Dissertations, Theses, and Capstone Projects

Date of Degree

9-2024

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Lilia Maliar

Committee Members

Sangeeta Pratap

Sebastiano Manzan

Subject Categories

Finance | Macroeconomics

Keywords

Macroeconomics, Finance, Banking

Abstract

This dissertation consists of three chapters.

Chapter 1 - The Heterogeneous Effects of Interest Rate Liftoff in an Estimated New Keynesian Model In recent years, the question of how central banks should proceed with lifting interest rates from the zero lower bound has moved into focus. I study how alternative plans for interest rate liftoff affect households across the income and wealth distribution in an estimated New Keynesian model with fixed heterogeneity and aggregate shocks. I solve the model globally and develop a new methodology for estimating globally solved, non-linear models. In the estimated model, I find that all agents except the highest-income, highest-wealth agent prefer a path of uniformly sized rate increase over a path that reaches the target policy rate at the same date but begins with aggressive rate hikes followed by smaller rate increases.

Chapter 2 - An Investigation of the Balance Sheet Cosmetics Hypothesis: Evidence from Chapter 11 Bankruptcy Filings The “balance sheet cosmetics” hypothesis states that the incentive for a bank to continue lending to a distressed firm increases as the bank’s regulatory capital declines. To test this hypothesis, I construct a novel firm-level data set using Chapter 11 bankruptcy filings from 2017 to 2019. I find a negative relationship between revenue growth at a firm and the regulatory capital of the firm’s largest bank creditor in the left tail of the revenue growth distribution. The under-representation of low performing firms who borrow from banks with low regulatory capital suggests that reported regulatory capital may overstate the true capital position of weakly capitalized banks.

Chapter 3: Monetary Policy Transmission with Endogenous Central Bank Responses in TANK (with Lilia Maliar) We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank’s response and decreases with the horizon of the innovation.

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