<p>This dissertation presents a quantitative study on the relationship between financial intermediation and the macroeconomy of the United States. It consists of two major chapters, with the first chapter studying adverse shocks to interbank market lending, and with the second chapter studying a theoretical model where aggregate balance sheets of the financial and non-financial sectors play a key role in financial intermediation frictions.</p><p>In the first chapter, I empirically investigate a novel macroeconomic shock: the funding liquidity shock. Funding liquidity is defined as the ability of a (financial) institution to raise cash at short notice, with interbank market loans being a very common source of short-term external funding. Using the "TED spread" as a proxy of aggregate funding liquidity for the period from 1971M1 to 2009M9, I first discover that, by using the vector-autoregression approach, an unanticipated adverse TED shock brings significant recessionary effects: industrial production and prices fall, and the unemployment rate rises. The contraction lasts for about twenty months. I also recover the conventional monetary policy shock, the macro impact of which is in line with the results of Christiano et al (1998) and Christiano et al (2005) . I then follow the factor model approach and find that the excess returns of small-firm portfolios are more negatively impacted by an adverse funding liquidity shock. I also present evidence that this shock as a "risk factor" is priced in the cross-section of equity returns. Moreover, a proposed factor model which includes the structural funding liquidity and monetary policy shocks as factors is able to explain the cross-sectional returns of portfolios sorted on size and book-to-market ratio as well as the Fama and French (1993) three-factor model does. Lastly, I present empirical evidence that funding liquidity and market liquidity mutually affect each other.</p><p>I start the second chapter by showing that, in U.S. data, the balance sheet health of the financial sector, as measured by its equity capital and debt level, is a leading indicator of the balance sheet health of the nonfinancial sector. This fact, and the apparent role of the financial sector in the recent global financial crisis, motivate a general equilibrium macroeconomic model featuring the balance sheets of both sectors. I estimate and study a model within the "loanable funds" framework of Holmstrom and Tirole (1997), which introduces a double moral hazard problem in the financial intermediation process. I find that financial frictions modeled within this framework give rise to a shock transmission mechanism quantitatively different from the one that arises with the conventional modeling assumption, in New Keynesian business cycle models, of convex investment adjustment costs. Financial equity capital plays an important role in determining the depth and persistence of declines in output and investment due to negative shocks to the economy. Moreover, I find that shocks to the financial intermediation process cause persistent recessions, and that these shocks explain a significant portion of the variation in investment. The estimated model is also able to replicate some aspects of the cross-correlation structure of the balance sheet variables of the two sectors.</p> / Dissertation

Real estate brokerage has gradually progressed from growth to maturity since management regulations were executed. Since the government has ensured consumer rights by legislations, the confidence of consumers in real estate brokerage has been greatly enhanced. The success ratio of real estate cases has therefore increased. In addition, for the past two years, the economy has been recovering and the government has continued in its policy of subsidizing house loan interest. Real estate brokerage has therefore been highly prosperous for these two years. The internet has developed rapidly, and it is changing transaction modes in many industries with its low costs and capacity for rapid information transfer. It also puts industry leaders in a stronger position. The rules of the game have changed in industry. Corporations have to reevaluate business modes affected by the internet and consider the resultant changes. The character of real estate usually complicates transactions and thus influences the actions of buyers and sellers. The transaction therefore has many variables. Moreover the buyers are not aware of all of these variables. The brokers usually take advantage of the buyers¡¦ relative ignorance for their own professional gain. What is the brokers¡¦ advantage in this situation of information disparity? How do they utilize this advantage? In this study these questions will first be clarified and expounded. It will then be investigated whether the influence of the internet will lessen the need for professional intermediation or the brokers¡¦ information advantage. Finally comparisons will be made between the pre- and post-Internet world. Sinyi Realty Inc. is the only listed real estate company in Taiwan at present. According to Commonwealth Magazine market survey Sinyi Realty Inc. is the most trusted and best-known company in real estate brokerage. It even has the highest sales figures in the industry. In addition Sinyi Realty Inc. is the only real estate company ranking in the Taiwan Top 500. For these reasons it has been singled out as a case study for in-depth research in order to evaluate the possible influence of the Internet now and in the future. This study will begin with the analysis of Sinyi Realty Inc.¡¦s development background and competitive advantages followed by the internal and external changes arising from the Internet¡¦s influence. Finally the potential advantages, disadvantages risks, and opportunities will be studied and analyzed. It is hoped this study can act as a reference for real estate brokers as they formulate their development strategies in the Internet-influenced world of the future.

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The common justification, in financial theory, for the existence of debt covenants is their use as contractual devices that reduce agency problems between borrowers and lenders. The thesis first examines the extent to which debt covenants alleviate these agency problems, and how they affect a borrower's debt financing decisions. Then, building on recent theories on the costs of bank financing, the dissertation suggests a new economic rationale for debt covenants as instruments that can reduce these costs. The thesis consists of three essays: / The first essay shows that, debt covenants create underinvestment incentives while reducing the overinvestment cost of debt It also finds that the borrower's choice between different contracts with, and without covenants, depends on the magnitude of the agency problems, and the quality of the lender's monitoring technology. / The second essay shows how debt covenants reduce the costs of banks information monopoly. In fact, contingent contracting with debt covenants can be used by banks to precommit against using their informational advantage to hold up borrowers and extract rents, thus giving borrowers incentives to exert greater effort. / The third essay shows that the renegotiation that debt covenants permit, can reduce liquidity risk defined as the risk that a solvent but illiquid borrower is unable to obtain refinancing. It also shows that a debt contract with covenants is similar to a mix of debt contracts with different maturities. / The thesis concludes with a review of the determinants of corporate debt maturity structure, and the literature on corporate reliance on bank financing and suggests future research in this area.

The financial intermediation function that a bank performs dictates the existence of a risk-reward trade-off embedded within a bank's balance sheet. The process of risk management focuses on achieving the broader organisational objectives relating to this risk-reward trade-off. Measuring the contribution of risk to profitability is pivotal in assessing the optimality of a bank's risk-reward trade-off. Conventional accounting-based performance measures such as return on assets and return on equity do not incorporate the risk effects as part of the performance assessment. Risk-adjusted performance measurement assessments, such as risk-adjusted return on capital, acknowledge the impact of risk in measuring the profitability of a bank. Interest rate risk is an important source of bank profitability. The Asset-and-Liability Management function of a bank is tasked with the management of interest rate risk in the 'banking book' of its balance sheet. Managing interest rate risk demands that the sources of interest rate risk for example, reprice risk, yield curve risk, option risk and basis risk are clearly identified and measured. The impact of interest rate risk can be assessed from two perspectives namely, the earnings perspective and the economic value perspective. Measuring the impact of interest rate risk conventionally involves a number of techniques, each of which has inherent strengths and weaknesses. Simulation modelling techniques deploying earnings-at-risk and economic value of equity analyses respectively, most accurately quantifies the earnings and economic value perspectives to the effects of interest rate risk. The methods of repricing gap analyses and duration analyses present efficiency constraints in measuring interest rate risk although complimentary to developing a complete interest rate risk metrics framework. Matched-Term Funds Transfer Pricing is an important component in measuring the risk-adjusted net interest margin for the risk-adjusted performance measurement process. Matched-Term Funds Transfer Pricing system isolates the business units from the effects of interest rate risk by transferring the interest rate risk or mismatch spread (profit or loss) to the Central Funding Unit or Asset-and-Liability Management unit. Business units are therefore allocated the net interest margin components relating to the controllable risk elements for which management responsibility is assumed. Business units use the risk-adjusted performance measurement results to develop balance sheet and pricing strategies that are sensitised to asset and liability management and interest rate risk management objectives through the Matched-Term Funds Transfer Pricing mechanism. These business strategies should be included in the measurement of interest rate risk by the asset-and-liability management simulation model. The asset-and-liability management process can therefore optimise the interest rate risk management process. The integration of the Matched-Term Funds Transfer Pricing, Asset-and-Liability Management and banking book interest rate risk management processes institutes a risk-optimisation approach to risk management compared against the conventional risk-control perspective to the function of risk management. / Thesis (M.Com. (Economics))--North-West University, Vaal Triangle Campus, 2009.

The financial intermediation function that a bank performs dictates the existence of a risk-reward trade-off embedded within a bank's balance sheet. The process of risk management focuses on achieving the broader organisational objectives relating to this risk-reward trade-off. Measuring the contribution of risk to profitability is pivotal in assessing the optimality of a bank's risk-reward trade-off. Conventional accounting-based performance measures such as return on assets and return on equity do not incorporate the risk effects as part of the performance assessment. Risk-adjusted performance measurement assessments, such as risk-adjusted return on capital, acknowledge the impact of risk in measuring the profitability of a bank. Interest rate risk is an important source of bank profitability. The Asset-and-Liability Management function of a bank is tasked with the management of interest rate risk in the 'banking book' of its balance sheet. Managing interest rate risk demands that the sources of interest rate risk for example, reprice risk, yield curve risk, option risk and basis risk are clearly identified and measured. The impact of interest rate risk can be assessed from two perspectives namely, the earnings perspective and the economic value perspective. Measuring the impact of interest rate risk conventionally involves a number of techniques, each of which has inherent strengths and weaknesses. Simulation modelling techniques deploying earnings-at-risk and economic value of equity analyses respectively, most accurately quantifies the earnings and economic value perspectives to the effects of interest rate risk. The methods of repricing gap analyses and duration analyses present efficiency constraints in measuring interest rate risk although complimentary to developing a complete interest rate risk metrics framework. Matched-Term Funds Transfer Pricing is an important component in measuring the risk-adjusted net interest margin for the risk-adjusted performance measurement process. Matched-Term Funds Transfer Pricing system isolates the business units from the effects of interest rate risk by transferring the interest rate risk or mismatch spread (profit or loss) to the Central Funding Unit or Asset-and-Liability Management unit. Business units are therefore allocated the net interest margin components relating to the controllable risk elements for which management responsibility is assumed. Business units use the risk-adjusted performance measurement results to develop balance sheet and pricing strategies that are sensitised to asset and liability management and interest rate risk management objectives through the Matched-Term Funds Transfer Pricing mechanism. These business strategies should be included in the measurement of interest rate risk by the asset-and-liability management simulation model. The asset-and-liability management process can therefore optimise the interest rate risk management process. The integration of the Matched-Term Funds Transfer Pricing, Asset-and-Liability Management and banking book interest rate risk management processes institutes a risk-optimisation approach to risk management compared against the conventional risk-control perspective to the function of risk management. / Thesis (M.Com. (Economics))--North-West University, Vaal Triangle Campus, 2009.

Distortions that affect macroeconomic outcomes are an important avenue through which we can explain differences in cross country output and productivity. In this thesis I concentrate on two types of distortions, political economy and informational distortions. In Chapter one, I build a model of intermediated corruption where interactions between government bureaucrats and those who bribe them are mediated by a third party. I show that intermediation has significant effects on the incidence of corruption and the prices entrepreneurs pay for permits. When corruption is particularly acute, measures that increase the frequency with which government bureaucrats are audited often have the undesirable result of increasing the prevalence of corruption because of intermediation. In Chapter two I explore the link between corruption and inequality by building a model in which tax collectors are corrupt. I find that as inequality increases, the frequency of corrupt transactions increases as well. I also find that where corruption is more severe, because wealthier individuals tend to pay lower taxes, inequality is higher. I perform a few quantitative experiments to better understand this linkage. Chapter three explores distortions that are caused by adverse selection in markets with search frictions. I find that when participants are concerned about the information they reveal through their interactions in the market, the distortions to liquidity are deeper and that equilibrium selection is significantly affected. I also find that markets with reputational concerns are more sensitive to outside shocks.

Distortions that affect macroeconomic outcomes are an important avenue through which we can explain differences in cross country output and productivity. In this thesis I concentrate on two types of distortions, political economy and informational distortions. In Chapter one, I build a model of intermediated corruption where interactions between government bureaucrats and those who bribe them are mediated by a third party. I show that intermediation has significant effects on the incidence of corruption and the prices entrepreneurs pay for permits. When corruption is particularly acute, measures that increase the frequency with which government bureaucrats are audited often have the undesirable result of increasing the prevalence of corruption because of intermediation. In Chapter two I explore the link between corruption and inequality by building a model in which tax collectors are corrupt. I find that as inequality increases, the frequency of corrupt transactions increases as well. I also find that where corruption is more severe, because wealthier individuals tend to pay lower taxes, inequality is higher. I perform a few quantitative experiments to better understand this linkage. Chapter three explores distortions that are caused by adverse selection in markets with search frictions. I find that when participants are concerned about the information they reveal through their interactions in the market, the distortions to liquidity are deeper and that equilibrium selection is significantly affected. I also find that markets with reputational concerns are more sensitive to outside shocks.

This dissertation consists of three essays: (I) Double Liability, Moral Hazard and Deposit Insurance Schemes, (II) Contract Costs, Lender Identity and Bank Loan Pricing, and (III) Bank Capital Structure and Differential Lending Behaviour. The first essay proposes to add double liability to a deposit insurance scheme to induce insurees (depository financial institutions) to reveal their true risk types. The second essay looks at the differential lending patterns of American banks versus Japanese banks. The third essay discusses the relationship between the characteristics of a lender and those of the borrower.

Thesis (Ph. D.)--University of Chicago, Dept. of Economics, June 2000. / Includes bibliographical references. Also available on the Internet.