How are the prices of financial assets determined? In this dissertation, I test various theories empirically, focusing on several classes of bonds. In the first chapter, I test whether asset prices reflect the risk-exposures of financial intermediaries in a setting that is well suited to tackling concerns about omitted risk factors. I analyze catastrophe bonds whose cash flows are linked to the occurrence of natural disasters and find that 71% of the variation in their expected returns can be explained by a theoretically-motivated measure of financial intermediaries’ marginal rate of substitution. Assuming that natural disasters are independent of aggregate wealth, this pricing result is inconsistent with any explanation based on macroeconomic risk factors. However, the result is consistent with intermediary asset pricing models that suggest that financial intermediaries are marginal investors in capital markets. I also show that the premium on natural disaster risk has decreased significantly in recent years and has become less responsive to the occurrence of disasters, suggesting that intermediaries’ access to outside capital has improved over time. In the second chapter, which is coauthored with Robert J. Hodrick, we examine the statistical term structure model of Cochrane and Piazzesi (2005) and its affine counterpart, developed in Cochrane and Piazzesi (2008), in several out-of-sample analyzes. The model’s one-factor forecasting structure across bonds with two, three, four, and five years to maturity characterizes the term structures of additional major currencies in samples ending in 2003. In post-2003 data such one-factor structures again characterize each currency’s term structure, but we reject equality of the coefficients across the two samples. We derive currency return forecasting implications from the Cochrane and Piazzesi (2008) affine model showing that the term structure forecasting variables in each currency should predict cross-currency investments, but we find no support for these predictions in either pre-2004 or post-2003 data, whereas the interest differentials do predict currency returns. Here too, though, we find strong evidence of parameter instability as the parameter estimates on the interest differentials change sign. In recursive out-of-sample forecasts of excess rates of return on bonds in each currency, the Cochrane and Piazzesi (2008) term structure forecasting models fail to beat forecasts from the historical average excess rates of return. Graphical analysis indicates that the instability in the forecasting models’ parameters begins in the global financial crisis.

The study covers oil and the power it entails and focuses on oil interdependence, oil-related conflicts and crises and macroeconomic effects. This thesis aims to examine the global oil industry's trade structure, to clarify the international geopolitical situation in the oil industry, and to analyze the effects of fluctuations in price on a macroeconomic level. The research has an explorative but also descriptive nature and can be classified as a correlational study. The thesis is mainly based on qualitative references obtained from interviews supplemented with quantitative data. The majority of conflicts in the Middle East can be classified as oil related, with a major impact on oil prices as a result. Oil price fluctuations correlate with and influence the macroeconomic situation in different countries, and the degree of the correlation varies due to the extent certain countries depend on oil. Interdependence is thus a significant factor in economic and geopolitical development. The study contributes to a deeper understanding and a more profound knowledge regarding global impact due to oil interdependence. This thesis indicates that the integration of oil in today’s society increases the world’s vulnerability to changes in the oil industry and therefore, oil contributes to power. / Denna studie omfattar oljans makt och fokuserar på beroendeförhållanden, oljerelaterade konflikter och kriser samt makroekonomiska effekter. Uppsatsen syftar till att undersöka den globala oljeindustrins handelsstruktur, kartlägga det internationella geopolitiska läget inom oljebranschen samt analysera oljeprissvängningars direkta effekter på ett makroekonomiskt plan. Studien har en explorativ men även deskriptiv karaktär och kan klassificeras som en sambandsstudie. Undersökningen baseras på kvalitativa källor genom intervjuer och kompletteras med kvantitativ data. Flertalet konflikter som ägt rum i Mellanöstern är oljerelaterade vilket har resulterat i betydande effekter på oljepriset. Oljeprisförändringar påverkar och korrelerar med det makroekonomiska läget i enskilda länder, hur stark denna korrelation är beror dock av i vilken utsträckning ett land är beroende av olja. Beroendet är alltså en betydande del i ekonomisk och geopolitisk utveckling. Studien bidrar till en ökad förståelse och en fördjupad kunskap i oljeindustrins beroendeförhållanden och dess globala påverkan. I studien framgår att oljans integrering i samhället gör världen sårbar för förändringar i oljeindustrin, olja bidrar därför till makt.

Climate change is a major concern impacting every aspect of life including economics. Therefore, it seems interesting to discuss the role of monetary policy in global warming mitigation. Previous papers hint that monetary policy, especially the European Central Bank’s quantitative easing, may have a bad impact on the environment. Here we will check this statement using two simple linear regressions to see if quantitative easing has an impact on carbon emissions and firm’s willingness to pollute, in the Eurozone. We find that quantitative ease has no or very small effect on these environmental features. Finally, we will give an overview of the discussion around how quantitative easing and central banks’ actions can actively reduce climate change.

In chapter 1, I ask whether an exchange rate depreciation depresses trading partners' output. I address this question through the lens of a classic episode: the currency devaluations of the 1930s. From 1931 to 1936, many of the biggest economies in the world successively left the gold standard or devalued, leading to a depreciation of their currency by more than 30% against gold. In theory, the effect is ambiguous for countries that did not devalue: expenditure switching can lower their output, but the monetary stimulus to demand might raise it. I use cross-sectional evidence to discipline the strength of these two mechanisms in a multi-country model. This evidence comes in two forms: (i) causal inference of the effect of devaluation on country-level variables, (ii) new product-level data to estimate parameters that are essential to discipline the response of trade --- the international elasticity of substitution among foreign varieties, and the pass-through of the exchange rate to international prices. Contrary to the popular narrative in modern policy debates, devaluation did not dramatically lower the output of trading partners in this context. The expenditure switching effect was mostly offset by the monetary stimulus to foreign demand. In chapter 2, Emi Nakamura, Jon Steinsson, and I provide new estimates of the evolution of productivity in England from 1250 to 1870. Real wages over this period were heavily influenced by plague-induced swings in the population. We develop and implement a new methodology for estimating productivity that accounts for these Malthusian dynamics. In the early part of our sample, we find that productivity growth was zero. Productivity growth began in 1600---almost a century before the Glorious Revolution. Post-1600 productivity growth had two phases: an initial phase of modest growth of 4% per decade between 1600 and 1810, followed by a rapid acceleration at the time of the Industrial Revolution to 18\% per decade. Our evidence helps distinguish between theories of why growth began. In particular, our findings support the idea that broad-based economic change preceded the bourgeois institutional reforms of 17th century England and may have contributed to causing them. We also estimate the strength of Malthusian population forces on real wages. We find that these forces were sufficiently weak to be easily overwhelmed by post-1800 productivity growth. In chapter 3, Carlo Altavilla, Miguel Boucinha, and I propose a new methodology to identify aggregate demand and supply shocks in the bank loan market. We present a model of sticky bank-firm relationships, estimate its structural parameters in euro area credit register data, and infer aggregate shocks based on those estimates. To achieve credible identification, we leverage banks' exposure to various sectors' heterogeneous liquidity needs during the COVID-19 Pandemic. We find that developments in lending volumes following the pandemic were largely explained by demand shocks. Fluctuations in lending rates were instead mostly determined by bank-driven supply shocks and borrower risk. A by-product of our analysis is a structural interpretation of two-way fixed effects regressions in loan-level data: according to our framework, firm- and bank-time fixed effects only separate demand from supply under certain parametric assumptions. In the data, the conditions are satisfied for supply but not for demand: bank-time fixed effects identify true supply shocks up to a time constant, while firm-time fixed effects are contaminated by supply forces. Our methodology overcomes this limitation: we identify supply and demand shocks at the aggregate and individual levels. In chapter 4, I study how the fiscal side of the US government reacts to monetary policy. I estimate the response of several fiscal variables to monetary shocks. Following an interest rate hike, tax receipts fall, outlays excluding interest payments are constant, and interest payments and debt increase. The fall in output that follows a monetary tightening --- not legislated changes in marginal tax rates --- drives the response of receipts. The fiscal authority therefore responds passively to monetary shocks, keeping expenditures constant and letting debt adjust to satisfy its budget constraint. In heterogeneous agent models, this scenario dampens output's response to monetary policy.

L'objectif de cette thèse, composée de quatre articles empiriques et théoriques, est d'étudier l'implication des banques centrales dans la stabilité financière - définie comme un état stable et élevé de confiance dans la capacité du système financier à faciliter l'allocation des ressources économiques, gérer les risques, et à résister aux chocs - et de discuter de leurs nouvelles responsabilités macroprudentielles. La crise financière mondiale a fait évoluer la régulation et la supervision financières d'une perspective microprudentielle basée sur la résilience des institutions prises individuellement à une perspective macroprudentielle qui prend en compte les interactions entre les institutions financières, les externalités liées à leurs décisions, et aussi les effets du cycle financier sur le cycle économique et sur la stabilité financière. Cette thèse analyse le policy-mix des politiques monétaire - ciblant le cycle économique –et macroprudentielle -ciblant le cycle financier -ayant toutes les deux un impact sur la stabilité des prix et les conditions financières. En effet, ces politiques fonctionnent grâce à des canaux de transmission dont certains sont communs. Une attention particulière est accordée, au-delà la politique macroprudentielle dans union monétaire hétérogène comme la zone euro - où les pays connaissent des conditions macroéconomiques différenciées - en termes de stabilisation financière et macroéconomique. Partant du constat qu'un taux d'intérêt unique est adapté à la moyenne de la zone mais pas aux besoins de chacun des pays, la politique macroprudentielle pourrait compenser l'absence de politique monétaire autonome dans chaque pays. Cela améliorerait le degré d'optimalité de la zone monétaire. / The aim of this thesis, composed of four academic papers, is to apply empirical and theoreticalanalyses to study the involvement of central banks in financial stability-confidence in the financial system's ability to facilitate allocation of economic resources, manage risks, and withstand shocks -and to discuss their recent macroprudential responsibilities. The global financial crisis (GFC) shitied the perspective of financial regulation - rules that financial institutions have to comply with in order to ensure effective risk management and to with stand financial shocks - and supervision - ensuring that financial institutions follow these rules - from a microprudential perspective based on the resilience of individual institutions to amacroprudential (henceforth · "MaP") perspective. The MaP perspective takes into account the interactions of financial institutions, the externalities related to their decisions, and also the effects of the financial cycle on central bank policy and financial stability. This thesis analyses the policy mix of monctary and macroprudential policies which both have an impact on price stability and financial conditions and which operate through common or overlapping channels. A particular focus is given to the role of MaP policy in heterogeneous monetary union such as the Eurozone- where countries are experience in different macroeconomic conditions - in terms of financial and macroeconomic stabilisation. Since a single interest rate is unlikely to fit circumstances in all countries, MaP policy could compensate the Jack of autonomous monetary policy in each country as both policies share many transmission channels. This enhances the optimality's degree of the currency area.

Cette thèse s'intéresse aux fondements de la croissance et des déficits budgétaires. Elle se compose de trois essais distincts. Le premier essai examine les déterminants économiques et politiques des déficits budgétaires. Le second essai s'intéresse à la transmission de l'inflation aux revenus et dépenses dans la zone euro. Le troisième essai analyse l'interaction entre les dépenses publiques et la croissance économique lors du développement économique d'un pays. Dans le premier chapitre, je présente une modélisation des biais de comportement du politicien avec un facteur reflétant la probabilité pour le gouvernement de rester au pouvoir. Si un gouvernement est incertain concernant ses perspectives de réélection, il aura tendance à négliger l'avenir davantage qu'il ne l'aurait fait autrement. Sur le plan empirique, ce papier contribue à formaliser la relation entre déficit budgétaire, comportement de l'homme politique et contexte économique. Dans le second chapitre, afin d'étudier la relation entre dépenses publiques/revenus et inflation en France, j'utilise l'analyse de cointegration et de causalité du modèle de Granger. Les résultats indiquent que les dépenses/recettes publiques et l'inflation sont fortement cointégrées et qu'il existe donc une relation d’équilibre à long terme entre ces variables. De plus, nous estimons le déficit budgétaire `a partir de l'inflation et d'autres variables explicatives telles que les élections, la croissance économique et le taux de croissance du chômage. En outre, ce chapitre souligne que les revenus (cotisations sociales, impôts directs nets) sont fortement et positivement corrélés `a l'inflation en Europe Occidentale. En revanche, les dépenses publiques sont faiblement mais positivement corrélées `a l'inflation. Dans le troisième chapitre, nous analysons l'influence de la composition des dépenses publiques sur le taux de croissance au cours du développement économique. Nous constatons une forte corrélation entre le développement du pays et l'utilité des citoyens au fil du temps. Les pays pauvres déboursent fortement en dépenses productives tandis que les pays riches ont une proportion plus élevée de dépenses improductives. Nous illustrons nos résultats avec un panel de données de 147 pays. En utilisant une estimation GMM en système sur panel dynamique, nous constatons que les salaires publics, les paiements d'intérêt, les subventions et les dépenses de consommation finale du gouvernement ne stimulent pas la croissance contrairement aux dépenses d'éducation et de santé. En outre, nous observons que la réaffectation des dépenses d'éducation est associée à une augmentation de la croissance. / This dissertation addresses the interconnections between growth and public finance. It is made of three distinct essays. The first essay investigates the economic and political determinants of budget deficits. The second essay focuses on the transmission of inflation to public finance in the euro zone. The third essay analyses the two-ways interaction between government spending and economic growth over the course of a country's economic development. In the first essay, I consider the modelling of politician behaviour bias which diverges from the typical citizen by a factor reflecting the probability for governments to stay in power. If a government is sure it will stay in power, it will discount the future in an optimal way, otherwise it will tend to discount the future more heavily. On the empirical side, our paper contributes to formalize the impact of politician behaviour and economic context on budget deficit. In the second essay, I analyze the relationship between highly granular public expenditures/revenues growth and inflation in France. I use the cointegration analysis and Granger Causality Model and find that public expenditures/revenues and inflation are cointegrated and thus there exists a long-term equilibrium relation between these variables. We forecast in detail budget deficit in France based on inflation and other explanatory variables such as elections, economic growth and unemployment growth rates. Also, this paper emphasizes that Eurozone governments' total revenues are highly and positively correlated to inflation in particular net social contribution and direct taxes while government expenses are lowly but positively correlated to inflation. In the third essay, I investigate the influence of public expenditures composition on countries growth performance along their economic development. We find citizen utility significantly evolves as the country develops and significantly changes the role and intervention of governments. Poorer countries rely heavily on productive spending while richer countries have a higher proportion of unproductive spending. We illustrate our findings with a data panel of $147$ low-, medium- and high-income countries covering the period $1970-2008$. Using dynamic panel GMM estimators, we show that public wages, interest payments, subsidies and government consumption are not growth-enhancing while spending on education and health positively impact growth. We observe that a reallocation involving an increase in education spending is associated with higher growth.

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Foreign direct investment is a medium for technology transfers between countries, a stimulant to economic growth, trade promotion, and international economic integration between economies; thus, many studies have studied the relationship between growth and foreign direct investment. This study also aims to investigate the relationship between economic growth and foreign direct investment in the East African country of Kenya. The study used the growth accounting approach as the basis for an econometric model. The data used is a time series from 1970 to 2019. An ordinary least squares method is employed to investigate whether foreign direct investment is significantly associated with economic growth. The findings show that the relationship between foreign direct investment and economic growth in Kenya is negatively insignificant. These findings can further the economic growth and foreign direct investment research on individual African countries whilst considering a country’s individual circumstances, like economical history, in comparison to cross-country studies, where each country’s individual circumstances might not be considered.

This dissertation is a study of fundamental questions in macro-finance using modern tools from textual analysis. These questions include how financial constraints affect firm investment and financing decisions when they are not presently binding, and whether stock returns are predictable based on concerns revealed in conversations between firms and investors. The first chapter examines whether financial covenants are an important consideration for firm decisions when they are not presently in violation. A key empirical challenge is measuring the risk of future covenant violations, which is not directly observed. I propose a novel measure of concerns about future violations by distinguishing between discussions of covenants in earnings calls that relate to the future as opposed to the past or present. As validation, I show that the measure predicts future violations and covaries intuitively with earnings, leverage, and default risk. Importantly, I find that concerns about covenants are significantly associated with reductions in investment as well as debt and equity financing activities. These responses persist even after controlling for standard measures of investment opportunities and are economically large relative to the effects of actual violations. The second chapter empirically analyzes two explanations for how covenants concerns relate to a firm's investment decisions. One explanation is that covenant concerns coincide with a deterioration in expected profitability, which dampens firms' incentives to invest. A second explanation is that firms become concerned when they expect violations to be more costly, which indicates future difficulties with funding investments. To shed light on the relevance of these two explanations, I examine empirical patterns in analyst expectations of future earnings, loan amendments in SEC filings, and the stock returns of firms that mention covenant concerns. The evidence suggest that both explanations are relevant mechanisms driving the correlation between covenant concerns and firm activity. However, I find that the second channel is more economically significant, suggesting that covenant concerns are informative about the degree to which firms are constrained by financial covenants. In the third chapter, I investigate how covenant concerns relate to firm policies in a standard model of investments with financial frictions. In the model, the theoretical object that most naturally links to covenant concerns is the expected shadow cost of the borrowing constraint. As in the data, the shadow cost of the borrowing constraint covaries negatively with earnings as well as firm investment and financing activity. Through an analysis of impulse response functions, I show how the empirical correlations between covenant concerns and firm policy arise in the model. One channel is through negative productivity shocks, which raises covenant concerns and leads to a fall in investment, debt, and equity issuance. The second channel is through higher leverage, holding fixed productivity. In the model, firm with higher debt levels are more concerned about covenants when hit by a negative productivity shock, and also choose less investment, debt issuance, and equity issuance. In this chapter, I also discuss several shortcomings of the model and suggest avenues for modifications. The final chapter investigates a new question: are stock returns predictable based on the extent to which firms are concerned about the macroeconomy? We document that firms that pay more attention to the macroeconomy earn lower average returns relative to firms that pay less attention to the macroeconomy. Differences in returns are economically significant and are not explained by traditional asset pricing factors, such as market beta, size, value, and idiosyncratic volatility. To explain the negative macroeconomic attention premium, we propose a model of attention allocation that links analyst attention to fundamental shocks affecting firm cash flows. In the model, attention to the macroeconomy is increasing in the share of earning news explained by the macroeconomic component. Firms with a greater share of cash flow news explained by the macroeconomic component face lower cash flow risk, hence earn lower expected returns.

My dissertation within macroeconomics puts special emphasis on uncovering the effects of market power within product and labor markets. I conduct these studies using novel empirical techniques and detailed granular data sets at the firm- and household-levels.In the first chapter, coauthored with Shruti Mishra, we consider how firms’ price-setting decisions are affected by the properties of their markup. We start by designing a general oligopoly framework that accounts for firm heterogeneity, firm granularity, and the effects of market share distribution. We use this structural model to decompose the effect of price on the quantity demanded into a direct price effect and an indirect effect coming from the impact of the market-level aggregates, such as market-level price. This decomposition allows us to take care of all the degrees of heterogeneity in a flexible manner. Under plausible assumptions, the most crucial of which we test in the data, all the information about the distribution of shares within the market will be accounted for by the variation of the market aggregates. Under these conditions, we can estimate the structural parameters that do not depend on the distribution of shares within the market. We use the model to inform our empirical strategy and apply it to the ACNielsen Retail Scanner Data. We test the assumptions put forward by the theory, estimate structural parameters and then use the decomposition formulas to calculate the elasticity of the firm’s demand and other parameters important for the markup variation. We find that elasticity depends sharply on the firm’s market share and decreases significantly as market shares increase. There is a positive dependence of demand elasticities on relative prices (superelasticity), in line with Marshall’s second law of demand. Additionally, elasticity depends on the levels of competitiveness within the market. Even if a firm’s market share stays the same, its elasticity decreases if the market becomes less competitive. Lastly, we apply our estimates to calculate the optimal pass-through of marginal costs into prices and strategic complementarity. We find that an individual firm’s pass-through is contained between zero and one, but depends sharply on the firm’s market share. We find that strategic complementarity between two firms depends on both of their shares and is not symmetric so the degree of strategic complementarity between a small and a large firm, between two small firms, between two large firms, or between large and small firms would all be different. We then assess the non-linear effects of the marginal cost shock on the price and find that pass-through depends positively on the size of the marginal cost shock. This means that the total effect of marginal cost shock on prices is non-linear and that firm prices are more responsive to marginal cost increases than to marginal cost decreases. For market leaders, the pass-through of a large negative marginal cost shock would be close to zero, while the pass-through of a large positive marginal cost shock would approach that of small firms. In the second chapter, coauthored with Rui Mano, Yannick Timmer, and Anke Weber, we study the effect of the firm granularity in the labor market on their hiring decisions. We argue that prevalence of firms controlling large vacancy shares plays an important role in the transmission of monetary policy to labor demand and wage growth and can partially explain the flattening of the wage Philips curve after the GFC. Accommodative monetary policy raises the marginal product of labor, incentivizing all firms to hire more. However, since the wage elasticity of labor demand is lower for high vacancy share firms, they can hire more workers without raising wages disproportionately. We study this effect in the Burning Glass Technology vacancy microdata and, consistently with this mechanism, show that accommodative monetary policy increases labor demand more for high vacancy share firms and that this comes without a disproportionate response in wages. In aggregate, this implies that due to the presence of firms controlling large vacancy shares, accommodative monetary policy can lead to a decline in the unemployment rate that is decoupled from an increase in wage growth. Quantitatively, a firm at the 50th percentile of vacancy share distribution increases its labor demand by ≈ 7% in response to a 10 basis point surprise monetary loosening while a firm at the 95th percentile of the vacancy share distribution increases labor demand by ≈ 9%. Moreover, the effect of monetary policy shocks on firms with high vacancy share is much more persistent, with effects economically large and statistically significant at least for eight quarters. At the same time, there is no comparable differential response of wages, so even though firms with high vacancy shares hire more, they don’t have to increase their wages by more. In this case, more hiring does not result in a comparable increase in wage inflation. This channel can partly explain the flattening of the wage Phillips curve and the “wage-less” recovery after the Global Financial Crisis.In the third and last chapter, coauthored with Shruti Mishra, we study the impact of wealth heterogeneity on labor supply decisions. In the standard model, the positive wealth effect should decrease the willingness to supply labor. In the macroeconomic setting, this means that the direction and the magnitude of the wealth effect will determine whether people search for jobs more actively after a monetary intervention. For example, if unemployed consumers are indebted, they experience a negative wealth effect after a monetary contraction, search for jobs more actively and increase their probability of finding a job, therefore, reducing the total unemployment response. The sign and magnitude of the overall effect of monetary policy on unemployment will therefore depend on whether unemployed consumers are indebted and the magnitude of their debt. To study this mechanism, we develop a theoretical framework with heterogeneous consumers and employment search efforts and then decompose the effect of the monetary policy shock on aggregate unemployment. We test the prediction of the model in both micro and aggregate data. To test the prediction of the model in the aggregate, we estimate the coefficient of the interaction term between the debt-to-income ratio and Romer and Romer monetary policy shock. For the microdata, we use a similar regression with unemployment and mortgage variables for individual consumers from the PSID panel dataset. Consistently with the proposed mechanism, we find that the intuitive negative effect on employment of the monetary contraction is virtually non-existent or even reversed for indebted consumers. The three chapters together paint a complex picture of the impact of market power on macroeconomic variables. First, product market power impacts price-setting decisions of the firms and affects the dynamic of prices and inflation, effectively leading less concentrated economies to behave as if they have more flexible prices. Second, firms that control large share of vacancies in their labor market conduct hiring differently from their smaller counterparts leading to more quantity expansion. Lastly, labor markets exhibit complex supply dynamics as well, with labor supply potentially intensifying during recessions, which might lead the bargaining power of firms to become countercyclical. All these effects hold first-order significance for macroeconomic dynamics and influence our ability to project the future or asses the effects of monetary policy.