The estimation of the profit and loss distribution of loan portfolios requires the modelling of the marginal and multivariate distributions that describe the individual and joint credit risk of the loans making up a portfolio. Unfortunately, portfolio credit risk measurement suffers from extremely restricted datasets. For many countries, this problem holds at any point in time and through time. It is especially severe when modelling the credit risk of loans given to small and medium size enterprises (SME's) and non-listed firms, which are the focus of my research. Earlier attempts to deal with this problem have resulted in measurement methodologies adopting convenient, but not necessarily properly specified, parametric distributions or simply ignoring the effects of macroeconomic developments in credit risk. In order to improve the measurement of portfolio credit risk at any point in time and through time, I propose new methodologies, i. e. the consistent information density optimising (CIDO), the consistent information multivariate density optimising (CIMDO), and the conditional probability of default (CoPoD) methodologies. CIDO and CIMDO are based on the cross-entropy approach. They recover the marginal and multivariate distributions of the loans that make up a portfolio from the limited information available. Using the Probability Integral Transformation and the Probability Squared Deviations criteria, it is proved that the distributions recovered by CIDO and CIMDO outperform parametric distributions. CoPoD is based on the pure-entropy approach. It allows for the modelling of the probabilities of loan default (PoD's) as functions of macroeconomic variables. The latter represents a challenging task, since the time series of PoD's usually contain few observations; thus making OLS estimation imprecise. CoPoD recovers estimators that show superior robustness to OLS estimators in finite sample settings under the mean square error criterion. CoPoD also incorporates a procedure to select a relevant set of explanatory variables that explain PoD's through time.

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By providing an independent evaluation of the probability of default, Credit Rating Agencies (CRAs) play an important role in the functioning of credit markets for a wide range of stakeholder groups. However, the recent turmoil in the international financial markets following the subprime crisis in the US has once again raised questions about the ability of CRAs to meet market needs. This thesis elicits and compares the views of key market participants concerning issues of ratings quality. Specifically, this thesis reports the results of interviewbased research with key market participants, and constructs a measurement instrument to capture ratings quality provided by CRAs. A questionnaire survey is administered to four stakeholder groups in public debt markets: issuers; non-issuing financial managers; institutional investors; and other interested parties. The theoretical model is developed using the extant quality literature which has informed analysis of other gatekeepers such as auditors. The ratings quality model is then extended to a full structural equation model to identify how those ratings quality factors identified in the measurement model affect the issuers' commitment to their CRAs and ultimately their intention to continue the business relationships with their CRAs. This research is the first systematic empirical study of debt market participants' perceptions of CRAs and provides a first step in defining ratings quality and identifying its different characteristics. This study is also the first of its kind to be conducted in a non-US setting and thus provides valuable insights at a time when European regulators are showing an increased interest in the concept of ratings quality.

Equity and debt are two distinct classes of securities in terms of investing risks and potential return, but their value depends on the same underlying assets of the firm and therefore the risk-return tradeoff of each security should be systematically related. Following a review of the principal theoretical approaches to the measurement of equity and credit risks, this thesis utilizes a sample of matched firm-level equity and corporate bond data to examine three aspects of risk interaction. First, it investigates the importance of idiosyncratic and systematic equity risks in determining the credit spread on corporate bonds. Second, the thesis investigates how equity and credit risks themselves impact upon the correlation between equity and bond returns. Finally, the thesis examines whether the credit sensitive information contained within financial accounting data is fully reflected in equity prices. The empirical approach adopted in this thesis is to relate the credit spread and the conditional correlation between equity and bond returns with both equity and credit risk indicators and financial accounting variables. This methodological approach enables an extension of the existing literature on several dimensions, leading to a number of empirical results which have important theoretical and practical implications for the integrated management of equity and credit risks. Consistent with existing empirical studies, equity and credit risks are found to exert a positive impact upon the credit spread. Surprisingly, equity volatility is found to significantly outperform the distance to default in terms of explanatory power. Further, the impact of equity volatility increases monotonically as the distance to default narrows. The conditional correlation between equity and bond returns is found on average to be positive and to vary over time, peaking during the 2007 financial crisis. Finally, an increase in credit risk has a positive impact upon the correlation while an increase in equity risk is found to strengthen the correlation only if the firm’s credit risk is high.

In this thesis, dynamic general equilibrium models are developed for the analysis of credit market imperfections. The first chapter provides an overview of the thesis and sets out the motivation for the research. In the second chapter, the focus is on house prices. Empirical work is carried out to investigate the co-movement of house prices, housing investment, consumption and monetary policy in the UK. A general equilibrium model is then developed to fit some key patterns in the data. An important feature of the model is that house prices have a direct impact on consumption, because housing serves as collateral against which consumers can borrow. The model is used to analyse how the co-movement of key variables is likely to have changed following financial liberalisation in the 1980s. The third chapter develops a framework in which entrepreneurs want to borrow from and lend to each other because investment opportunities are always changing. Credit markets do not work perfectly, so borrowing can only take place against collateral. Moreover, monetary policy has real short-run effects due to nominal rigidities. The credit frictions cause productivity shocks to have a large and persistent effect on aggregate output and asset prices, as falls in output are accompanied by a transfer of capital from highly productive borrowers to less productive lenders. But nominal rigidities interact strongly with this mechanism: the more aggressively the monetary authorities stabilise inflation, the larger the output and asset price movements. The final chapter investigates how monetary policy should be set optimally, in the sense of maximising the welfare of the private sector agents. It is found that optimal monetary policy allows for a temporary rise in inflation following an adverse productivity shock, which will lead to more stable output and asset prices. The interaction of credit frictions and nominal rigidities therefore creates a short-term trade-off between the stabilisation of output relative to its efficient level and the stabilisation of inflation.

Despite the emergence of micro credit in the UK, theory and evidence is relatively sparse when compared to equivalent work in developing countries. Importantly, in this 'new' context distinct challenges are posed by the moreMcomplex relationship between microcredit and government caused by, more generally, government's interest in alternative pathways to wellbeing, and, more specifically, (dis )incentives for participation in micro credit due to provision of welfare. Demand-side market failures may have ramifications for government in terms of policy responses if the potential impact of microcredit is deemed to justify pUblic resource expenditure. Consequently assessing its impact, including social impact, is important This is particularly so in the UK, as microcredit has been conceptualised as a stimulant to the determinants of health and there exists a recognised need for 'other', nonMNHS, means of acting on health. This thesis extends theory, and generates and evaluates evidence to increase and deepen the understanding of microcredit for enterprise in the UK, with an emphasis on its possible health impacts. Three substantive pieces of work are combined in this thesis. Firstly, the theoretical work of UK micro credit scholars is built upon and extended; focusing on the financial and social implications that could affect an individual's decision to seek a microcredit loan for enterprise. Secondly, a novel qualitative study explores the need for, and understandings of microcredit for enterprise together with issues of sustainability and the perceived impact of it on borrowers in the UK. Finally, a systematic review examines the effect of microcredit interventions on health, with equivocal findings. Thus the contributions of this doctoral work strengthens the theoretical and empirical base of microcredit in the UK, and lays the groundwork for future research, which is of growing importance given the expanding role of microcredit in this context.

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This research project examines why systems of mortgage finance in Britain and Denmark have largely been immune to substantive reform, despite the failures and costs manifested by the 2008 global financial crisis. Neo-Weberian scholars currently dominate this research area, and suggest deregulated mortgage markets are maintained to facilitate access to the social norm and material gains of private housing to foster bottom-up consent to political party rule. However, whether private housing is an independent social norm is highly questionable, and the financial gains from homeownership are highly stratified. Additionally, the emphasis on the home as a financial asset fails to account for the decline in wages as a share of GDP, which is negatively affected by the process of financialisation. This thesis deploys a quantitative analysis to assess whether there is any meaningful relationship between the falling wage share and the vast expansion of mortgage credit, and a qualitative examination of whether there is a deliberate social purpose encoded in public policy formulation to meet such ends. The results from the time-series regression analysis demonstrated that the increased distribution of mortgage credit does have a negative effect on the wage share in Britain between 1979 and 2012, but not in Denmark. The qualitative analysis of the British case demonstrated that mortgage credit was deregulated to establish a mortgage-led financialised accumulation regime that increased the capital share of GDP at the expense of wages. Additionally, the disciplinary mechanisms of mortgage credit were used to integrate deviant trade union members into a functioning social formation. Alternatively, the qualitative analysis of the Danish case revealed how mortgage finance has been restricted and liberalised to regulate the performance of the macro-economy. The Danish government uses mortgage credit to intervene in the economy as the country’s integration into the European and global economy have marginalised their ability to use traditional fiscal and monetary policy interventions. A comparative analysis of British and Danish mortgage systems connected them to the wider political economy of each state, specifically welfare state structures and industrial relations, which explains the necessity of maintaining liberalised mortgage finance markets in Britain and Denmark.

Household debt in South Korea is high and still rising. Household debt to GDP ratio had risen at the similar pace with that in the US until 2007 but it has still been rising whereas it has been falling since 2017 in the US. As a result, it is now higher in South Korea than in the US. There was a dramatic growth in household debt in the US preceding the recent Great Recession and high level of household debt was viewed to amplify the severity of economic recession in the US constraining consumer spending. In this context, high and continuously rising household debt could be a potential risk factor for the South Korean economy. Macroprudential policy, which indicates policy aims to reduce financial systemic risk pre-emptively, is a crucial measure to slow down the pace of household debt growth in South Korea. However, there is no established tool to analyse or evaluate its effects and relationship to monetary policy. The second chapter presents the trend and distribution of household debt in South Korea, and brief history of policy responses to continuously increasing household debt. The third chapter shows how macroprudential policy works by using a simple heterogeneous DSGE model with collateral constraint. The model is based on so-called borrower-saver model. Despite of its simplicity, the model can clearly explain how macroprudential policy affects household debt and related variables in South Korea. In addition, dynamics of this model imply increasing amortisation rate is superior measure to decreasing LTV ratio because it induces less volatility in economy. The collateral constraint in this thesis is designed to distinguish household debt (stock) and borrowing (flow). As a result, it is more realistic than the one mostly used in literature. This collateral constraint setting contributes to the better results especially when we analyse the phase of tightening household credit conditions. Furthermore, it enables us to see how amortization rate affects the South Korean economy. The fourth chapter extends the model mainly to see how credit tightening and monetary policy work differently and how they interact. Habit formation in non-durable good consumption, price rigidity in non-durable good producers, fixed cost in intermediate good production and monetary policy are added in the model. Not only the newly added elements themselves but also inflation make model's responses different from those in the previous chapter. Nominal and real rigidities make dynamics last longer and more realistic. Due to the structure of collateral constraint, a rise in inflation can reduce the level of real household debt whereas there is no inflation effect on real household debt with the common type of collateral constraint. This also influences responses to monetary policy shock. The results demonstrate credit tightening is better than monetary policy in slowing down the growth rate of household debt. Among all policy measures considered, decreasing amortization rate is the most effective and increasing LTV ratio is the second. These implies that ongoing policy efforts to slow down the growth rate of household debt in South Korea is on the right track. The fifth chapter shows welfare effects of macroprudential policy. The results illustrate it is impossible to get social welfare gains in a situation given in South Korea when discretionary macroprudential policy comes into effect. If government adopts countercyclical macroprudential rule, it is possible to improve social welfare but it requires welfare loss either of borrower or saver.