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Author: Sofia Kalantzi
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 224
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Book Description
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: Sofia Kalantzi
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 224
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Book Description
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: Joan Camilo Granados Castro
Publisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 0
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Book Description
In this dissertation, I study the international interactions of financial regulations and the macroeconomic implications of accounting for the borderless dimension of these policies when designing macroprudential coordinated policy frameworks. In the first chapter, I revise empirically whether there is evidence supporting the existence of strategic policy interactions between regulators based in different economies. I find that, in effect, for some types of economies and instruments, the foreign prudential policies are relevant benchmarks that they consider when adjusting their policies and point that these additional adjustments, or interactions, can generate the scope for policy coordination improvements. In chapter two, I set a theoretical framework for thinking about the international policy macroeconomic spillovers that could justify such interactions. I specify the relevant factors these may depend on, the relevance of these policies for mitigating financial market frictions, and the importance of considering interactions both at the global level, between centers and peripheries, as well as regionally between peripheries alone. In the third chapter, I argue a dynamic setup is necessary for a complete welfare evaluation of potential cooperative setups given the persistence of the effect of policy on the regulated banks. Then I set a dynamic, stochastic, general equilibrium model with multi-peripheral features to study when coordination can be fruitful and when it becomes counterproductive. I obtain the mechanisms driving the potential welfare and financial stability gains of coordination, and generate policy recommendations on when to engage in a cooperative effort and why. I concludethe dissertation mentioning potential extensions of these studies for future work. More specifically, in chapter one, I obtain that domestic policymakers can adjust their macroprudential toolkit depending on whether they perceive positive or negative financial stability spillovers stemming from foreign economies which will be an instrument-specific feature. When the effect is positive the regulators engage in policy substitution efforts and relax their policy stance, choosing to rely on the stricter regulations of other countries. On the contrary, when the potential effect is negative the regulators engage in policy competition and match the foreign policy tightenings with local stricter policies. The former is found between interactions between peer, or similar economies, such as advanced reacting to advanced, or emerging countries reacting to other emerging, while the latter effect is found between interactions of non-similar economies (emerging-to-advanced, and advanced-to-emerging). In chapter two, I set up a three-country center-multiperpheral model, where I model a regulated banking sector in each economy that is subject to financial agency frictions. In that setup the financial center will act as a global creditor which I found will be a key feature in simultaneously dampening the local effects, and increasing the cross-border effects of themacroprudential policies at the center, which jointly will imply important international spillovers towards the emerging economies. I explain how coordinated policies imply a mitigation in the level of interventionism required for the treatmeant of the financial frictions which implies that coordinated policies can be worth pursuing in presence of important implementation costs of the regulations. Finally, in the last chapter, I make a comprehensive welfare comparison of coordinated, semi-coordinated, and decentralized policy frameworks in a multilateral environment, and explain that a necessary condition for policy coordination to be welfare improving is that the financial center acts cooperatively, otherwise policy cooperation becomes counterproductive. I identifytwo mechanisms that generate these welfare gains, namely the cancelation of the incentives to manipulate the global interest rates with policy within a cooperative coalition, and a policy motive for substituting local capital accumulation at the financial center for global intermediation towards the peripheries. I show these mechanisms work better with coalitions where more emerging economies interact cooperatively with the center and provide policy recommendations on when cooperation is worth pursuing.
Author: Rohan Kekre
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Motivated by policy debates emerging from the U.S. Great Recession and Eurozone crisis, I study the stabilization role of monetary, fiscal, and macroprudential policies in response to short-run fluctuations. In the first essay on "Unemployment Insurance in Macroeconomic Stabilization", I characterize the role of unemployment insurance (UI) generosity as a particular instrument of fiscal policy, and use my framework to quantitatively evaluate the employment and welfare effects of UI extensions in the U.S. over 2008-13. In the second essay on "Labor Market Frictions in a Monetary Union", I study stabilization trade-offs and optimal monetary policy in a monetary union where labor markets are frictional and heterogeneous across member states, with implications for the sustainability of the Euro and policy of the ECB. In the third essay on "Firm vs. Bank Leverage over the Business Cycle", I develop a general equilibrium model explaining the contrasting cyclical behavior of non-financial corporate and bank leverage in U.S. data, and study its implications for macroprudential regulation in banking. Methodologically, these essays share a focus on building theoretical models of closed and open economies to address policy-relevant questions in macroeconomics, drawing on additional ideas from related fields such as public economics and finance.
Author: Jeremy Rastouil
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1498339174
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.
Author: N. Gregory Mankiw
Publisher: Macmillan
ISBN: 1429253673
Category : Business & Economics
Languages : en
Pages : 642
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Book Description
Watch this video interview with Greg Mankiw and Larry Ball discussing the future of the intermediate macroeconomics course and their new text. Check out preview content for Macroeconomics and the Financial System here. The financial crisis and subsequent economic downturn of 2008 and 2009 was a dramatic reminder of what economists have long understood: developments in the overall economy and developments in the financial system are inextricably intertwined. Derived and updated from two widely acclaimed textbooks (Greg Mankiw’s Macroeconomics, Seventh Edition and Larry Ball’s Money, Banking, and the Financial System), this groundbreaking text is the first and only intermediate macroeconomics text that provides substantial coverage of the financial system.
Author: International Accounting Standards Board
Publisher:
ISBN:
Category : Defined benefit pension plans
Languages : en
Pages : 54
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Book Description
Author: M. Ayhan Kose
Publisher: World Bank Publications
ISBN: 1464815453
Category : Business & Economics
Languages : en
Pages : 403
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Book Description
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Author: Mr.Jaromir Benes
Publisher: International Monetary Fund
ISBN: 1475505523
Category : Business & Economics
Languages : en
Pages : 71
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Book Description
At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
Author: Mr.Stijn Claessens
Publisher: International Monetary Fund
ISBN: 1475561008
Category : Business & Economics
Languages : en
Pages : 66
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Book Description
This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
