Essays in Macroeconomic Models with Financial Frictions
Ciarliero, Frank A.
In Chapter 1, I exploit the identification power in a series of bank marketable securities to estimate a DSGE model with a novel investment and debt trade-off. The model is rich enough to distinguish bank induced recessions from traditional real sector recesssions. The timing of movement in marketable securities is crucial, as a channel where banks are able to divert funds when they withdraw lending liquidity or when demand for loans is weak. In Chapter 2, I improve the aggregative properties of lumpy investment models with heterogenous firms. The addition of a maintenance dimension to extensive margin investment allows firms to extend the life of their capital, resulting in a better match with the observed vintage distribution at the plant-level. Secondly, I introduce a revolving debt channel that allows firms to delay payment for investment expenditures. Short-term denials of credit or existing large debt burdens act to slow the pace of replacement, creating an improved match to the aggregate data. In Chapter 3, I estimate a policy function for Federal Reserve monetary policy in the zero lower bound period. I find that the Fed was constrained by the zero lower bound but also that they were able to continue implementing their monetary policy goals throughout. This occurs executing a change in the monetary instrument, implicitly targeting money velocity aggregates while still being guided by their objectives in normal times. As a body of work, the dissertation demonstrates various channels where financial frictions impact on agents' decisions in the economy. The specific impacts are dependent on various factors including whether debt is secured or unsecured, the volatility of exogenous series, and the nature of equity frictions.