Browsing by Subject "Financial Frictions"

Now showing 1 - 4 of 4
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    Essays in international trade.
    (2012-07) Brooks, Wyatt James
    This thesis is divided into three separate chapters. The first chapter, joint work with Alessandro Dovis, analyzes the effect of financial frictions on the gains from undergoing trade reform. Financial frictions may limit the ability of exporting firms to expand, or keep new firms from becoming exporters in response to a trade liberalization. The way that financial frictions are modeled crucially determines whether or not this happens. Empirical evidence from a trade liberalization shows that capital flows to new exporters efficiently in response to the liberalization, even though those firms are still financially constrained. This suggests that financial market inefficiency is not a barrier to realizing gains from international trade. The second chapter, joint with Pau Pujolas, examines contemporary and historical international trade data, and establishes new patterns of trade between countries of differing income levels. Existing trade models cannot simultaneously rationalize high intra-industry trade between countries of similar income levels, and low intra-industry trade between countries of different income levels. A model of non-homothetic preferences is consistent with these facts, and implies higher gains from trade than standard models. The third chapter considers the problem of a government that wants to use immigration policy as a source of fiscal revenue. Governments can allow highly productive immigrants to enter and then tax them to finance spending on their native population. Optimal policy is considered in the context of a fixed native population and pool of potential immigrants. Optimal immigration policy follows a cutoff rule in the productivity of the entering immigrant. When agents are privately informed about their own productivity, immigrants are taxed at a higher rate than natives and the effect on the native population of increased fiscal transfers may be very large.
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    Essays in Macroeconomics and Factor Misallocation
    (2024-06) Rose, Tomas
    Far from operating under ideal conditions, households and firms conduct their daily activities facing a wide variety of frictions that hinder efficient resource allocation. Regulatory forces as well as market incompleteness, directly affect the determination of prices and quantities in any given market. The three chapters in this dissertation are motivated by issues that span this gamut. The first chapter investigates the role of labor market and financial market frictions in aggregate macroeconomic outcomes. In particular, this chapter explores the interaction of two forces: lack of access to borrowing for small and medium sized firms, coupled with unionized wages. The analysis is centered around France, where recent labor market reforms make it an ideal case study to evaluate the aggregate effect that such institutional changes may yield. The second chapter is devoted to the U.S. economy, with its focus on low and mid income households. This chapter studies the market for manufactured (both modular and panelized) homes in the U.S. This industry, which saw its peak in the late 60s, stands as a potential solution for the housing and homelessness crisis that is hitting the U.S. Yet, financing conditions in this industry are very different from standard credit conditions in the traditional housing market. Chapter two attempts to measure the welfare consequences of lacking a fully developed credit market for affordable homes, with its focus on the bottom half of the U.S. income distribution. Attention here is placed on interest rates, duration of the loans and tax deductions, all of which, differ greatly between the two housing market segments. Finally, the third chapter explores the consequences of bad lending practices (the so called \textit{zombie lending} practices) that the banking industry sometimes engages in, and aims at quantifying the aggregate consequences of such practices at a macroeconomic level. Here, the case study is centered around Italy, a country where, according to recent evidence, these lending practices were particularly prevalent and harmful for the national economy.
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    Essays in macroeconomics and financial markets.
    (2012-08) Zetlin-Jones, Ariel
    In this dissertation, we study the interaction of financial markets and the macroeconomy. In Chapter 1, we examine the quantitative importance of financial market shocks in accounting for business cycle fluctuations. We emphasize the role financial markets play in reallocating funds from cash-rich, low productivity firms to cash-poor, high productivity firms. Using evidence on financial flows at the firm level, we find that for publicly traded firms (in Compustat), almost all investment is financed internally. However, using an alternative data source (Amadeus), we find that most investment by privately held firms is financed through borrowing. Motivated by these observations, we build a quantitative model featuring publicly and privately held firms that face collateral constraints and idiosyncratic risk over productivity as well as non-financial linkages. In our calibrated model, we find that a shock to the collateral constraints which generates a one standard deviation decline in the debt-to-asset ratio leads to a 0.5% decline in aggregate output on impact, roughly comparable to the effect of a one standard deviation shock to aggregate productivity in a standard real business cycle model. In this sense, we find that disturbances in financial markets are a promising source of business cycle fluctuations when non-financial linkages across firms are sufficiently strong. In Chapter 2, we analyze the causes of financial crises and policies designed to mitigate their effects. we provide new evidence that the capital structure of financial institutions is significantly more illiquid than that of non-financial businesses. We develop a theory in which such differences in capital structure arise from the differences in information lenders have about the assets of financial and non-financial businesses. We use the theory to show that the illiquid capital structure used by financial institutions leads such institutions to be inherently fragile and that government interventions during a crisis, such as bailouts, are not desirable. In Chapter 3, we study policies intended to remedy collapses in secondary loan markets. Loan originators often securitize some loans in secondary loan markets and hold on to others. New issuances in such secondary markets collapse abruptly on occasion, typically when collateral values used to secure the underlying loans fall and these collapses are viewed by policymakers as inefficient. We develop a dynamic adverse selection model in which small reductions in collateral values can generate abrupt inefficient collapses in new issuances in the secondary loan market by affecting reputational incentives. We find that a variety of policies intended to remedy market inefficiencies do not help resolve the adverse selection problem.
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    Essays on Government Policy and Productivity
    (2019-07) Dinerstein Madenfrost, Marcos
    This dissertation studies the effects of government policy on aggregate productivity by studying how government policy affects the allocation of resources across firms. Chapter 1 describes the data used in the following chapters. importantly, this data set is a plant level census of the manufacturing sector in Chile which allows to study government policy while taking into consideration firm heterogeneity. Chapter 2 was written jointly with Fausto Patiño Peña. It quantifies the effect of effective corporate tax rates on aggregate TFP through allocative efficiency. First, using the data described in Chapter 1 for the years 1998 to 2007 several characteristics of the effective tax rate distribution are documented. Two important findings are a large dispersion in the effective tax rate faced by firms and a mass of firms with a 0 percent tax rate. Next, these features are incorporated into a standard monopolistic competition model with capital and output wedges, where firms endogenously choose the tax rate they face. The model is then calibrated and the main finding is that if there were no corporate taxes in the economy, TFP would increase between 4 and 11 percent. Afterward, the effects of imposing the same tax rate on all firms are studied. A monotonically decreasing relationship between the level of the flat tax rate and TFP is found. Finally, Chapter 3 studies the interaction between financial frictions and firing costs and its effects on allocative efficiency and aggregate productivity. In particular, it quantifies the effect on aggregate productivity of an improvement in financial development in economies with firing costs. To do this, a small open economy model with heterogeneous firms that face collateral constraints and have to pay firing costs is developed. The model is then calibrated using the data described in Chapter 1. The main finding is that aggregate productivity increases by 2.5 percent following a financial reform that makes Chile's level of financial development comparable to that of the United Kingdom.