This dissertation consists of three chapters related to macroeconomic implications of financial frictions, along with an application of macro-finance models to the Chinese economy. The first two chapters focus on government guarantees on business loans to state-owned enterprises (SOEs), a typical practice of the Chinese government. Chapter 1 embeds partial loan guarantees into the loan contracting problem, built upon the costly state verification framework. A larger degree of guarantees dampens the sensitivity of the loan rate to a change in leverage, which incentivizes entrepreneurs to lever up. Also, greater guarantees reduce entrepreneurs' exposures to credit risks, hence altering their choices of investment and leverage in response to an exogenous risk shock. Chapter 2 proceeds to develop a New Keynesian dynamic stochastic general equilibrium (DSGE) model and investigates the effect of government guarantees on capital misallocation and business cycle fluctuations in China. On one hand, government guarantees mitigate the influence of the financial accelerator mechanism on investment and production of both SOEs and private-owned enterprises (POEs). On the other hand, by inducing a time-varying dispersion in returns on capital across SOEs and POEs, government guarantees exert a negative impact on the allocative efficiency of resources and thus cause further losses on total factor productivity (TFP) and output during recessions. Quantitative analyses show that partial loan guarantees to SOEs are counterproductive in moderating the reaction of GDP to both risk and technology shocks. Chapter 3 develops a DSGE model with financial constraints on entrepreneurs and banks, featuring a risk-based bank capital requirement, and discusses the role of Basel II in reinforcing procyclical tendencies of the credit market and the real economy. I study impulse responses of the calibrated model to various shocks. Quantitative results show that the direction and magnitude of cyclical effects arising from Basel II strongly depend on the nature of macroeconomic shocks that hit the economy: only a risk shock can generate noticeable procyclical effect, while the procyclicality under a TFP shock and the countercyclicality under a shock to the marginal efficiency of investment (MEI) are quantitatively insignificant.

Les niveaux des taux de chômage des économies développés sont aujourd'hui sensiblement différents. Les institutions du marché du travail sont elles aussi diverses et protéiformes selon les pays. Ces institutions pourraient être considérées comme permettant d'accroître ou de réduire les niveaux de chômage. Or empiriquement, on ne trouve pas de lien direct et univoque entre les taux de chômage et les institutions sur le marché du travail. Si nous considérons plus précisément la façon dont les firmes décident de leur masse salariale, on réalise que l'on omet en faisant ce simple lien de corrélation, une variable essentielle qui détermine les comportements d'embauche et de licenciement des entreprises, à savoir la variable du financement. La capacité de financement externe des firmes pourrait déterminer, ou non, la demande de travail, conditionnellement aux institutions sur le marché du travail. Ainsi, le problème ne serait pas de savoir si les institutions sur le marché du travail conditionnent sa performance relative mais plutôt de savoir si le couple d'institutions sur le marché du travail et le marché du crédit détermine ces performances. Une entreprise est certes contrainte par la plus ou moindre grande flexibilité existante sur le marché du travail, mais ses calculs s'inscrivent dans une perspective plus large, qui est de savoir si elle a accès ou non aux financements dont elle a besoin. L'importance des frictions financières sur le marché du crédit détermine le niveau de la contrainte de financement externe pour les firmes. Cela pourrait alors avoir un impact sur leurs projets d'embauche et sur les niveaux d'emplois dans les économies. Les niveaux de frictions financières devraient donc influencer le niveau des principales variables macroéconomiques relatives au marché du travail, que sont le chômage, le niveau du salaire et le nombre de postes vacants, conditionnellement aux institutions existantes sur le marché du travail. / Unemployment rates in developed economies are now significantly different. Labor market institutions are also diverse and multifaceted. These institutions could be considered as allowing to increase or to reduce the levels of unemployment. However empirically, there is no direct and unambiguous link between unemployment rates and institutions in the labor market. By considering more precisely the way in which firms decide on their payroll, we realize that we omit, by making this simple correlation link, an essential variable that determines the hiring and firing behavior of firms, namely the funding variable. The external financing capacity of firms may determine the labor demand, conditional on the institutions in the labor market. Thus, the problem is not whether institutions in the labor market condition its relative performance but rather whether the couple of institutions in labor and credit markets determines this performance. A firm is certainly constrained by a greater or lesser flexibility in the labor market, but its computations are part of a broader perspective, which is whether or not it has access to the funding it needs. The importance of financial frictions in the credit market determines the level of the external financing constraint for firms. This could then have an impact on their hiring plans and job levels in economies depending on the prevailing labor market institutions. Financial frictions should therefore influence the main labor market macroeconomic variables, namely unemployment, wage level and the number of vacancies, conditional on existing labor market institutions.

This dissertation consists of three essays on firm finances and macroeconomics. In Chapter 1, I empirically investigate the relationship between firms' financial positions and asset tangibility by drawing on a CRSP/Compustat merged dataset of US public firms from 1987 to 2016. Intangible capital has grown in importance as the US economy has evolved towards service-based and technology-based industries with a decline in the physical capital share. Intangible capital spending is a type of capital expenditure that is not negligible compared to physical capital investment. The key finding of my empirical exercise is that industries and firms with lower average asset tangibility have lower average debt-to-sales ratios and higher average values of distance-to-default both in the long run and short run. Asset tangibility is a proxy for the recovery rate of capital since intangible capital is considered less valuable collateral, so the empirical evidence suggests that the recovery rate of capital is related to borrowing and default. Chapter 2 structurally estimates the recovery rate of capital, which is difficult to observe in the data, and quantitatively analyzes the aggregate implications of the empirical findings in the previous chapter. The recovery rate of capital determines lenders' credit supply and affects the demand and total credit amounts in equilibrium. Recent rising intangibles in the US may reduce recovery. I build a canonical quantitative general equilibrium heterogeneous firm model with risky debt, capital accumulation, and default. I estimate the model parameters by matching the covariance matrix of profit, investment, and debt, the average spread, and the average default rate in my data sample. The simulated method of moments (SMM) estimate of the recovery rate is 74% when targeting moments constructed with only physical capital. The counterfactuals reveal that declines in the recovery rate reduce aggregate output, credit, and welfare by constraining capital accumulation. Tackling intangibles by a broader notion of capital, I estimate a recovery rate of 46% with the same model structure, implying that rising intangibles could cause nontrivial output and welfare losses due to financial frictions. Chapter 3 examines the causal effect of immigration on local entrepreneurship in US counties. I use the immigration shock constructed in Burchardi et al. (2020) as an instrumental variable to predict the total number of migrants flowing into each US county from 1990 to 2010. I use the entrepreneurship indices from the Startup Cartography Project (Andrews et al., 2020) to measure the quantity and quality of US start-ups at the county-level. First, I find a strong and significant causal impact of immigration on the number of new business registrants per person. Second, I find a significant causal impact of immigration on the expected number of start-ups with growth per person. I also show that the influx of immigrants can increase the local average wage per capita. To interpret these empirical findings, I build a model of entrepreneurship which implies that if immigration shifts the distribution of entrepreneurial acumen to the right, it increases the wage rate, the fraction of entrepreneurs, and the mean quality of entrepreneurs. These results suggest that immigration is an essential driver of economic dynamism via entrepreneurship.

No description available.

This thesis demonstrates that consumer leverage can contribute to financial crises such as the subprime mortgage crisis characterised by increased bankruptcy prospects and tightened credit access. A recession may follow even when the leveraged sector is not a production sector and can be triggered by seeming positive events such as a technological innovation and a relaxation of borrowing conditions. The first preliminary chapter updates the Bernanke, Gertler and Gilchrist (1999) approach with financial frictions in the production sector to a two-sector model with consumption and housing. It shows that credit frictions in the capital financing decisions of housing firms are not sufficient to capture the negative consumer experience with falling housing prices and relaxed credit access during the recession. The second chapter brings the model closer to the subprime mortgage crisis by shifting credit constraints to the consumer mortgage market. Increased supply of houses lowers asset prices and reduces the value of the real estate collateral used in the mortgage which in turn worsens the leverage of indebted consumers. A relaxation of borrowing conditions turns credit-constrained households into a potential source of disturbances themselves when market optimism allows them to raise their leverage with little downpayment. Both cases demonstrate that although households are not production agents, their worsening debt levels can trigger a lasting financial downturn. The third chapter develops a chained mortgage contracts model where both homeowner consumers and the financial institutions that securitize their mortgage loan are credit-constrained. Adding credit constraints to the financial sector that provides housing mortgages creates opportunities for risk sharing where banks shift some of the downturn onto indebted consumers in order to hasten their own recovery. This consequence is especially evident in the case of relaxed credit access for banks. Financial institutions repair their debt position relatively fast at the expense of consumers whose borrowing ability is squeezed for a long period despite the fact that they may not be the source of the disturbance. The result mirrors the recent subprime mortgage crisis characterised by a sharp but brief decline for banks and a protracted recovery for mortgaged households.

[pt] Esta tese é composta de quatro capítulos sobre a relação entre Crédito e Desenvolvimento Econômico. No primeiro capítulo descrevemos os conceitos, relações e mecanismos utilizados nos demais capítulos. No segundo capítulo avaliamos o impacto de reduções em três diferentes restrições financeiras sobre o PIB per capita no Brasil. Para tanto, utilizamos uma versão do modelo de crescimento neoclássico com agentes heterogêneos e três fricções financeiras. O modelo é calibrado para a economia brasileira em 2009 e fazemos exercícios de simulação. No primeiro exercício, uma redução do custo de participação no mercado de crédito, que permitiria que o percentual de firmas com crédito na economia fosse igual à média dos países desenvolvidos, geraria um aumento no PIB per capita de 3,6 por cento. No segundo exercício, uma redução do custo de monitoramento, que permitiria que o spread na economia fosse igual ao spread médio nos países desenvolvidos, geraria uma elevação no PIB per capita de 1,7 por cento. No terceiro exercício avaliamos um relaxamento nas restrições de endividamento. Os resultados mostram que a redução dos colaterais no Brasil para o nível dos países desenvolvidos elevaria o PIB per capita em 12 por cento. No terceiro capítulo buscamos analisar os efeitos macroeconômicos do aprofundamento do crédito com recursos livres no Brasil no período 2001-2011. Em termos mais específicos, avaliamos os impactos do aumento do crédito sobre o PIB per capita. Para tanto, utilizamos uma versão do modelo de crescimento neoclássico com agentes heterogêneos, restrições de crédito e escolha ocupacional, calibrado para a economia brasileira em 2001 e simulamos, no modelo, o aumento do crédito com recursos livres ocorrido no período. No exercício realizado, o aumento no crédito com recursos livres para as firmas de 10 por cento, em 2001, para 15 por cento do PIB em 2011, gerou um aumento de 1,5 por cento no PIB per capita no período. No quarto capítulo, nosso objetivo é avaliar o impacto do aumento do crédito no Brasil no período 2004-2008 sobre o PIB per capita, com a utilização do modelo de Lloyd-Ellis e Bernhardt (2000). Assim podemos comparar os resultados desse modelo com os resultados do modelo utilizado no terceiro capítulo. Na implementação do modelo, utilizamos uma abordagem mista de estimação e calibração para a economia brasileira em 2004. No exercício realizado, o aumento no acesso ao crédito elevou o PIB per capita em 2 por cento entre 2004 e 2008. / [en] This thesis is composed of four chapters on the relationship between Credit and Development Economics. In the first chapter we describe the concepts, relationships and mechanisms used in the other chapters. In the second chapter we evaluated the impact of reductions in three different financial constraints on GDP per capita in Brazil. To do so, we use a version of the neoclassical growth model with heterogeneous agents and three financial frictions. The model is calibrated for the Brazilian economy in 2009 and we do simulation exercises. In the first exercise, a reduction in the cost of participation in the credit market, which would allow the percentage of firms with credit in the economy to be equal to the average of the developed countries, would generate an increase in GDP per capita of 3.6 percent. In the second exercise, a reduction in the cost of monitoring, which would allow the spread in the economy to be equal to the average spread in developed countries, would generate a rise in GDP per capita of 1.7 percent. In the third exercise we evaluated a relaxation in the borrowing constraint. The results show that the reduction of collaterals in Brazil to the level of developed countries would raise GDP per capita by 12 percent. In the third chapter we seek to analyze the macroeconomic effects of the deepening of credit with free resources in Brazil in the period 2001-2011. In more specific terms, we evaluate the impacts of credit growth on GDP per capita. To do so, we used a version of the neoclassical growth model with heterogeneous agents, credit restrictions and occupational choice, calibrated for the Brazilian economy in 2001 and simulated in the model the increase in credit with free resources occurred in the period. In the exercise, the increase in free resources credit for firms from 10 percent in 2001 to 15 percent of GDP in 2011 generated a 1.5 percent increase in GDP per capita in the period. In the fourth chapter, our objective is to evaluate the impact of the increase of credit in Brazil in the period 2004-2008 on GDP per capita, using the model of Lloyd-Ellis and Bernhardt (2000). Thus we can compare the results of this model with the results of the model used in the third chapter. In the implementation of the model, we used a mixed approach of estimation and calibration for the Brazilian economy in 2004. In the exercise carried out, the increase in access to credit raised GDP per capita by 2 percent between 2004 and 2008.

[pt] Intermediação financeira se intensificou fortemente no Brasil entre 2002 e 2013. Este período também foi marcado por forte crescimento econômico com queda na desigualdade de renda. O objetivo deste trabalho é investigar o efeito do desenvolvimento financeiro observado no Brasil sobre crescimento econômico e desigualdade usando um modelo dinâmico de escolha ocupacional com fricções financeiras. No modelo, agentes com riqueza e habilidades distintas tomam decisões de trabalhar ou empreender, mas são sujeitos a restrições de crédito que distorcem a alocação de fatores. Nossos resultados indicam um aumento de 15 por cento no PIB per capita e de 2 por cento na PTF, e um leve aumento na desigualdade de renda. Há um forte efeito de equilíbrio geral sobre o salário, que aumenta em 14 por cento. / [en] Financial depth surged in Brazil during the mid-2000s, largely as a result from institutional reforms. At the same time, the country experienced strong economic growth with decreasing income inequality. The objective of this work is to gain perspective on the effects of this financial development on growth and distribution at the national level. We do this through the lens of a dynamic model with financial frictions, in which agents who differ in their wealth and abilities as workers and entrepreneurs make occupational and productive choices under credit constraints. We calibrate the model to replicate the financial deepening observed in Brazil from 2003 to 2012. Our main results indicate that GDP per capita increases by 15 percent and TFP by 2 per cent. Workers benefit indirectly as wages rise by 14 percent in equilibrium. Yet, income inequality slightly increases.

Submitted by André Diniz (andrediniz89@yahoo.com.br) on 2014-02-04T18:20:18Z No. of bitstreams: 1 dissertacaovf.pdf: 527587 bytes, checksum: 98ea804e4e4f494e3f3e89a534c12776 (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia (suzinei.garcia@fgv.br) on 2014-02-07T18:57:56Z (GMT) No. of bitstreams: 1 dissertacaovf.pdf: 527587 bytes, checksum: 98ea804e4e4f494e3f3e89a534c12776 (MD5) / Made available in DSpace on 2014-02-07T18:58:13Z (GMT). No. of bitstreams: 1 dissertacaovf.pdf: 527587 bytes, checksum: 98ea804e4e4f494e3f3e89a534c12776 (MD5) Previous issue date: 2014-01-24 / This dissertation analyses quantitatively the costs of sovereign default for the economy, in a model where banks with long positions in government debt play a central role in the financial intermediation for private sector’s investments and face financial frictions that limit their leverage ability. Calibration tries to resemble some features of the Eurozone, where discussions about bailout schemes and default risk have been central issues. Results show that the model captures one important cost of default pointed out by empirical and theoretical literature on debt crises, namely the fall in investment that follows haircut episodes, what can be explained by a worsening in banks’ balance sheet conditions that limits credit for the private sector and raises their funding costs. The cost in terms of output decrease is though not significant enough to justify the existence of debt markets and the government incentives for debt repayment. Assuming that the government is able to alleviate its constrained budget by imposing a restructuring on debt repayment profile that allows it to cut taxes, our model generates an important difference for output path comparing lump-sum taxes and distortionary. For our calibration, quantitative results show that in terms of output and utility, it is possible that the effect on the labour supply response generated by tax cuts dominates investment drop caused by credit crunch on financial markets. We however abstract from default costs associated to the breaking of existing contracts, external sanctions and risk spillovers between countries, that might also be relevant in addition to financial disruption effects. Besides, there exist considerable trade-offs for short and long run path of economic variables related to government and banks’ behaviour / Este trabalho analisa de forma quantitativa os custos para a economia de um default soberano, num modelo onde bancos comprados em d´ıvida tˆem um papel central na intermedia¸c˜ao financeira para os investimentos do setor privado e enfrentam fric¸c˜oes financeiras que limitam sua alavancagem. A calibra¸c˜ao busca refletir economias da Eurozona, onde discuss˜oes sobre risco de calote das d´ıvidas e programas de resgate aos governos tem sido temas centrais. Os resultados mostram que o modelo captura um importante custo apontado pela literatura emp´ırica e te´orica, qual seja, a contra¸c˜ao do investimento que segue um epis´odio de default, o que pode ser explicado pela piora no balan¸co do setor financeiro, limitando cr´edito e liquidez para o setor privado e aumentando os custos para o seu financiamento. O custo em termos de perda de produto, no entanto, n˜ao ´e suficiente para explicar a existˆencia de mercados de d´ıvida e os incentivos dos governos em honrar seus compromissos. Assumindo que a reestrutura¸c˜ao do perfil de pagamentos da d´ıvida imposta num caso de default permite ao governo aliviar sua restri¸c˜ao or¸cament´aria e cortar impostos, o modelo apresenta resultados bastante distintos para impostos lump-sum e distorsivos. Para nossa calibra¸c˜ao, a resposta quantitativa de produto e utilidade mostra que ´e poss´ıvel que o efeito na oferta de trabalho gerado por cortes de impostos distorsivos domine a queda no investimento, causada pela escassez de cr´edito nos mercados privados. S˜ao abstra´ıdos, no entanto, os custos de default associados a quebras de contratos, san¸c˜oes externas e transbordamentos de risco entre pa´ıses, que podem ser bastante relevantes em adi¸c˜ao ao impacto sobre o cr´edito no sistema financeiro. Al´em disso, existem trade-offs consider´aveis na trajet´oria de curto e longo prazo das vari´aveis econˆomicas relacionados ao comportamento dos governos e dos bancos.

This paper seeks to present two Dynamic Stochastic General Equilibrium models – Curdia e Woodford (2009) e De Graeve (2007) – that allows identify mechanisms in which financial frictions can influence business cycles and domestic monetary policies. We extend the basic traditional New Keynesian model that considers the role of financial intermediation in the credit markets. Models in which a credit spreads is introduced allows for a time-varying wedge between the interest rate available to households on their savings and the interest rate at which it is possible to borrow These spreads are not constant over time, especially in periods of financial stress. Variations in the financial conditions, indicated by increases ou decreases in the size of credit spreads, implies consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation.

This paper seeks to present two Dynamic Stochastic General Equilibrium models – Curdia e Woodford (2009) e De Graeve (2007) – that allows identify mechanisms in which financial frictions can influence business cycles and domestic monetary policies. We extend the basic traditional New Keynesian model that considers the role of financial intermediation in the credit markets. Models in which a credit spreads is introduced allows for a time-varying wedge between the interest rate available to households on their savings and the interest rate at which it is possible to borrow These spreads are not constant over time, especially in periods of financial stress. Variations in the financial conditions, indicated by increases ou decreases in the size of credit spreads, implies consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation.