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Author: Azamat Abdymomunov
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Category : Electronic dissertations
Languages : en
Pages : 109
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In my dissertation, I study relationships between macroeconomics and financial markets. In particular, I empirically investigate the links between key macroeconomic indicators, such as output, inflation, and the business cycle, and the pricing of financial assets. The dissertation comprises three essays. The first essay investigates how the entire term structure of interest rates is influenced by regime-shifts in monetary policy. To do so, we develop and estimate an arbitrage-free dynamic term-structure model which accounts for regime shifts in monetary policy, volatility, and the price of risk. Our results for U.S. data from 1985-2008 indicate that (i) the Fed's reaction to inflation has changed over time, switching between "more active" and "less active" monetary policy regimes, (ii) the yield curve in the "more active" regime was considerably more volatile than in the "less active" regime, and (iii) on average, the slope of the yield curve in the "more active" regime was steeper than in the "less active" regime. The steeper yield curve in the "more active" regime reflects higher term premia that result from the risk associated with a more volatile future short-term rate given a more sensitive response to inflation. The second essay examines the predictive power of the entire yield curve for aggregate output. Many studies find that yields for government bonds predict real economic activity. Most of these studies use the yield spread, defined as the difference between two yields of specific maturities, to predict output. In this paper, I propose a different approach that makes use of information contained in the entire term structure of U.S. Treasury yields to predict U.S. real GDP growth. My proposed dynamic yield curve model produces better out-of-sample forecasts of real GDP than those produced by the traditional yield spread model. The main source of this improvement is in the dynamic approach to constructing forecasts versus the direct forecasting approach used in the traditional yield spread model. Although the predictive power of yield curve for output is concentrated in the yield spread, there is also a gain from using information in the curvature factor for the real GDP growth prediction. The third essay investigates time variation in CAPM betas for book-to-market and momentum portfolios across stock market volatility regimes. For our analysis, we jointly model market and portfolio returns using a two-state Markov-switching process, with beta and the market risk premium allowed to vary between "low" and "high" volatility regimes. Our empirical findings suggest strong time variation in betas across volatility regimes in most of the cases for which the unconditional CAPM can be rejected. Although the regime-switching conditional CAPM can still be rejected in many cases, the time-varying betas help explain portfolio returns much better than the unconditional CAPM, especially when market volatility is high.
Author: Azamat Abdymomunov
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 109
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Book Description
In my dissertation, I study relationships between macroeconomics and financial markets. In particular, I empirically investigate the links between key macroeconomic indicators, such as output, inflation, and the business cycle, and the pricing of financial assets. The dissertation comprises three essays. The first essay investigates how the entire term structure of interest rates is influenced by regime-shifts in monetary policy. To do so, we develop and estimate an arbitrage-free dynamic term-structure model which accounts for regime shifts in monetary policy, volatility, and the price of risk. Our results for U.S. data from 1985-2008 indicate that (i) the Fed's reaction to inflation has changed over time, switching between "more active" and "less active" monetary policy regimes, (ii) the yield curve in the "more active" regime was considerably more volatile than in the "less active" regime, and (iii) on average, the slope of the yield curve in the "more active" regime was steeper than in the "less active" regime. The steeper yield curve in the "more active" regime reflects higher term premia that result from the risk associated with a more volatile future short-term rate given a more sensitive response to inflation. The second essay examines the predictive power of the entire yield curve for aggregate output. Many studies find that yields for government bonds predict real economic activity. Most of these studies use the yield spread, defined as the difference between two yields of specific maturities, to predict output. In this paper, I propose a different approach that makes use of information contained in the entire term structure of U.S. Treasury yields to predict U.S. real GDP growth. My proposed dynamic yield curve model produces better out-of-sample forecasts of real GDP than those produced by the traditional yield spread model. The main source of this improvement is in the dynamic approach to constructing forecasts versus the direct forecasting approach used in the traditional yield spread model. Although the predictive power of yield curve for output is concentrated in the yield spread, there is also a gain from using information in the curvature factor for the real GDP growth prediction. The third essay investigates time variation in CAPM betas for book-to-market and momentum portfolios across stock market volatility regimes. For our analysis, we jointly model market and portfolio returns using a two-state Markov-switching process, with beta and the market risk premium allowed to vary between "low" and "high" volatility regimes. Our empirical findings suggest strong time variation in betas across volatility regimes in most of the cases for which the unconditional CAPM can be rejected. Although the regime-switching conditional CAPM can still be rejected in many cases, the time-varying betas help explain portfolio returns much better than the unconditional CAPM, especially when market volatility is high.
Author: Jiwei Zhang
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Category :
Languages : en
Pages : 0
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This dissertation consists of four essays in macro-finance, focusing on the cause and effect of asset prices, inequality, and welfare. In particular, these essays highlight the role of institutions and structural changes in shaping outcomes of asset markets and of the macro-economy. The two overarching objectives of these essays are to analyze mechanisms of asset price movements and to understand how these asset price movements affect the daily lives of people. The four chapters of this dissertation examine the implications of inertia and stock market non-participation for equity prices, risk sharing, and wealth inequality; causal effects of Chinese Communist Party's cadre promotion system on land prices in China; interconnection between homeownership and marriage; fiscal responses to income inequality shocks. The first chapter quantifies the general equilibrium effects of financial innovation that increases access to equity markets. I study an overlapping generations model with both idiosyncratic and aggregate risk, solved with machine learning techniques. A benchmark economy with limited stock market participation and rebalancing frictions matches the current dynamics of macro aggregates, equity and bond returns, as well as wealth and portfolio concentration. A counterfactual experiment shows how widespread adoption of target date funds would improve risk sharing, reduce inequality, and generate substantial welfare gains for households in the bottom 90% of wealth distribution. The equity premium drops from 6.4% to 1.7%, while the standard deviation of equity returns stabilizes from 21.9% to 14.6%. Welfare implications vary with risk aversion and age. In general, the bottom 90% benefit from improved access to equity markets and better risk sharing, while the top 10% su↵er losses in wealth accumulation. Outcomes are very close between an economy with target date funds and one without any participation costs or rebalancing frictions. The second chapter identifies the causal effect of the Chinese Communist Party's performance- based promotion system to the country's real estate boom from 2003 to 2015. City-level leaders prioritizing economic growth allocate land at discounted prices to industrial firms rather than housing developers. Our analysis reveals that personal connections with provincial superiors are crucial for promotion and hence affect local land and housing supply. When city leaders share the same hometown as newly appointed provincial leaders, their chances of promotion increase by 15%, and GDP performances no longer matters. This connection reduces the need for industrial land allocation, resulting in a higher residential land supply in the city. In addition, cities with leaders who have hometown connections experience significantly higher supplies of residential land, and housing price growth rates are also 5% lower in these cities. The third chapter studies the phenomenon of marriage house in China and its effects on demo- graphics and homeownership. We first show empirical evidence for the complementarity between marriage and homeownership: single males with a marriage house (a house where the newlywed can move into) have 70% higher odds of getting married compared to their counterparts who do not have a marriage house. In addition, the timing of home purchase exhibits a clear cut-o↵ around the time of marriage, with the probability of purchasing a house peaking 0-2 years before marriage and slumping immediately after the time of marriage. Moreover, in the cross section, county house prices and average age at marriage are highly correlated in both level and in growth rate. We then quantify the marriage related incentives for homeownership using a lifecycle consumption-savings model with housing demand and ownership-dependent marriage shocks. In a counterfactual world where the marriage-house complementarity is absent, 45% of households under age 45 would delay their home purchases. Removing the marriage house friction from the marriage market would have slowed down the rise in age at first marriage by 40% between 1995 and 2010. Our results suggest that policies directed at either housing affordability or demographics can have significant consequences for both marriage and housing markets in China. Using data on U.S. state and federal taxes and transfers over the last quarter century, the fourth chapter estimates a regression model that yields the marginal effect of any shift of market income share from one quintile to another on the entire post tax, post-transfer income distribution. We identify exogenous income distribution changes and account for reverse causality using instruments based on exposure to international trade shocks, international commodity price shocks and national industry demand shocks, as well as lagged endogenous variables, with controls for the level of income, the business cycle and demographics. We find attenuation initially increases in quintile rank, peaks at the middle quintile and then falls for higher income quintiles, consistent with median voter political economy theory and the Stiglitz Director's law. We also provide evidence of considerable and systematic spillover effects on quintiles neither gaining nor losing in the "experiments, " also favoring the middle quintile. "Voting" and "income insurance" coalition analyses are presented. We find a strong negative relationship between average real income and the degree to which taxes and transfers are heavily redistributive.
Author: Modeste Yirbèhogré Somé
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Languages : en
Pages :
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Author: David Ciaran Lindsay
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Category :
Languages : en
Pages : 228
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In Chapter 1, I use a structural approach, to quantify the effect of land-use regulations on different age and education groups. I estimate a dynamic spatial structural equilibrium model of household location choice, local housing supply, and amenity supply. I show that in the long-run, removing land-use restrictions benefits all household groups and increases aggregate consumption by 7.1%. These consumption gains vary across households, less educated and younger households see increases in consumption about twice as large as more educated or older households. In contrast, in the short-run, removing land-use regulations reduces the consumption of older-richer homeowners while increasing the consumption of younger renters. In a counterfactual 1990-2019 transition, abolishing land-use regulations reduces the consumption of households born before the mid-1960s, while increasing consumption of more recent generations. In Chapter 2, co-authored with Mahyar Kargar, Benjamin Lester, Shuo Liu, Pierre-Olivier Weill, Diego Zuniga, we study liquidity conditions in the corporate bond market during the COVID-19 pandemic. We document that the cost of trading immediately via risky-principal trades dramatically increased at the height of the sell-off, forcing customers to shift toward slower agency trades. Exploiting eligibility requirements, we show that the Federal Reserve's corporate credit facilities have had a positive effect on market liquidity. A structural estimation reveals that customers' willingness to pay for immediacy increased by about 200 bps per dollar of transaction, but quickly subsided after the Fed announced its interventions. Dealers' marginal cost also increased substantially but did not fully subside. In Chapter 3, co-authored with Diego Zuniga, we study inter-dealer trading patterns in the US corporate bond market. We document that dealers trade with only a small group of other dealers and that this group of dealers is highly persistent over time. We show that the longer a dealer pair have been trading the more likely that they will continue to trade and the larger the bilateral volume traded between them. We measure trading costs between dealers and show that stronger relationship leads to lower trading costs. Motivated by our empirical work we develop a structural model of trading relationships. The existence of double marginalization leads to inefficiency. We show that the repeated nature of the interactions between dealers allows them to form relationships and hence restore optimality.
Author: Nicolas Aragon
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Category : International finance
Languages : en
Pages : 109
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This thesis deals with the economics of crises, within the macro-finance literature. The first chapter, coauthored with Rasmus Pank, deals with how crises emerge. Particularly, we are interested in how confidence affects the outcomes in an experimental asset market where the fundamental value is known by all the participants. We elicit expectations in a way that allows us to measure con-fidence. We ask participants to forecast the one-period-ahead price as a discrete probability mass distribution and find that confidence not only affects the price-formation in markets, but also is important in explaining the dynamics of the bubble. Moreover, as traders' confidence grows, they become increasingly more optimistic, thus increasing the likelihood of price bubbles. The remaining chapters deal with policy responses to crises. The second chapter, "Banks vs Zombies", studies how zombie firms arise in equilibrium and the scope for policy. Zombie firms are otherwise insolvent borrowers who are kept a oat by new credit from banks to cover their losses. The practice, known as evergreening or zombie lending, has occurred in times of financial distress even when debt restructuring is allowed. I study the incentives to restructure debt in a borrower-lender game and provide conditions under which it is optimal to engage in evergreening even when socially inefficient. In normal times, the borrower can access a competitive credit market and pay the opportunity cost of capital. When a shock renders the creditor insolvent, debt needs to be restructured. The firm is locked in a lending relationship and the incumbent bank has monopoly power. Normally, a lender would liquidate the firm. However, the lender is also financially distressed, the incentives to restructure change radically. To keep the firm afl oat and prevent its own bankruptcy, the bank covers the firms losses. It does not, however, fund investment, as the distressed borrower may not use the funds effciently. Evergreening can happen for profitable investments and renegotiation does not solve the problem. I discuss policy alternatives and show that debt haircuts and bank capitalizations must be used simultaneously; and that monetary policy can behave differently in the presence of zombie firms. Finally, I provide evidence supporting the model using a novel panel data set of matched firms and banks for the case of Spain. The final chapter, "Optimal Haircuts", analyzes the desirability of intervention in a simple model of heterogeneous firms and households. Households finance firm's working capital, and the credit constrained firms are heterogeneous in their productivity and hence debt levels. After an unexpected aggregate shock, less productive firms go bankrupt. This directly decreases the wage income of the households, and indirectly decreases their income from the defaulted loans to firms. The main result of the paper is that there is an optimal haircut for deposits such that both firms and families are better off. Moreover, there is a tension between maximizing welfare and maximizing output. This provides a rationale for the Cypriot, Hungarian and Argentinean experience. The model is adapted to an open economy and used to analyze a devaluation shock, which provides policy for countries attempting to escape a monetary union or a currency peg.
Author: Juliane Begenau
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Languages : en
Pages :
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This dissertation consists of three separate contributions to the field of macroeconomics and finance. In the first chapter, I present a quantitative dynamic general equilibrium model for the purpose of determining the optimal capital requirement for banks. Banks play two roles in this model: They contribute to the production of a final good and they provide liquidity in the form of bank debt, which households value. Banks also benefit from an implicit bailout guarantee from the government, which motivates them to take on excessive risk. I quantify this model using data from NIPA and the FDIC. Higher capital requirements lower risk-taking and increase consumption, but they also reduce the supply of bank debt. The reduction in bank debt leads to a lower interest rate on bank debt through a general equilibrium effect. This reduces the overall funding costs of banks and allows them to grow larger, which increases the capital stock and, consequently, production as well as consumption. The optimal capital requirement weighs the reduction in economic volatility and the increase in consumption against the reduction in liquidity. Welfare is maximized at 14%. The second chapter is coauthored with Juliana Salomao. Therein, we study how firms finance themselves over the business cycle. Using Compustat data, we first document that large firms substitute between debt and equity financing over the business cycle whereas small firms increase the amount of funds raised, using both debt and equity financing, in good times and reduce it in bad. We propose a mechanism that explains this empirical feature in a heterogeneous firm optimization model. Our mechanism is based on two main features. First, small firms are growing and therefore have higher funding needs compared to large firms. Second, the cost of debt financing depends endogenously on the default probability of the rm as well as on the recuperation value of the bond. This model can account for the cyclical relationships we see in the data. The third chapter is co-written with Monika Piazzesi and Martin Schneider. It studies US banks' exposure to interest rate and default risk. We exploit the factor structure in interest rates to represent many bank positions as portfolios in a small number of bonds. This approach makes exposures comparable across banks and across the business segments of an individual bank. We also propose a strategy to estimate exposure due to interest rate derivatives from regulatory data on notional and fair values together with the history of interest rates.
Author: Xu Tian
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Category : Finance
Languages : en
Pages : 109
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"This dissertation studies the macroeconomic consequences of financial frictions via their roles in determining the capital structures of firms and financial institutions. It consists of two papers in this particular field. The first paper focuses on the capital structure decisions of financial intermediaries and their macroeconomic implications. In this paper, titled "Uncertainty and the Shadow Banking Crisis: A Structural Estimation", I examine the impact of asset return uncertainty on the financing and leverage decisions of shadow banks. Shadow banks play an important role in the modern financial system and are arguably the source of key vulnerabilities leading to the 2007-2009 financial crisis. In this paper, I develop a quantitative framework with endogenous bank default and aggregate uncertainty fluctuation to study the dynamics of shadow banking. I argue that the increase in asset return uncertainty during the crisis results in the spread spike, making it more costly for shadow banks to roll over their debt in the short-term debt market. As a result, these banks are forced to deleverage, leading to a decrease in the credit supply. The model is estimated using a bank-level dataset of shadow banks in the United States. The findings show that uncertainty shocks are able to generate statistics and pathways of leverage, spread, and assets which closely match those observed in the data. Maturity mismatch and asset firesales amplify the impact of the uncertainty shocks. First moment shocks alone can not reproduce the large interbank spread spike, dramatic deleveraging and contraction of the US shadow banking sector during the crisis. The model also allows for policy experiments. I analyze how unconventional monetary policies can help to counter the rise in the interbank spread, thus stabilizing the credit supply. Taking into consideration of bank moral hazard, I find that government bailout might be counterproductive as it might result in more aggressive risk-taking of shadow banks. The contribution of this paper is twofold. On the empirical front, I contribute to the literature by being the first in documenting several stylized facts of the U.S. shadow banking industry using a detailed micro-level dataset. On the theoretical front, I contribute to the literature by being the first in building a quantitative model with heterogeneous banks, endogenous bank default, aggregate uncertainty fluctuation and maturity mismatch to characterize the shadow banking dynamics in a full nonlinear manner and quantifying the impact of uncertainty shocks on the shadow banking industry. In the second paper with Yan Bai and Dan Lu, "Do Financial Frictions Explain Chinese Firms' Saving and Misallocation?", we use Chinese firm-level data to quantify financial frictions in China and ask to what extent they can explain firms' saving and capital misallocation. The literature on the effect of financial frictions on capital outflow and misallocation is large, however, it either uses aggregate data or it ignores firms' financing patterns. Few works use micro-level Chinese data to quantify these frictions. This paper fills this gap. We first document features of the data, in terms of firm dynamics and financing. We find that relatively smaller firms have lower leverage, face higher interest rates and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk and a fixed cost of issuing loans. We estimate the model using evidence on the firm size distribution and financing patterns and find that financial frictions can explain aggregate firm saving, the co-movement between saving and investment across firms, and around 60 percent of the dispersion in the marginal product of capital (MPK). The endogenous financial frictions, however, generate an opposite MPK-size relationship, which has important implications for total factor productivity losses."--Pages iv-v.
Author: Xing Guo
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Category :
Languages : en
Pages : 0
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Author: Pawel Zabczyk
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Category : Academic theses
Languages : en
Pages : 0
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Author: Rong Fu
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Category :
Languages : en
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