1,721,019 research outputs found
Money and price dispersion
No full textWe relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion. In this case, buyers and sellers enter matches with potentially different willingness to trade. Across the distribution of possible bilateral matches, prices generally will differ even though agents have identical preferences and technologies. We provide existence conditions for a particularly simple equilibrium pattern of exchange. We prove that in the limiting case where search frictions are eliminated, equilibrium prices are uniform. We also show that a higher initial money stock can raise the average price level and increase price dispersion
Updated facts on the U.S. distributions of earnings, income, and wealth
Get PDFWealth ; Income distribution
Rising bank concentration
Get PDFFil: D'Erasmo, Pablo. Universidad de San Andrés. Departamento de Economía; Argentina.Concentration of insured deposit funding among the top four commercial banks in the U.S.
has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has
often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches
across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's
funding base. In this paper, we build an industry equilibrium model in which banks
endogenously climb a funding base ladder. Rising concentration occurs along a transition
path between two steady states after branching costs decline
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Essays in financial intermediation, monetary policy, and macroeconomic activity
Get PDFtextThis dissertation stresses the importance of financial intermediation
and monetary policy in explaining macroeconomic observations. The chapters
extend lines of existing literature by considering modelling environments which
include previously unconsidered features such as endogenous inside-money
holdings, endogenous monetary policy, and potential asymmetric responses.Chapter 1 observes that a
1979 change in US monetary policy coincided with
a break in the cyclical behavior of monetary aggregates. A model is developed to determine the quantitative importance of a change in monetary policy
in accounting for these observations. The model is taken to the data using
a variety of methods, and shows how systematic monetary policy could play
an important role in explaining this observation. The model also captures
Granger-causality from money to output, without an avenue for money to actually cause output. Chapter 2
examines the response in the lending activity of
commercial banks to changes in monetary policy by allowing lending activity
to respond independently over periods of monetary contraction and expansion.
This exercise tests the implicit assumption made in the lending channel literature that the change in lending activity after a monetary contraction is equal
in absolute value to the change after an expansion. The results show strong
support for asymmetry but not in the way a simple extension of the lending
channel theory would predict. Chapter 3 seeks to determine the quantitative
importance of the financial collapse and the large drop in broad monetary aggregates in explaining features of the Great Depression. A financial collapse in
the model is interpreted to be an exogenous preference shock towards valuing
cash goods relative to deposit goods and the model is simulated by inputting
estimates of the shock series which match the deposit-currency ratio of the
episode. The model successfully matches the severity and persistence of the
output drop during Great Depression and does equally well on other dimensions. These results suggest that the shift away from households holding inside
money is an important feature of the episode.Economic
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Business cycles and labor market reallocation
Get PDFtextThis dissertation studies the behavior of labor markets over the business cycle.
The chapters extend existing literature on the cyclical change in labor markets by
considering alternative environments such as on-the-job search and costly screening
as well as by estimating a structural labor market search model to understand the
effects of different exogenous forces. Chapter 2 uses a standard labor market search
model to uncover the cyclical properties of unobserved forcing variables that determine
the exogenous state of the aggregate labor market. A structural estimation of
the model implies that labor market reallocation as well as implied job separations
is strongly procyclical. This result and the recent literature emphasizing the lack of
volatility in the standard search models provide the motivation for stressing the role
of on-the-job search in creating more volatility for vacancies and unemployment in
Chapter 3. A model of on-the-job search with match specific learning is developed
in this chapter. Simulations of the model show that job-to-job transitions signifi-
cantly improve the volatility of vacancies and unemployment. The model implies
that firms are more likely to meet employed workers in expansions and that those
they meet are more likely to accept firm’s job offer because they are more likely
to be employed in a low quality match. This introduces strongly procyclical labor
market reallocation through procyclical job-to-job transitions. Chapter 4 seeks to
determine the quantitative importance of costly screening for the observed excess
volatility. A model similar to the one used in Chapter 3 is utilized to emphasize the
symmetric incomplete information about match quality. In the model, employers
are endowed with a costly screening technology, which enables them to meet with
potentially better quality workers. Since this technology is costly, employers decide
to use it when aggregate productivity is low, i.e. when the opportunity cost of not
producing is low. These countercyclical changes in screening investment improve the
cyclical behavior of vacancies. Therefore, this dissertation provides possible answers
for the observed high volatility of key labor market aggregates by emphasizing the
significance of recruitment behavior and a more through modeling of workers’ search
behavior.Economic
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Three essays on financial macroeconomics
Get PDFtextI study financial arrangements that arise in economies with limited enforcement.
Contractual promises are required to be rational for the obligated party at the time
of fulfillment. Common also to each environment is perfect information. I study each
economy in general equilibrium with competitive markets.
In the first chapter, I study the provision of liquidity by one cohort of private
agents to another building on the three-period model of Holmstrom and Tirole (Journal
of Political Economy, 1998). Entrepreneurs issue financial liabilities to finance
liquid investment. As a precaution against a random cost shock, entrepreneurs
optimally buy, hold, and then sell a security that they cannot issue themselves. In
contrast to Holmstrom and Tirole, I do not allow government liabilities to serve this
purpose. Instead, I require that entrepreneurs liquidity needs be satisfied endogenously
by circulation of third-party liabilities. The appropriate liabilities sell at a
price premium relative to securities that do not serve the liquidity need. Liquidity
uncertainty can distort production allocations among producers with different risk
characteristics, and I show how issuers of circulating liabilities may be interpreted
as banks.
The second chapter presents an infinite time-horizon exchange economy wherein
default cannot be punished by complete banishment from markets. An asset exists
in the economy that cannot be confiscated, and that agents can never be prevented
from trading. The payoff to an agent in default is a function of present and future
prices and the agents ownership share of the non-collateral asset. Greater
ownership implies a higher payoff upon default; but a higher default payoff reduces
trading opportunities in equilibrium. Equilibration may generate volatile time-series
for endogenous variables. I document the quantitative implications by computing
equilibria of a plausibly calibrated economy.
In the last chapter, I study the ability of a simple limited enforcement economy to
explain arbitrary panel consumption data. Subject to satisfaction of mild inequality
restrictions, if the consumption allocation implies that each agents wealth is finite,
there is a feasible punishment institution that induces the data in equilibrium. The
result shows that limited enforcement economies hold significant potential to explain
anomalous features and implications of such data.Economic
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Essays in dynamic macroeconomics
Get PDFtextThe focus of my research is dynamic macroeconomics and how the economy responds to changes in government policy. During the last 30 years, the sovereign bond market in emerging economies has grown considerably and many large scale defaults were observed. Existing models of sovereign debt are unable to jointly explain the debt to output ratios and the default frequency in these countries. In the first chapter, to address this puzzle, I propose a standard small open economy model with the addition that the government transits through different political states and these transitions cannot be directly observed by lenders. Moreover, after a default, the government chooses when to renegotiate and it bargains with the lenders over the recovery rate. I show that government reputation and endogenous periods of exclusion and recovery rates play a crucial role in explaining this phenomenon. In the second chapter, I use a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain the increase in transfers to low earnings quintiles and increase in effective tax rates for high earnings quintiles in the U.S. over the past several decades. I conduct a welfare analysis by contrasting the solution from the political mechanism with those from a sequential utilitarian mechanism, as well as mechanisms with commitment. Finally, the third chapter focuses on explaining the dynamics of firms. I ask whether an entry/exit model like that pioneered by Hopenhayn (1992, Econometrica) with a capital accumulation decision and non-convex costs of adjustment can generate size and age dependence like that found in the data. In particular, conditional on age, growth, employment creation and destruction and volatility are decreasing in size. Moreover, conditional on size, growth, employment creation and destruction and volatility are decreasing in age. The main point of this chapter is to demonstrate that a model with no financial frictions parameterized to match the investment regularities of U.S. establishments is able to account for the simultaneous dependence of industry dynamics on size (once we condition on age) and on age (once we condition on size). To explain how the economy responds and conduct welfare analysis either one has to find natural experiments or one has to build computational models and run counterfactual experiments. My research follows the latter strategy.Economic
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Financial crises in developing countries
Get PDFThis dissertation provides both a theoretical and empirical look at
financial crises in developing countries. The first chapter examines the effects
that capital inflows have on the financial system in the context of a demand
deposit banking model. In this environment, an adverse-selection problem arises
where short-term capital has the incentive to enter the domestic banking system
while long-term capital chooses to stay out. Then, short-term capital flows limit
the risk-sharing function of banks. As short-term inflows increase, a threshold is
reached beyond which it becomes optimal to restrict capital inflows. In addition,
if the quantity of inflows is unknown, then banking crises occur as short-term
inflows become large. In this case, the bank’s insurance function is lost and
assets have to be suboptimally liquidated. In spite of this, restricting capital
inflows may not be optimal at all times, since the cost of doing so may be greater
than the detriment of allowing them in.
The second chapter considers policy design in a banking environment
where both fundamental runs (that stress macroeconomic variables, such as
negative technology shocks, as the cause of bank runs) and sunspot runs (where self-fulfilling expectations generate equilibria where agents panic and run on
banks) are possible. Under this environment, policies of narrow banking and
suspension of convertibility will not be optimal. In contrast, a lender of last
resort mechanism, where a central bank lends currency to banks in the event of a
run, achieves the optimal outcome by preventing costly liquidation of
investments and optimally distributing risk when there are runs.
While the second chapter models both types of runs under one
environment, the third chapter uses a multinomial logit model that differentiates
both types of runs to study the factors associated with the emergence of financial
crises. By doing this, important characteristics particular to each type of run
come to light which are not accounted for by standard binomial logit
specifications. We find evidence indicating that the two types of crises are
indeed different, and are explained by different variables. Finally, by accounting
for both types of crises, our results provide better support to existing self-fulfilling theoretical models.Economic
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Three essays on volatility and persistence in dynamic economies
Get PDFtextTo study the dynamic economies rather than the static ones allows us
to understand chain reactions of economic behaviors explicitly, and so their
volatility and persistence. This dissertation studies different output volatility
across countries and across production sectors in a country and it examines an
endogenous mechanism supportive to amplification and persistence in dynamic
economies.
In the first chapter, production connection through intermediate inputs
is studied for an amplification mechanism, which stems from Leontief (1936)
in the input-output analysis. It is known that developing industrial countries
show larger output volatility than developed countries. Here I relate higher
output volatility with higher intermediate input shares. When contrasting
against the G-7 countries, twelve percentage of Asian developing industrial
countries’ excessive output volatility is accounted for by their higher intermediate
input shares. By contrast, Latin American countries show larger output
volatility than G-7 countries but lower intermediate input shares; their exogenous
shock against the G-7 group may be larger than when measured only by
the typical Solow residuals.
The second chapter studies the sector volatility against the overall or
average volatility of an economy. I claim that the output volatility of a sector
against the overall output volatility is associated with its final demands. In the
U.S. economy, the industrial sector shows larger standard deviation than GDP.
The ratio of its consumption share to investment share is 0.42, implying the
final usage of industrial commodity is oriented more to investment than consumption.
Considering rational people want smooth consumption over time,
it is plausible that investment-oriented sector shows higher volatility. Seventy
nine percentages of higher volatility in the industry sector are accounted for
by the aggregate shocks.
The third chapter suggests collateral constraints for an amplification
and persistence mechanism. I introduce debt-collateral ratio, which measures
strength of collateral constraints, into Kiyotaki and Moore (1997). The model
shows trade-off relationship between persistence and amplification when debtcollateral
ratio gets near to unity. With the theoretical model, I study the
residential land usage in Korea. Assuming that there is no serial correlation
of exogenous shock, I find debt-collateral ratio involved with the land usage;
which is 0.8.Economic
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Essays in environmental regulation and firm dynamics
Get PDFtextIn this dissertation, I study the effect of environmental regulation on firm behavior. In the first chapter, I use a dynamic model to quantify the effects on exit, entry, investment and welfare of different allocation schemes of a cap-and-trade program. I focus on allocation rules regarding closing plants and new entrants. I calibrate the model with data from the US power plants and perform two policy experiments: first I quantify the effects of the introduction of a cap-and-trade program; second, I do a counterfactual where I switch the allocation rule and study the effect on the new equilibrium and welfare. In the second chapter of this dissertation, I ask whether multinational firms are harmful for a host country environment. I use plant-level data from Chile and find empirical evidence that multinational are cleaner than domestic plants. Based on the trade literature, I build a model where I add environmental regulation and a technology choice. The model proposes a new explanation of why multinationals firms might be cleaner than their domestic peers. I get policy implications from the model and test them with the data. In the third chapter, I study the relation between free permit allocation in a cap-and-trade program and financial constraints. I use the change in the permit prices and the heterogeneity in permit allocation to identify financial constraints for the investor-owned utilities in the electricity sector.Economic
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