Yes / In this paper, we focus on the financial and fiscal stress transmission for the G5 economies. Using financial and fiscal stress indexes, we assess the spillovers within each economy, as well as the cross-sectional effects. Two supplementary methodologies, measuring the degree of interconnectedness, are employed. Our findings indicate that the interactions between these two kinds of distress are intensive, especially during and after the Global Financial Crisis outbreak. The above reiterates the necessity for coordinated macroprudential policies, as a means to confine the adverse effects of excessive financial and fiscal stress.

This thesis studies the interaction between monetary and macroprudential policy using a DSGE model with real and financial frictions under government and financial shock scenarios. Countercyclical capital requirements are used as a macroprudential policy tool combined with a Taylor rule for monetary policy. In the case of the government shock, our findings indicate that policies' coordination reduces the volatility of the output vis-à-vis a "monetary policy only" regime. Analysis of financial shocks indicates that monetary policy alone can suffice to ensure financial stability. Lastly, welfare analysis suggests there is no optimal policy combination for all agents and highlights a redistributive effect of both shocks, showing that policy that is beneficial for one group of agents can decrease welfare for another. JEL Classification E44, E52, E61 Keywords monetary policy, macroprudential policy, capital requirements, financial stability Author's e-mail kateryna.kireichenko@gmail.com Supervisor's e-mail martina.jasova@fsv.cuni.cz

Thesis advisor: Peter Ireland / Thesis advisor: Christopher Baum / In this dissertation, I focus on macroeconomic and macroprudential policies. In Chapter 1, I study the effectiveness of macroprudential policy tools on bank risk. The findings show that although macroprudential policy tools can stabilize the financial system, under certain conditions, they might have perverse effects. In Chapter 2, I examine monetary aggregates, and show that once measured correctly, they can be useful in gauging the stance of monetary policy. In Chapter 3, by studying the deter- minants of sovereign debt crises, I aim at improving our understanding of sovereign debt distress, and also strengthening the toolkit for crisis prevention. Chapter 1: Following the 2007-2009 financial crisis, there has been an increase in the use of macroprudential policy tools – such as loan-to-value ratio caps and interbank exposure limits – to achieve financial stability. Existing research on the effectiveness of macroprudential policy has focused on country-level variables such as total credit growth and house price inflation. In “The Effectiveness of Macropruden- tial Policy on Bank Risk,” I study how the effectiveness of macroprudential policy varies across banks and policy tools. Using system GMM on bank-level data from 30 European countries for the time period between 2000 and 2014, I document that stricter regulation in the form of exposure limitations tends to decrease banks’ risk levels whereas capital-based tools tend to induce higher risk-taking. After a policy tightening, loan loss provisions and non-performing loans ratios of banks suffering losses can increase substantially, up to five percentage points, while they are likely to decrease for profitable banks. Constraining activities by stricter regulation can lead to a search for yield. Therefore, policy designers should pay particular attention to the increase in risk-taking following policy tightening, especially by banks suffering losses. Chapter 2: It is crucial for policymakers to successfully gauge the stance of mon- etary policy and understand the mechanisms through which it affects the economy. Conventional models focus on interest rates alone, and omit monetary aggregates from policy discussions. In “Do Monetary Aggregates Belong in a Monetary Model? Evidence from the UK,” I examine whether augmenting the measure of monetary policy with monetary aggregates helps in drawing more robust links between policy and economic fluctuations. After constructing the Divisia money index for the United Kingdom, I employ structural vector autoregression to identify two different episodes of UK monetary policy regimes. Inclusion of this (correct) measure of the quantity of money and disentangling money supply from money demand remedy the price and liquidity puzzles which frequently appear in the vector autoregression literature. The results point to the informational content embedded in monetary aggregates, and suggest that monetary aggregates should be taken into account while evaluating monetary policy. Chapter 3: In assessing debt sustainability for advanced and emerging markets, the IMF’s Market Access Countries’ Debt Sustainability Analysis (MAC DSA) com- pares the levels of debt and gross financing needs (GFNs) against benchmarks sepa- rately derived from the noise-to-signal approach. In “Determinants of Sovereign Debt Crises,” I identify the main factors that contribute to sovereign debt crises. I take into account a broad range of debt distress drivers, including debt levels and gross fi- nancing needs, but also debt composition, macroeconomic fundamentals, and country characteristics such as whether the country is a small state or member of a currency union. By using the estimation results, I first derive an indicative cutoff probability of debt distress level. Then, I calculate the corresponding thresholds for debt variables, above which countries are predicted to experience an episode of debt distress. / Thesis (PhD) — Boston College, 2018. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This dissertation consists of four empirical papers analysing and discussing central bank policies in the post-crisis period. After the global financial crisis central bankers and other regulators have faced many new challenges, including a prolonged period of acommodative monetary policy, side effects of monetary policy easing on financial stability and interaction of macroprudential, microprudential and monetary policy. On top of that, policy makers must deal with uncertainty surrounding the transmission and the effectiveness of newly introduced macroprudential measures. The empirical analyses focus primarily on the Czech Republic and its banking sector, with an exception of the first essay. Using data for the Czech Republic and five euro area countries, the first essay shows that monetary tightening has a negative impact on the credit-to-GDP ratio and banks' capital-to-asset ratio, while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build- up of financial vulnerabilities, i.e. it boosts the credit cycle. The second essay assesses the transmission of higher additional capital requirements stemming from capital buffers and Pillar 2 add-ons on banks' capital ratio, capital surplus and implicit risk weights. The results...

The thesis sheds light on key policy issues emerging from the recent Global Financial Crisis. The first chapter studies whether expansionary monetary policy contributes to bank risk-taking, in the case of Asia. I rely on panel data analysis covering 432 banks in 9 Asian countries over the year 2000-2011. The ratio of risky assets to total assets serves as a risk-taking indicator. The results support the existence of the bank risk-taking channel, which is more pronounced for banks listed on the stock market. I also report new findings with respect to how banks take more risk following monetary expansion. Importantly, evidence of excessive leverage is not found. The second chapter constructs a model for analyzing bank risk-taking. I embed firm heterogeneity, endogenous default risk and capital adequacy regulation into both RBC and NK DSGE models. A subset of the firms can partially default on their loans obligation but subject to non-pecuniary default penalty. With those financial frictions in place, I find that standard macroeconomic shocks can induce banks to engage in higher risk-taking. The chapter then explores the effectiveness of several macro-prudential tools in mitigating risk-taking. I find countercyclical capital buffers and risky to total asset ratio targeting to be effective. The third chapter emphasises the spillover effects of shocks originating in the housing and financial market on the real economy. I embed endogenous mortgage default into a New Keynesian model that features housing and the banking sector. The latter faces capital regulation. We study two key shocks, namely shocks to the variance of idiosyncratic housing shock and shocks to the penalty on capital regulation. Both are instrumental in causing a surge in mortgage default and loans risk premium, which constrains bank lending activity. The chapter later introduces three macroprudential measures to explore whether they improve economic stability and welfare.

This thesis consists of three chapters on macroeconomics and international economics. The first studies the effectiveness of macroprudential policies in a New Keynesian dynamic stochastic general equilibrium framework with financial frictions. Profit-maximizing banks with endogenous leverage ratio expand credit lending during economic booms and become increasingly vulnerable to unanticipated economic shocks. Countercyclical macroprudential instruments are found to be effective in dampening economic fluctuations and stabilizing the credit cycle. However, a policy regulating the loan-to-value ratio of the residential households causes a credit shift towards the business sector. Optimal simple rules are selected using welfare analysis to provide practical implications for the evaluation, estimation and future implementation of macroprudential policies in alleviating economic risk of financial intermediaries. The second chapter examines the impact of political risk on sovereign default. An economic model with endogenous default decisions shows that political instability increases the likelihood of sovereign default. A quantitative analysis using data from 68 countries in the period from 1970 to 2010 finds that both short and long-run aspects of the political environment have significant effects. The findings suggest that a country is more likely to experience default when i) it has a relatively younger political regime in place; ii) it faces a higher chance of political turnover; and iii) it has a less democratic political system. The third chapter investigates the bidirectional relationship between banking and sovereign debt crisis. An economic model with financial intermediaries and a government sector shows that sovereign default may cause a banking crisis as banks hold a large amount of government bonds. Nevertheless, a significant amount of bailouts or bank guarantees may constrain the short-term liquidity of the government sector and trigger a sovereign debt crisis. Empirical studies using the credit default swap spreads of the Eurozone support the two-way linkage. Quantitative results also show increasing spillover effects across borders as globalization leads to greater integration of financial markets.

We study the impact of macroprudential policies using a novel model which takes into account households´ ability to borrow under different loan-to-value ratios which are tied to their collateral values. Such model generates a larger amplification in real and financial variables, compared to standard models that assume homogeneity in the leveraging and deleveraging process. Conditional on this model, we consider the implications of macroprudential policies that aim to lean against an excessive credit cycle. In particular, we allow macroprudential authorities to tighten excessive lending to higher leveraged households, whose riskiness had been evaluated too optimistically. We find thata policy that targets only the group of households that most strongly deleveraged after an adverse idiosyncratic housing investment risk shock, is welfare-improving at social and individual levels, relative to a macroprudential policy which targets all households in the economy. / Series: Department of Economics Working Paper Series

Cette thèse contribue en quatre chapitres à l’analyse et la mesure du risque systémique. Le premier chapitre discute la notion de risque systémique et détaille les enjeux méthodologiques de sa modélisation. Le deuxième chapitre propose un modèle structurel de contagion en solvabilité. Ce modèle d’équilibre permet de mesurer le risque de contagion en distinguant l’effet direct d’un choc de sa propagation. Dans le troisième chapitre, nous fournissons un cadre de valorisation de la dette d’une institution intégrant l’effet des interconnexions entre institutions. Nous calculons une prime de risque spécifiquement liée aux interconnexions. Dans le quatrième chapitre, nous modélisons les effets conjoints de chocs à l’actif et au passif d’une institution financière. Nous adaptons les mesures usuelles de risque pour identifier les risques de marché, de financement et de liquidité de marché. Enfin, nous expliquons comment déterminer la composition et le niveau des réserves réglementaires pour limiter le risque de défaut. / This thesis contributes to the analysis and measure of systemic risk through four chapters. In the first chapter, we discuss the notion of systemic risk and detail the methodological issues of modeling. The second chapter proposes a structural model of solvency contagion. Within an equilibrium model, we measure the contagion by identifying the direct effect of an external shock and its propagation. In the third chapter, we provide a pricing framework for financial institution’s debt encompassing the effect of interconnections between institutions. We compute a risk premium specific to interconnections. In the last chapter, we model the joint effects of the shocks on the asset side and on the liability side of a financial institution. We adapt the usual risk measures to pinpoint the funding liquidity risk and the market liquidity risk. Lastly, we explain how to set the level and the composition of regulatory reserves to control for default risk.

The thesis deals with the interaction of monetary and macroprudential policy, or with the compatibility of the objectives of these policies in the Czech Republic. The main attention is given to the use of interest rate instruments for the purpose of achieving financial stability during the accumulation phase of cyclical dimension of systemic risk. For this purpose the crucial item is the relationship of financial and price stability in the economy. On the Czech economy data is therefore tested the relationship between credit activity and asset prices, to be subsequently quantified the relationship between the prices of selected assets and consumer prices. The model results open the door to greater use of industrial producer price index for the coordination of monetary and macroprudential policy. The thesis for the same reason also recommends continuing research into the development of the general price level during the financial cycle.

The master thesis deals with macroprudential policy and its application in the US. The thesis is mainly focused on the large reform of the financial market in the US known as Dodd-Frank Wall Street Reform and Consumer Protection Act. The main objective of the thesis is to analyse the impact of this act on the financial market in the US. The thesis is divided into four chapters, which are logically connected. The first chapter describes the institutional structure of the regulation and supervision over the financial market in the US, with the emphasis on the organisational structure of FED. The second chapter deals with macroprudential policy from the theoretical point of view with the focus on the tools of the policy and its interaction with other policies. It also covers the incentives which lead into putting this policy into practice. The third chapter focuses on the causes of the financial crisis and particularly on the response to the crisis in the form of Dodd-Frank Act. The final chapter analyses the impact of particular measures contained in Dodd-Frank Act on the US financial market. Analysing this the thesis concludes whether these measure were successful from the perspective of objectives that Dodd-Frank Act wanted to meet.