Thesis advisor: Ryan A. Chahrour / The dissertation studies the primary sources of business-cycle fluctuations and their interaction with uncertainty and financial frictions. In my work, I examine the degree to which changes in uncertainty and financial conditions can be independent drivers of economic fluctuations; I study the sources of boom-bust cycles and whether they are linkedto credit market sentiments; and I ask how financial frictions affect economic fluctuations in terms of prices and quantities. In "Financial and Uncertainty Shocks", I separately identify financial and uncertainty shocks using a novel SVAR procedure and discuss their distinct monetary policy implications. The procedure relies on the qualitatively different responses of corporate cash holdings: after a financial shock, firms draw down their cash reserves as they lose access to external finance, while uncertainty shocks drive up cash holdings for precautionary reasons. Although both financial and uncertainty shocks are contractionary, my results show that the former are inflationary while the latter generate deflation. I rationalize this pattern in a New-Keynesian model: after a financial shock, firms increase prices to raise current liquidity; after an uncertainty shock, firms cut prices in response to falling demand. These distinct channels have stark monetary policy implications: conditional on uncertainty shocks the divine coincidence applies, while in case of financial shocks the central bank can stabilize inflation only at the cost of more unstable output fluctuations. In "What are the Sources of Boom-Bust Cycles?", joint with Vito Cormun, we provide a synthesis of two major views on economic fluctuations. One view maintains that expansions and recessions arise from the interchange of positive and negative persistent exogenous shocks to fundamentals. This is the conventional view that gave rise to the profusion of shocks used in modern dynamic stochastic general equilibrium models. In contrast, a second view, which we call the endogenous cycles view, holds that business cycle fluctuations are due to forces that are internal to the economy and that endogenously favor recurrent periods of boom followed by a bust. In this environment, cycles can occur after small perturbations of the long run equilibrium. We find empirical evidence pointing at the coexistence of both views. In particular, we find that the cyclical behaviour of economic aggregates is due in part to strong internal mechanisms that generate boom-bust phenomena in response to small changes in expectations, and in part to the interchange of positive and negative persistent fundamental shocks. Motivated by our findings, we build a theory that unifies the dominant paradigm with the endogenous cycles approach. Our theory suggests that recessions and expansions are intimately related phenomena, and that understanding the nature of an expansion, whether it is driven by fundamentals or by beliefs, is a first order issue for policy makers whose mandate is to limit the occurrance of inefficient economic fluctuations. In "COVID-19 and Credit Constraints'', joint with Pierluigi Balduzzi, Emanuele Brancati, and Fabio Schiantarelli, we investigate the economic effects of the COVID-19 pandemic and the role played by credit constraints in the transmission mechanism, using a novel survey of expectations and plans of Italian firms, taken just before and after the outbreak. Most firms revise downward their expectations for sales, orders, employment, and investment, while prices are expected to increase at a faster rate, with geographical and sectoral heterogeneity in the size of the effects. Credit constraints amplify the effects on factor demand and sales of the COVID-19 generated shocks. Credit-constrained firms also expect to charge higher prices, relative to unconstrained firms. The search for and availability of liquidity is a key determinant of firms' plans. Finally, both supply and demand shocks play a role in shaping firms' expectations and plans, with supply shocks being slightly more important in the aggregate. / Thesis (PhD) — Boston College, 2021. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

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O intento do trabalho é verificar se empresas com ações negociadas na Bovespa enfrentam restrição ao crédito. A análise de painel com base em dados de balanço patrimonial para o período de 2001 a 2005 revelou que, diferentemente do que se esperava, empresas de grande porte apresentam maior dependência dos fluxos de caixa para efetivar seus investimentos. Todavia, há argumentos teóricos na literatura que fundamentam esses resultados, bem como outras evidências empíricas semelhantes. / The paper focuses on evaluating whether Brazilian listed firms have faced financial constraints. Relying on data over the period 2001-2005, a panel data analysis was carried out, but the evidence raised turned out differently from the initially expected: large firms are more sensitive to cash flows to undertake their investment than smaller ones. Nonetheless, the recent literature provides theoretical rationale to deal with those findings as well as empirical evidence consistent with them.

This paper explores the 2008-2009 Global Trade Collapse to estimate the effects of a credit supply shock on exporters\' investments decisions. Using a Brazilian firm-level dataset compiled by the Brazilian Internal Revenue Service (IRS) over the period 2007-2013, I pair up export-intensive firms with their domestically-oriented counterparts to, subsequently, calculate the differences in terms of sensitivity of investment to cash flow between the two groups over the years. After controlling for the effect of international falling demand, my study reveals that exporters are more severely constrained than their peers in the control group only in 2009, when the supply of credit instruments to finance international trade shrank. Given their high need of external financing to support exporting activities and the volatility of the cost of trade finance, usually priced against 3-month Libor, my results are in line with expected. A number of robustness and placebo tests confirm the validity of the findings. / Este artigo explora o colapso do comércio global em 2008-2009 no intuito de estimar os efeitos de um choque de oferta de crédito nas decisões de investimento das empresas exportadoras. Utilizando dados em painel de empresas brasileiras no período 2007-2013, compilados pela pela Receita Federal do Brasil (RFB), é feito pareamento entre empresas exportadoras e as focadas no mercado interno e, em seguida, calculadas as diferenças na sensibilidade do investimento ao fluxo de caixa entre os dois grupos ao longo dos anos. Depois de controlar o efeito da queda da demanda internacional, meu estudo revela que as exportadoras ficaram mais restritas a crédito que suas similares do grupo de controle somente no ano de 2009, quando a oferta de instrumentos de crédito para o setor encolheu. Dada a alta necessidade de financiamento externo para apoiar as atividades de exportação e a volatilidade do custo dos instrumentos de crédito destinados a estas, geralmente precificados em relação à Libor de 3 meses, os resultados obtidos estão em linha com o esperado. Uma série de testes de robustez e placebo são realizados para confirmar a validade das inferências.

O intento do trabalho é verificar se empresas com ações negociadas na Bovespa enfrentam restrição ao crédito. A análise de painel com base em dados de balanço patrimonial para o período de 2001 a 2005 revelou que, diferentemente do que se esperava, empresas de grande porte apresentam maior dependência dos fluxos de caixa para efetivar seus investimentos. Todavia, há argumentos teóricos na literatura que fundamentam esses resultados, bem como outras evidências empíricas semelhantes. / The paper focuses on evaluating whether Brazilian listed firms have faced financial constraints. Relying on data over the period 2001-2005, a panel data analysis was carried out, but the evidence raised turned out differently from the initially expected: large firms are more sensitive to cash flows to undertake their investment than smaller ones. Nonetheless, the recent literature provides theoretical rationale to deal with those findings as well as empirical evidence consistent with them.

Microfinance is the number one buzz word in the development sphere nowadays. The basic idea of microfinance is to make financial services available for those excluded from the conventional banking system. By charging market price interest rates on the loans granted the business is meant to become sustainable and independent of fluctuations in cash flow from donor funding. The microfinance sector in Malawi is relatively young and still in the development phase. Since the majority of the charity organizations running microfinance projects in Malawi are originating from the Western world, the services these institutions offer are inherently affected by Western (Christian) banking culture. This paper investigates if this set up results in the exclusion of Malawi’s Muslim population due to the fact that Islamic law prohibits Muslims from charging or paying interest on loans. The conclusions of this thesis are that the Muslim population uses the microfinance services to the same extent as their Christian brethren. However, a large proportion of the Muslim clientele feel that they are morally prohibited from using the microfinance services because of the interest rate charged. They only make use of the interest-based loans because they have no other option, and would thereby prefer services compatible with Islamic law. My recommendation is for the microfinance institutions to embrace this knowledge and further investigate the need of Islamic microfinance, and the possibility to implement it, before the consequences becomes more than a moral issue.

Submitted by Ana Luiza Perdigão Valadares Dutra (anapvdutra@gmail.com) on 2016-05-23T23:28:37Z No. of bitstreams: 1 Dissertacao Biblioteca.pdf: 599800 bytes, checksum: 09a9defff0536b97a30f5ad0efd728de (MD5) / Approved for entry into archive by GILSON ROCHA MIRANDA (gilson.miranda@fgv.br) on 2016-05-25T14:03:46Z (GMT) No. of bitstreams: 1 Dissertacao Biblioteca.pdf: 599800 bytes, checksum: 09a9defff0536b97a30f5ad0efd728de (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2016-06-13T12:28:47Z (GMT) No. of bitstreams: 1 Dissertacao Biblioteca.pdf: 599800 bytes, checksum: 09a9defff0536b97a30f5ad0efd728de (MD5) / Made available in DSpace on 2016-06-13T12:29:15Z (GMT). No. of bitstreams: 1 Dissertacao Biblioteca.pdf: 599800 bytes, checksum: 09a9defff0536b97a30f5ad0efd728de (MD5) Previous issue date: 2016-03-23 / The purpose of this work is to study the role for government in mitigating capital misallocation. We develop an entrepreneurship model in which heterogeneous producers face collateral constraints on production, but can hedge idiosyncratic shocks. Hedging works as a tool for reallocating resources to states in which they are more productively deployed, and can alleviate the effect of the financial frictions and be a counteracting force to capital misallocation. Government incentives to hedging improve workers’ welfare in steady state through an increase in TFP and wages. The intervention leads to a reduction in the rate of return of entrepreneurs and an increase in wealth dispersion. These two effects cause entrepreneurial welfare to decrease.

Cette thèse parle de l'impact des comportements spéculatifs sur l'économie réelle. Les comportements spéculatifs peuvent avoir deux origines: les développements positifs de l'économie réelle et les perspectives économiques, les marchés financiers comme par exemple les marchés actions. Nous analyserons les deux origines. Par conséquent, nous allons mettre en ouvre des comportements réalistes dans un contexte évolutif en utilisant l’hétérogénéité grandissante, pour évaluer l'impact des comportements spéculatifs. En se basant sur la bulle dotcom, nous allons nous concentrer sur l'avancement technologique comme possible facteur de l'optimisme grandissant. Dans la première partie de cette thèse nous allons présenter les résultats obtenus via un modèle déterminé par des contraintes de financement, et utilisant les prix des actions. Nous allons nous concentrer sur 3 types de répercussions assez connues: l'information donnée par le marché de l'action en vue de déterminer la solvabilité, la valeur de marché du titre en vue de déterminer la probabilité de banqueroute, et la partie de la rémunération du management qui est adossée sur la performance. La seconde partie de la thèse parlera les contraintes de financement dans un cadre évolutif et soulignera les déterminants de l'offre de crédit qui impactent la fréquence des innovations. Ces déterminants sont basés sur les données de marché et concernent des aspects comportementaux. La troisième partie fournit en détail le comportement des banques et de deux secteurs industriels qui se battent pour le crédit. La troisième partie est donc un approfondissement de la seconde. / This dissertation deals with the impact of speculative behaviour on output patterns of the real economy. The impact may be twofold. Speculative behaviour occurs due to positive developments at the real economy and optimistic outlooks. Also, speculative behaviour may occur at other markets, like the stock market. We address both, a spill-over effect and the build up of speculation due to economic activity. Therefore, we implement realistic behaviour in an evolutionary framework and use emerging heterogeneity for the impact assessment. lnspired by the dotcom-bubble we focus on technological advancement as possible factor of growing optimism. ln the first part of this thesis we introduce feedback from stock prices into a model of economic growth determined by financing constraints. We focus on three known feedback channels: stock market information for the assessment of creditworthiness, stock market value as determinant in determining bankruptcy of a firm and performance based compensation of the firm management. The second part introduces financing constraints into an evolutionary framework and tackles determinants of credit supply for their impact on the occurrence of innovation. Those determinants are market based and also behavioural in nature. The third part provides a more detailed bank behaviour and two industrial sectors competing for credit. Therefore, the third part is a refinement of the second one.

Thesis advisor: Fabio Schiantarelli / My doctoral research focuses on analyzing how credit policies and regulations affect the credit access of constrained firms. The first chapter focuses on the effectiveness of a national-level directed credit program in India. I exploit a policy-induced variation in program eligibility to study the differential impact of the program across the firm-size distribution. In the second chapter, I evaluate the impact of an export program that subsidized short-term export loans for manufacturing firms in India. I estimate the effect of the credit subsidy scheme on subsidized firms by mapping the eligible product lines to firms while controlling for firm- and sector-level differences across firms and accounting for shocks to export demand. Chapter 1. Governments around the world implement programs to improve the credit access of small businesses. Evaluating the impact of policies undertaken is important to ensure that the policies achieve the desired outcomes. However, in the absence of randomized policy assignment and the availability of controls for the credit demand of firms, establishing a causal link between the program eligibility and the improvement in credit access is an econometric challenge. In the first chapter “Could Directed Lending Programs Hurt Small Businesses? Evidence from India,” I study the impact of an expansion in a size-based directed or preferential credit policy that targets small businesses in India. In 2006, the Indian Government expanded the official definition of small businesses, thereby including relatively bigger firms in the pool of firms eligible for its large-scale directed credit program called the priority sector lending program. The discontinuity in eligibility to the nation-wide credit program helps identify the impact of the program across the firm-size distribution. Larger eligible firms are likely to be favored by banks because making bigger loans to larger firms helps banks economize on transaction costs while still meeting their directed lending quotas. Exploiting the eligibility discontinuity and using a modified difference-in-differences strategy, I find that the benefits of the policy intervention flow disproportionately to the larger firms. Newly-eligible firms experience an increase in the rate of growth of institutional credit, as well as higher investment and sales growth. The smaller, previously-eligible firms, on the other hand, are crowded out in the bank credit market, when compared to a reference group of ineligible firms. The positive impact on newly-eligible firms is highly correlated with firm size, even within the group. The financial constraints literature documents the role of banking relationships in overcoming credit constraints for small firms, specifically, the duration of the relationship and the multiplicity of bankers. Using the information on bankers of the firms and the duration of each firm-bank pair, I find that the firms with longer and multiple banking relationships experience less crowding out. While my analysis confirms the results from the empirical literature on the positive role of longer bank relationships and the multiplicity of bankers, I do not find evidence supporting the relationship-lending advantage of small and local banks. These findings suggest that the comparative advantage of small banks in relationship-lending is limited by the cost-minimizing incentive of banks. Moreover, firms that borrow from banks that are farther away from the mandated directed lending target experience less crowding out as well. Smaller firms located in districts with more intense local competition from newly-eligible firms are also crowded out more, implying that such policy expansions could potentially worsen the existing regional disparities in access to institutional credit across the country. This study points to an important side effect of a well-intentioned policy intervention, aimed at increasing credit access of all small firms, and simultaneously providing banks with more lending avenues to achieve their directed lending targets. By virtue of its design, however, it distorts the lending incentives of banks, allowing them to exploit the policy shift as an opportunity to lower transaction costs. This suggests that in a setting with lending quotas if institutional lenders are unable to satisfactorily lower transaction and information costs, they will make loans to the largest eligible borrowers, whenever possible. Future policy design must be guided by research that assesses the overall impact of existing programs, in order to develop programs that expand access to finance while limiting economic distortions. Chapter 2. In “The Impact of Credit Subsidies on Export Performance,” I study the impact of an export credit intervention on the export performance of firms in the subsidized product lines in India, both at the intensive and at the extensive margin of exports. The Government of India formulated the Interest Rate Subvention Scheme in 2007 to reduce the cost of short-term credit for exporters in employment-intensive sectors, given their important contribution to the GDP and the workforce employment. Short-term loans of exporters are mainly working capital loans in the form of pre- and post-shipment export credit. Between 2007 and 2013, the government announced subsidies on short-term bank loans on a semi-annual or annual basis for specific sectors or product lines. The immediate goal of the scheme was to minimize short-term credit frictions of SMEs across all sectors, and large firms in export-oriented labor-intensive sectors. The long-term goal of the scheme, as has been understood in recent years when the subsidies were expanded, was to provide Indian exporters credit at internationally competitive rates. I construct a detailed data set which matches the balance-sheet data on medium and large exporting firms in the Indian manufacturing sector from 2006-2013, with their eligibility status based on products manufactured by them. To control for export demand shocks, I create a demand index that measures the product-level shocks to export demand, aggregated across importer countries for the firms in the sample. There are three key findings in this paper. First, I find that the impact of subsidies is estimated at about 5-8% in a difference-in-differences sense, compared to non-subsidized firms. The subsidies are not effective in the event of a substantial drop in world demand, as that experienced in 2009, in the aftermath of the global financial recession. This points to the limited usefulness of credit support as a policy tool during a major downturn. Second, the impact of credit subsidies is increasing in pre-existing fiscal benefits enjoyed by exporting firms, implying that there is a complementary effect of existing export incentives. The impact of the subsidy is also highly heterogeneous across firm-specific characteristics. Larger and more productive firms benefit to a lesser extent than their counterparts. In contrast to the findings in the literature, firms’ financial health indicators such as liquidity and leverage do not have any differential effect on the subsidized firms. Also, subsidized firms with longer bank relationships benefit relatively more. Finally, I do not find any impact on the export participation of firms, which is not unexpected given the short-term and unanticipated nature of the subsidy s cheme. The findings from these two studies are policy relevant not only for India but for other developing economies that implement similar policies. If government authorities and regulators in India want to effectively evaluate similar credit subsidy programs, they must be forward-looking and collect appropriate data that facilitate the evaluation of these programs, especially for small and micro-firms. Future research evaluating credit support programs would benefit immensely from improved data on variables such as employment, expansion in product variety and export destinations, as well as loan-level details of firms. / Thesis (PhD) — Boston College, 2018. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

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