a potential justification for temporary restrictions on short selling for vulnerable institutions.
