The objective of this dissertation is to investigate the impact of important market participants such as Mutual Funds, Hedge Funds and the Federal Reserve Bank on the equilibrium equity premium, risk free rate and asset volatility and to analyze the effect of these institutions on risk shifting, portfolio allocation and financial stability. Specific features of institutional investors and central banks as well as their role in financial markets are reviewed and analyzed in Chapter 1. In Chapter 2, it is shown that the competitive pressure to beat a benchmark may induce institutional trading behavior that exposes retail investors to tail risk. In our model, institutional investors are different from a retail investor because they derive higher utility when they outperform the benchmark. This forces institutions to take on leverage to over-invest in the benchmark. Institutions execute fire sales when the benchmark asset experiences negative shocks. This behavior increases market volatility, raising the tail risk exposure of the retail investor. Nevertheless, ex-post, tail risk is only short lived, all investors survive in the long run under standard conditions, and the most patient investor dominates in the sense that she has the highest consumption wealth ratio. Ex-ante, however, benchmarking is welfare reducing for the retail investor, and beneficial only to the impatient institutional investor. Chapter 3 presents an analysis on how monetary authorities seeking to stabilize inflation, output and smooth interest rates distort the term structure of interest rates and prices of risk relative to an economy where central authorities adjust the money supply without taking into consideration the slope of the yield curve. Closed-form expressions for all equilibrium quantities are presented and the impact of quantitative easing on prices, risk premium and volatility of financial markets instruments, such as stocks and bonds, are evaluated. The changes in macroeconomic variables such as consumption, money demand and investment policies are also investigated. Under the adopted parametrization, quantitative easing is welfare improving. In addition, quantitative easing increases nominal bond and equity volatility, while reducing both real and nominal bond yields for all maturities.

Asset prices and macroeconomics: towards a unified macro-finance framework Aleš Maršál March 30, 2020 Abstract The dissertation consists of three papers focused on fiscal policy and explaining what determines the dynamics of cross-sectional distribution of bond prices. The connecting factor of the thesis is however not just its main theme but also the used methodology. The valuation of bonds and effects of studied policies are endogenous outcome of the full-fledged macro-finance dynamic stochastic general equilibrium model. The first chapter provides broader context and non-technical summary of the three papers in following chapters. The first paper studies the role of trend inflation in bond pricing. Motivated by recent empirical findings that emphasize low-frequency movements in inflation as a key determinant of term structure, we introduce trend inflation into the workhorse macro-finance model. We show that this compromises the earlier model success and delivers implausible busi- ness cycle and bond price dynamics. We document that this result applies more generally to non-linearly solved models with Calvo pricing and trend inflation and is driven by the behavior of price dispersion, which is i) counterfactually high and ii) highly inaccurately approximated. We highlight the channels be- hind the undesired performance...

Cette thèse se compose de trois études sur le rôle du désaccord en économie. Dans le premier chapitre, j’étudie l’impact des incertitudes judiciaires sur le rôle du désaccord dans le marché financier. J’ai commencé par documenter et définir ces incertitudes judiciaires, de la manière la plus approfondie et détaillée possible. L’incertitude liée à la capacité imparfaite d’observation par des régulateurs est intitulée the monitoring problem, et celle liée à la pénalité et la possibilité de payer des amendes the enforceability problem. J’introduis ces concepts dans un modèle avec frictions financières. La simulation du modèle nous montre que la capacité d’observation des régulateurs détermine la stabilité ou la fragilité du secteur bancaire. Le coût du capital n’augmente pas beaucoup dans une économie avec des incertitudes judiciaires mais le taux de retour de l’économie à l’état stationnaire baisse. Par exemple le taux de retour de l’économie à l’état stationnaire (après avoir subi un choc externe de niveau moyen) dure en moyenne 7 – 12 trimestres. Je donne des arguments que cela est en raison de changement de qualité des actifs en présences des incertitudes judiciaires. Finalement, je regarde si le modèle simulé pourrait reprendre les fluctuations du cycle économique après la crise financière et il le fait bien. En outre je donne des arguments détaillés pour l’analyse des programmes de bien-être social en présence des incertitudes judiciaires. Dans le deuxième chapitre, j’étudie la volatilité due au désaccord dans le marché du travail. J’essaye d’identifier les sources de cette volatilité élevée de manière structurelle. Ainsi, j’utilise un vecteur autorégressif avec volatilité stochastique (Time Varying Parameter SVAR) pour investiguer les propriétés de la création d’emploi aux Etats-Unis et leurs variations dans le temps. Au vu des résultats, un choc technologique semble expliquer moins de 40% des fluctuations observées de la volatilité de la création d’emplois après les années 1980 et ils indiquent que la volatilité dépend largement des chocs de demande et de prix. Les postes vacants (autrement dit, la création d’emploi) réagissaient négativement aux chocs technologiques jusqu’au début des années 90. On retrouve la même tendance pour la période récente. Ce résultat est très important pour les autorités publiques car il remet en question la création d’emplois suite à de nouvelles technologies. Le troisième chapitre est consacré au désaccord sur le marché des prêts où je montre comment le droit des faillites pourrait intensifier le problème d’aléa moral entre une entreprise débitrice et ses créanciers. Ce chapitre essaye de faire un lien entre le droit des faillites et le coût du capital en étudiant le niveau de demande des clauses restrictives dans un contrat. L’hypothèse que je vais essayer de valider empiriquement est celle-ci : si le droit de faillite devient de plus en plus en faveur des entreprises, les créanciers mettent en place de plus en plus de clauses restrictives dans le contrat (c’est-à-dire cherchent à obtenir un contrôle renforcé sur le comportement des débiteurs). Je valide l’hypothèse susmentionnée et je montre qu’une clause restrictive additionnelle baisse le taux de rentabilité par 23 points de base. Ainsi, Je donne une nouvelle interprétation des clauses restrictive par rapport à la littérature. / In this thesis I have investigated three aspects of market frictions. Chapter 1 is about financial frictions, i.e. frictional forces prevailing in the financial lending markets and how monitoring and legal fines imposed on banks affect financial fragility. Chapter 2 explores the frictional labor market, i.e. frictional forces that prevent the smooth matching process between employees and employers in labor markets. In this chapter I investigate the sources of fluctuations in labor market volatility. Chapter 3 investigates the asymmetrical information in lending markets and how bankruptcy law could potentially affect this asymmetrical information between a borrower and its lenders. In Chapter 1, I have investigated the implications of legal fines and partial monitoring in a macro-finance model. This primary motivation of this work was the unprecedented level of fines banks faced in recent years. The research in this field is very sparse and this work is one of the few to fill in the void. I have tried investigating the implications of fines and partial monitoring in static and dynamic frameworks. There is partial monitoring in the sense that dubious behavior of intermediaries is not always observed with certainty. Moreover intermediaries can pay some litigation fees to mitigate the punishment for their conduct should they get caught. Several insights can be drawn from introducing such concepts in static and dynamic frameworks. Partial monitoring and legal fines make the incentive constraint of intermediaries more relaxed, in the sense that bankers are required to pledge less collateral to raise fund. This decrease in the asset pledgeability pushes the corporate spread down. In a dynamic set-up due to changes in asset qualities caused by such possibilities, recovery in output and credit become sluggish in response to an adverse financial shock. The dynamic implications of the model for the post-crisis period are investigated. This paper calls for further research to broaden our understandings in how legal settlements interact with banks' behaviors. In Chapter 2 (joint with Elisa Guglielminetti) I have investigated the time-varying property of job creation in the United States. Despite extensive documentation of the US labor market dynamics, evidence on its time-varying volatility is very hard to find. In this work I contribute to the literature by structurally investigating the time-varying volatility of the U.S. labor market. I address this issue through a time-varying parameter VAR (TVP-VAR) with stochastic volatility by identifying four structural shocks through imposing robust restrictions based on a New Keynesian DSGE model with frictional labor markets and a large set of shocks. The main findings are as follows. First, at business cycle frequencies, the lion share of the variance of job creation is explained by cost-push and demand shocks, thus challenging the conventional practice of addressing the labor market volatility puzzle à la Shimer under the assumption that technology shocks are the main driver of fluctuations in hiring. Second, technology shocks had a negative impact on job creation until the beginning of the '90s. This result is reminiscent of the “hours puzzle” à la Gali. In Chapter 3 (joint with Garence Staraci) I provide an additional rationale why creditors include covenants in their contracts. The central claim is that covenants are not only included as a means of shifting the governance from debtors to creditors, but also to potentially address the concerns creditors might have about how the bankruptcy law is practiced. To investigate this claim, I take advantage of the fact that covenants are nullified inside bankruptcy. This fact permits us to show that any change to the bankruptcy law affects the spread through changes that it brings to the contractual structure...

This doctoral thesis devotes itself to macro-finance models of the Czech yield curve that enable the modeling of the yield curve as a whole and belong to the group of multi-factors models. These factors are unobservable or latent variables, and are intuitively called level, slope and curvature. Macro-finance models not only fit the yield curve through the use of latent factors, but they also try to provide a macroeconomic interpretation. The macro part of the model uses a type of VAR model, where the macroeconomic variables are endogenous or exogenous, or some macroeconomic model based on e.g. a New Keynesian economy. Such a type of models can answer (1) how the macroeconomic variables affect the yield curve, and, on the other hand, (2) how these macroeconomic variables are affected by the yield curve. The EUR/CZK exchange rate and the external environment play an important role in the Czech small open economy (in particular, developments in the eurozone and the impact of global investors' sentiment toward risky assets). Thus, we should take this into consideration when applying to Czech data. It has been shown that temporary macroeconomic and financial shocks (to inflation, output gap, EUR/CZK exchange rate, external demand, etc.) strongly affect the short end of the yield curve; however, longer spot rates react only marginally. The longer end of the curve may move more significantly in the case of a longer duration of the above-mentioned shocks (thus affecting inflationary expectations) or in the case of shocks to the inflation target and real equilibrium interest rates.

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La crise financière actuelle, en raison de sa similarité avec celle du Japon des années 1990, a poussé les autorités monétaires des plus grandes banques centrales à adopter l’assouplissement quantitatif. Seul le Japon, ayant connu une expérience d’assouplissement quantitatif récente mais depuis suffisamment d’années pour être étudiée, peut fournir des éléments de solution à cette crise.Cette thèse applique les techniques économétriques les plus appropriées et récentesà l’analyse de l’assouplissement quantitatif, appliqué par la Banque du Japon entre 2001 et 2006. En trois chapitres sont traitées les questions de savoir s’il était efficace ; sous quelles conditions ? Par quels canaux ?L’efficacité de cette stratégie de politique monétaire à stimuler l’activité et à stopperla spirale déflationniste a été montrée. Cette expérience met en avant le rôle important que la politique monétaire peut jouer pour sortir de la crise, même quand le taux directeur atteint zéro. Le canal des anticipations comme le canal de rééquilibrage des portefeuilles ont tous deux joué un rôle important dans la transmission de ces effets. Les principaux enseignements que l’on peut tirer de l’expérience japonaise sont, d’abord de remédier radicalement et immédiatement aux fragilités du secteur financier, deuxièmement, de mener une politique monétaire particulièrement agressive. Enfin, d’attendre le temps nécessaire pour que les fruits de cette politique viennent. L’expérience japonaise suggère que la Fed et la banque d’Angleterre doivent reporter leur sortie de cette stratégie, sortie qui doit être menée dansle cadre d’un programme et selon des objectifs numériques clairs. / The current financial crisis has now led most major central banks to rely on quantitative easing. The unique Japanese experience of quantitative easing is the only experience which enables us to judge this therapy’s effectiveness and the timing of the exit strategy. Is quantitative easing effective ? Under which conditions ? Through which canal ?This thesis, consisting of three essays, applies appropriate and recent econometrictechniques to examine the quantitative easing in Japan between 2001 and 2006. We show, for the first time, that quantitative easing was able not only to prevent further recession and deflation but also to provide considerable stimulation to both output and prices. Moreover, both expectation and portfolio-rebalancing channels play a crucial role in transmitting monetary policy effects. This experience shows that the monetary policy is still potent even when short-term interest rates reach a zero lower bound. The Japanese experience suggests that efforts to clean up the bank’s balance sheets significantly improved the effectiveness of quantitative easing. However, this effect, although considerable, was short-lived ; it became insignificant after one year. The short duration of this effect confirms the wisdom of the Fed’s decision to maintain quantitative easing longer, so that being short-lived, the positive effects could be exploited. In the light of the Japanese experience, we argue that, in addition to their fast reaction and the huge amount of CABs employed, which may have helped relieve short-term liquidity pressures in the financial system, the Fed was better off postponing its exit from quantitative easing.

This dissertation thesis consists of three essays on macroeconomics and finance. In these essays, I focus on events which adversely affect emerging markets and present challenges to economic policy and central bank thinking. My aim is to contribute to the existing empirical literature by providing new evidence on the role of private credit, effects of macroprudential policies and understanding of the exchange-rate pass-through. The first essay evaluates policy measures taken to curb bank credit growth in the private sector in the pre-crisis period 2003-2007. The analysis is based on an original survey conducted on central banks in Central and Eastern Europe. The findings reveal substantial policy intervention and indicate that certain measures - particularly asset classification and provisioning rules; and loan eligibility criteria - might have been effective in taming bank credit growth. The second essay contributes to the existing literature on early warning indicators as well as to the discussion on the appropriateness of credit-to-GDP gap as a leading variable for any country for activation of the countercyclical capital buffer instrument in Basel III. We exploit long-run credit series for 36 emerging markets and evaluate their quality to signal a crisis by using receiver operating characteristics...

Usar ativos financeiros para extrair as expectativas de mercado para algumas variáveis macroeconômicas é uma prática comum na literatura de Macro-Finanças. Nessa dissertação utilizamos títulos brasileiros para extrairmos as expectativas tanto do câmbio quanto da inflação com o uso de fatores latentes do tipo Nelson-Siegel. No primeiro capítulo desenvolvemos um modelo que tenta incorporar expectativas do mercado financeiro com os fundamentos macroeconômicos dessa variável. O modelo desenvolvido aqui difere dos modelos anteriores ao permitir volatilidades condicionais que parecem ser muito importantes no mercado cambial. Os resultados encontrados aqui indicam que os modelos com os fatores latentes e as variáveis macroeconômicas tem um poder de previsão melhor do que os modelos puramente macroeconômicos. Além disso, parece haver uma relação entre as variáveis macroeconômicas e a curva de diferencial de juros entre os países. Já no segundo capítulo utilizamos o diferencial entre rendimentos dos títulos reais e nominais usadas como preditores da inflação. O modelo aqui apresentado faz uma decomposição desse diferencial de juros, em prêmios de risco e inflação implícita usando um modelo paramétrico baseado em condições de não-arbitragem. As estimações da de inflação implícita do modelo se mostram estimadores não viesados da inflação futura para horizontes mais curtos e carregam informação para horizontes mais longos. Além disso, mostram resultados superiores que o uso somente do diferencial / Use financial assets to extract market expectations for some macroeconomic variables is a common practice in Macro-Finance literature. In this dissertation we use Brazilian securities to extract the expectations of both the exchange rate as inflation using Nelson- Siegel factors. In the first chapter we developed a model that incorporates these financial market expectations with macroeconomic variables, which are the foundations of this variable. The model developed here differs from previous models by allowing conditional volatilities that seem to be very important in the foreign exchange market. The study findings indicate that the models with latent factors and macroeconomic variables has better preditive power than purely macroeconomic models. In addition,indicates that there is a relationship between macroeconomic variables and the interest rate differential curve between countries. In the second chapter we use the spread between real and nominal bonds used as predictors of inflation. The model presented here is a decomposition of this interest differential in risk premiums and implied inflation using a parametric model based on no-arbitrage conditions. Estimates of implied inflation are non biased estimators of future inflation for shorter horizons and carry information over longer horizons. In addition, the implied inflation has superior results than that only using the differential

The dissertation dealt with the interaction between the macro-economy and financial markets. In the first part of the dissertation I laid down a general case for macro-based active asset allocation. In the main part of my dissertation, after a theoretical introduction to term structure models and macrofinance models, I developed a VAR macrofinance model of the term structure of interest rates for the Czech economy based on the dynamic interpretation of the Nelson-Siegel model, and showed the use of such modeling framework in bond-yield prediction and asset allocation.

Usar ativos financeiros para extrair as expectativas de mercado para algumas variáveis macroeconômicas é uma prática comum na literatura de Macro-Finanças. Nessa dissertação utilizamos títulos brasileiros para extrairmos as expectativas tanto do câmbio quanto da inflação com o uso de fatores latentes do tipo Nelson-Siegel. No primeiro capítulo desenvolvemos um modelo que tenta incorporar expectativas do mercado financeiro com os fundamentos macroeconômicos dessa variável. O modelo desenvolvido aqui difere dos modelos anteriores ao permitir volatilidades condicionais que parecem ser muito importantes no mercado cambial. Os resultados encontrados aqui indicam que os modelos com os fatores latentes e as variáveis macroeconômicas tem um poder de previsão melhor do que os modelos puramente macroeconômicos. Além disso, parece haver uma relação entre as variáveis macroeconômicas e a curva de diferencial de juros entre os países. Já no segundo capítulo utilizamos o diferencial entre rendimentos dos títulos reais e nominais usadas como preditores da inflação. O modelo aqui apresentado faz uma decomposição desse diferencial de juros, em prêmios de risco e inflação implícita usando um modelo paramétrico baseado em condições de não-arbitragem. As estimações da de inflação implícita do modelo se mostram estimadores não viesados da inflação futura para horizontes mais curtos e carregam informação para horizontes mais longos. Além disso, mostram resultados superiores que o uso somente do diferencial / Use financial assets to extract market expectations for some macroeconomic variables is a common practice in Macro-Finance literature. In this dissertation we use Brazilian securities to extract the expectations of both the exchange rate as inflation using Nelson- Siegel factors. In the first chapter we developed a model that incorporates these financial market expectations with macroeconomic variables, which are the foundations of this variable. The model developed here differs from previous models by allowing conditional volatilities that seem to be very important in the foreign exchange market. The study findings indicate that the models with latent factors and macroeconomic variables has better preditive power than purely macroeconomic models. In addition,indicates that there is a relationship between macroeconomic variables and the interest rate differential curve between countries. In the second chapter we use the spread between real and nominal bonds used as predictors of inflation. The model presented here is a decomposition of this interest differential in risk premiums and implied inflation using a parametric model based on no-arbitrage conditions. Estimates of implied inflation are non biased estimators of future inflation for shorter horizons and carry information over longer horizons. In addition, the implied inflation has superior results than that only using the differential