Essays on financial frictions and macroeconomic policy

HB Economic Theory;HG Finance

Shafiei, Maryam Deh Abad ; Kirsanova, Tatiana

University:University of Glasgow

Department:Adam Smith Business School

关键词: HB Economic Theory;    HG Finance;   

Others  :  http://theses.gla.ac.uk/8783/1/2017shafieiphd.pdf

来源: University of Glasgow

【 摘 要 】

This thesis contains of four chapters. The first chapter presents the introduction and all other three chapters look at different aspects of monetary policy in an economy with financial frictions. The second chapter studies the conditions under which a modest financial shock can trigger a deep recession with a prolonged period of slow recovery. We suggest that two factors can generate such a profile. The first is that the economy has accumulated a moderately high level of private debt by the time the adverse shock occurs. The second factor is when monetary policy is restricted by the zero lower bound. When present, these factors can result in a sharp contraction in output followed by a slow recovery. Perhaps surprisingly, we use a standard DSGE model with financial frictions along the lines of Jermann and Quadrini (2012) to demonstrate this result and so do not need to rely on dysfunctional interbank markets. The third chapter studies international transmission of financial shocks between two economies under flexible exchange rate regime. We consider different degrees of financial integration and demonstrate that welfare is maximised for an intermediate value of degree of it. Under perfect risk sharing there is large volatility of output during the period of adjustment, while the deleveraging is performed faster. With greater restrictions on international financial flows, the deleveraging is substantially slowed down which leads to longer periods of adjustment and greater costs. We demonstrate that in such world the effect of one country's credit shock has very limited effect on another country. When monetary policymakers cooperate and choose interest rate optimally, the unaffected country can nearly eliminate all aftereffects of the shock to the other country. To some extent, limited financial integration prevents the spread of volatility across the border, however, unconstrained monetary policy is the key to these results. In the fourth chapter we use two-country model and assume that both countries are locked into a permanently fixed exchange rate regime within a currency union. We demonstrate that the centralised monetary policy alone is unable to stabilise the economy. National fiscal policies must be activated to counteract asymmetric shocks. We demonstrate, however, that the effectiveness of fiscal policy is limited. Even if it is chosen optimally, fiscal policy does not eliminate cyclical patterns in economic adjustment, which is welfare-reducing volatility of economic variables. This model reveals that shocks hitting one economy, result in sharp contraction of consumption in both countries.