Thesis advisor: Susanto Basu / This dissertation examines the fluctuations of the aggregate economy when frictions in financial markets are present. I focus on the the asymmetric information problems between creditors and debtors on the quality of debtor's projects and I analyze how these frictions cause the fluctuations in aggregate economy which is potentially inefficient. The first chapter examines the interaction between the perverse incentives and the general equilibrium effects of misallocated bank credit. This essay is intended to elucidate the mechanism of zombie lending in Japan. By incorporating a soft budget problem into a neo-classical dynamic general equilibrium model, the model shows that an inefficient zombie lending regime can be selected as an equilibrium. In this equilibrium, the incentives and the general equilibrium effects are interdependent. The inefficient use of resources crowds out investment when banks have incentives to bail out insolvent firms. On the other hand, the general equilibrium effects give rise to the perverse incentives endogenously through the formation of the liquidation value and the continuation value of insolvent firms. In the worst case, agents fail to resolve non-performing loan problems, and the model economy permanently falls into an inefficient regime. The second chapter proposes a model that generate boom-and-bust cycles by securitization of subprime mortgages. I construct a dynamic housing choice model in which mortgages are financed by securitization and I assume that creditors have errors in measuring the default risks of subprime mortgages. With this setup, the resource availability for housing fluctuates endogenously and it causes the boom-and-bust cycles. Particularly, there are two channels that change the resource availability: the security design of the securitized assets and the evolution of house price inflation. I illustrate that subprime mortgages can be cheaply financed by securitization when creditors mismeasure the quality of the subprime mortgages. This ignites a boom in the model. However, the boom can be terminated as the profitability of securitization declines along with the decline in the expectation of house price inflation. This is because the house price inflation is tied with the liquidation value of the defaulted mortgages. As the expectation of the house price inflation slows down, the subprime mortgages become more risky and the securitization becomes less profitable. Eventually, issuers of securitized assets withdraw from the securitization market and the boom collapses. The last chapter explores the transmission mechanisms of international business cycles when the borrowing capacity of multinational enterprises (MNEs) is limited. I embed MNEs that face borrowing constraints in a two-country international business cycle model. I show that the net worth of MNEs plays a significant role in generating the international business cycle co-movement: the wealth effect in response to the change in MNEs' net worth has a strong multiplier effect on domestic and foreign investment of MNEs. Output moves in the same direction between the two countries due to the synchronized investment. The model is also able to generate reasonable cross-country correlations in real estate price and consumption. / Thesis (PhD) — Boston College, 2010. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Le thème principal de cette thèse est celui des liens macro financiers. J’ai couvert trois questions différentes liées à ce sujet. Dans le premier chapitre, Gaël Giraud et moi-même développons un modèle pour la zone euro en réponse à de nombreuses critiques des modèles de politiques avant le GFC et en mettant l’accent sur l’interaction entre le secteur financier et la macroéconomie. Les deuxième et troisième chapitres portent sur le comportement du secteur financier au lendemain de la crise financière mondiale et ses implications pour la macroéconomie. Le chapitre 2 examine la pratique de l’abstention à l’égard des emprunteurs en difficulté. La question finalement pertinente dans ce chapitre est de savoir dans quelle mesure ce comportement influe sur l’économie réelle. Enfin, le troisième chapitre met en lumière un épisode de manipulation sur les marchés des matières premières. Cette prétendue manipulation n’était apparemment possible qu’en raison de la position dominante des banques sur le marché pendant la période qui a précédé la crise et par la suite. En fin de compte, je quantifie les effets d’un tel comportement et apporte la preuve d’un changement structurel du marché manipulé au cours de la période de manipulation alléguée. Le premier chapitre exploite un ensemble de données au niveau des banques, tandis que dans les chapitres 2 et 3, je développe des modèles macroéconomiques structurels. En particulier, le modèle de système dynamique du deuxième chapitre est une innovation. Cette catégorie de modèles, et plus particulièrement un modèle de la taille que nous développons, n’a jamais été estimée et utilisée par la suite pour l’analyse des politiques. / The main theme of this thesis are macro-financial linkages. I covered three different questions related to this topic. In the first chapter Gaël Giraud and I develop a model for the Euro Area answering to many of the critiques of policy models before the Global Financial Crisis and with a focus on the interaction between the financial sector and the macroeconomy. The second and third chapter focus on behaviour of the financial sector in the aftermath of the Global Financial Crisis and its implications for the macroeconomy. Chapter 2 investigates the practice of forbearance towards stressed borrowers. The ultimately relevant question in this chapter is to what extend there is a feedback to the real economy due to this behaviour. Finally, the third chapter sheds light on an episode of manipulation in commodity markets. This alleged manipulation was apparently only possible due to the dominant market position banks took in the run up to the crisis and thereafter. Ultimately I quantify the effects of such behaviour and provide evidence of a structural change of the manipulated market during the period of alleged manipulation. The first chapter exploits a bank level dataset, whereas in chapter 2 and 3 I develop structural macroeconomic models. Especially the dynamical system model in the second chapter is an innovation. This class of models and more specifically a model of the size we develop has never been estimated and subsequently used for policy analysis.