Three Essays on Bank Lending, Liquidity, and the Macroeconomy PDF Download
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Author: Torsten Ehlers
Publisher:
ISBN:
Category :
Languages : en
Pages : 107
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Author: Torsten Ehlers
Publisher:
ISBN:
Category :
Languages : en
Pages : 107
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Author: Huifeng Chang
Publisher:
ISBN:
Category :
Languages : en
Pages : 197
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This dissertation consists of three chapters on macroeconomics and finance. In Chapter 1, I study how disruptions in secondary bond market liquidity affect the macroeconomy. I introduce search-based secondary markets for long-term corporate bonds into a dynamic general equilibrium model. In the model, with borrowing constraints and incomplete insurance, firms restrict hiring ex-ante when default risk increases. A worsening of bond market liquidity, by affecting bond prices and thus the borrowing limits for firms, has aggregate negative impact on firms' labor choices. A positive default-liquidity spiral further amplifies these effects. In the quantitative analysis of my model, I show that a liquidity shock calibrated to match the observed increase in the bid-ask spread could explain about 20% of the employment losses in the Great Recession. I also provide a structural estimate of the impacts of the Fed's corporate bond purchasing program on the real economy during the COVID-19 crisis. By improving bond market liquidity, the Fed's interventions avoided a 2 percentage point drop in employment. In Chapter 2 (joint with Adrien d'Avenas and Andrea Eisfeldt), we explain why credit spreads explain firm-level investment better than equity volatility does. While credit spreads always predict lower investment, the sensitivity of investment to equity volatility changes sign in the cross section of firms depending on their distance to default. Higher equity volatility predicts greater investment for firms far from their default threshold, consistent with a larger option value of investment at higher levels of volatility. On the other hand, higher equity volatility predicts lower investment for firms with high credit spreads, consistent with debt overhang. Opposite effects at the firm level wash out and confound aggregate inference. We provide clean intuition using a simple model. In Chapter 3 (joint with Lucyna Gornicka, Federico Grinberg, and Marcello Miccoli), we study how the introduction of Central Bank Digital Currency (CBDC) might disintermediate the banking sector. Using a simple portfolio choice model we find that CBDC reduces bank credit only in special cases and when it does, the effect is quantitatively small. In the model, households allocate their wealth between an illiquid asset and three liquid assets: cash, bank deposits and CBDC. An imperfectly competitive banking sector provides deposits and lending. When all liquid assets are costless to access, the introduction of CBDC does not lead to bank disintermediation, as banks increase the return on deposits to fight off the competition from CBDC. However, if the access to deposits and CBDC is costly, the introduction of the latter may lead to bank disintermediation under specific conditions. The conditions are that CBDC is much cheaper to access than bank deposits and that the wealth distribution is very unequal. Under these conditions, poorer households will stop holding deposits in favor of CBDC, but banks will not aggressively fight the outflow of customers due to their relatively small wealth. Still, the impact on lending turns out quantitatively small if banks have access to other forms of funding.
Author: Joshua James Bosshardt
Publisher:
ISBN:
Category :
Languages : en
Pages : 184
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This thesis contains three papers related to measures for improving the stability of the banking system, including regulations and public ownership. The first chapter shows using a difference-in-differences strategy that the introduction of the U.S. bank stress tests led small businesses to concentrate their debt within a smaller number of banks. I explain this using a model of bank competition in which creditworthy but informationally opaque firms have an incentive to establish a small number of concentrated lending relationships to facilitate information acquisition by their lenders. Tightening credit standards reduces the rate of non-performing loans, but it also decreases the availability of credit. In response, firms strengthen their lending relationships by concentrating in a smaller number of lenders. When the model is calibrated to match the empirical estimates, tightening credit standards has zero net effect on efficiency, but it shifts the surplus from firms to banks because firms have fewer informed lenders with which to bargain over prices. The second chapter, joint with Ali Kakhbod, illustrates channels by which regulations that require banks to hold liquid assets can either increase or decrease a bank's incentive to take risk with its remaining ineligible assets. A greater capacity to respond to liquidity stress increases the potential profits a bank would put at stake by making risky investments, but it also mitigates the illiquidity disadvantages of holding risky assets. We do not find evidence that the reserve requirement or the liquidity coverage ratio significantly affected measures of risk-taking such as non-performing loan ratios or credit default swap spreads. The third chapter, joint with Eugenio Cerutti, shows that state-owned or public banks lent relatively more than domestic private banks during the Global Financial Crisis (GFC). Using a novel bank-level dataset covering 25 emerging market economies, we provide evidence that this was because they pursued an objective of helping to stabilize the economy, rather than because they had superior fundamentals or access to public or depositors' funding. Nonetheless, their countercyclical behavior seems unique to the GFC rather than a regular characteristic of public banks before and after the GFC. JEL Codes: G21, G28, G01
Author: Guido Lorenzoni
Publisher:
ISBN:
Category :
Languages : en
Pages : 146
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This thesis includes four essays on the macroeconomic effects of financial market imperfections. The first essay studies the incentives for banks that participate in an interbank market to keep a sufficient level of reserves. It presents a model where, in presence of imperfect insurance against bank-specific shocks, banks keep an inefficiently low ratio of reserves to deposits. A consequence of this is that the interest rate on the money market will fluctuate too much from a second-best perspective. It discusses the potential benefits and risks associated to central bank intervention, and highlights the complementarity between regulatory reserve requirements and stabilization of the interest rate. The second essay (joint with C. Hellwig) studies the ability of banks to issue liquid liabilities while holding only a fraction of their activities in liquid assets. We study the possibility of self-sustaining equilibria in which banks are prevented from abusing their issuing privilege by the threat of losing it in case of default. The third essay is a contribution to the empirics of precautionary savings and shows evidence of a decreasing relationship between household wealth and the variability of consumption expenditure. The evidence is consistent with the presence of a precautionary motive for wealth accumulation. The fourth essay (joint with F. Broner) shows that the time series of the spreads on emerging market bonds appears consistent with the view that international investors supplying funds to these countries are liquidity constrained at times of large price drops.
Author: Mr.Philippe D Karam
Publisher: International Monetary Fund
ISBN: 1498348394
Category : Business & Economics
Languages : en
Pages : 38
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We analyze the transmission of bank-specific liquidity shocks triggered by a credit rating downgrade through the lending channel. Using bank-level data for US Bank Holding Companies, we find that a credit rating downgrade is associated with an immediate and persistent decline in access to non-core deposits and wholesale funding, especially during the global financial crisis. This translates into a reduction in lending to households and non-financial corporates at home and abroad. The effect on domestic lending, however, is mitigated when banks (i) hold a larger buffer of liquid assets, (ii) diversify away from rating-sensitive sources of funding, and (iii) activate internal liquidity support measures. Foreign lending is significantly reduced during a crisis at home only for subsidiaries with weak funding self-sufficiency.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 230
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The first chapter explores liquidity risks and analyzes the relationship between funding liquidity and market liquidity theoretically and numerically. Funding liquidity is measured by borrowing constraints of secured loans. Market liquidity is measured by the trading frequency and the ease of traders' negotiations. Borrowing constraints affect the fundamental value of assets traded on the market as well as traders' negotiations. On the other hand, trading efficiency changes borrowing constraints. The above dynamic interactions cause the economy respond persistently to liquidity shocks. Pushing further, the simulated liquidity moments move together and present business cycle property. Moreover, money has an essential role as the medium of exchange in the exchange process that impose a non-trivial monetary policy implication. The second chapter studies the efficiency and default risk of long-term non-recourse loans in bank lending, where limited commitments present. With predetermined terms of the loan, the borrower has incentive to terminate the loan earlier either by prepayment or default. The incentive-compatible loan contract in favor of a lower default risk encourages earlier prepayments, and vice versa. If the loan market is frictional that it takes time for the bank to find another borrower, the interest loss on prepayment becomes severe. Under this condition, allowing default increases the efficiency of lending. Moreover, the bank would allow a higher default rate if the initial market interest rate is lower or the size of the loan is larger. The third chapter studies the effect of recourse law on homeowners' behavior during the residential mortgage foreclosure process, and shows evidence from 7 counties of the Illinois state. We construct the dataset from a loan-level foreclosure and land lien database to capture the individual-level heterogeneity. Although the percentage of deficiency judgment granted is low, we find that the fear of banks' recourse right affects homeowner's bankruptcy and private sale decision during foreclosure. The estimation results show that, if there is no deficiency threat, the bankruptcy chapter 7 claims would be lower by 3%, the bankruptcy chapter 13 claims would go up by 10% and the probability of public sale would be increased by 4%.
Author: Timothy P. Bianco
Publisher:
ISBN:
Category :
Languages : en
Pages : 135
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Author: Vladimir Lyudmilov Yankov
Publisher:
ISBN:
Category :
Languages : en
Pages : 400
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Abstract: This dissertation consists of three essays that examine the information contained in the pricing of a set of financial contracts for identifying mechanisms important for shaping aggregate outcomes. The first chapter documents a large time-varying dispersion in the yields posted on insured time deposits over 1997-2011. The yield dispersion uncovers the presence of monopoly power over a homogeneous financial product that commercial banks have managed to consistently exploit throughout this period. I build and estimate a structural asset pricing model with heterogeneous search cost investors to characterize the implied search cost distribution that rationalizes the observed price dispersion. A large fraction of investors had high search costs ranging from 10 to 20 basis points per deposit offer. I further relate the observed price dispersion with the price rigidity of deposit yields and their asymmetric response to aggregate shocks within the theoretical framework of costly search.Extending the time deposit dataset to the pricing of non-insured time deposits, the second chapter studies the liability side of FDIC insured commercial banks as a unique laboratory for testing the importance of the government supply of safe and liquid assets for determining asset prices and allocations. An increase in the level of government debt and shortening of its maturity have a contractionary effect on the banks' balance sheets. The effect increases with the share of insured deposits in the total funding. The results provide evidence for a strong crowding-out effect of government debt on the banking system's capacity to attract cheap sources of funding in the form of deposits and hence its ability to extend loans.The third chapter identifies disruptions in credit markets using a broad array of credit spreads constructed directly from the secondary bond prices on outstanding senior unsecured debt issued by a large panel of nonfinancial firms. The portfolio-based bond spreads contain substantial predictive power for economic activity and outperform standard default-risk indicators. According to impulse responses from a structural factor-augmented vector autoregression, identified credit shocks lead to large and persistent contractions in economic activity and account for more than 30 percent of the forecast error variance in economic activity at the two- to four-year horizon during the 1990-2008 period.
Author: Tommaso Gasparini
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: James Tobin
Publisher: MIT Press
ISBN: 9780262200622
Category : Business & Economics
Languages : en
Pages : 550
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Book Description
These 28 essays, covering Tobin's work in macroeconomics from the early 1940s to 1970 are grouped into three parts - macroeconomic theory, economic growth, and money and finance.
