Theses and Dissertations from UMD
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New submissions to the thesis/dissertation collections are added automatically as they are received from the Graduate School. Currently, the Graduate School deposits all theses and dissertations from a given semester after the official graduation date. This means that there may be up to a 4 month delay in the appearance of a give thesis/dissertation in DRUM
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Item Ex-ante Asymmetric Information in Credit Markets and Macroeconomic Fluctuations(2013) Ture, Hatice Elif; Aruoba, Boragan; Korinek, Anton; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation analyzes macroeconomic effects of ex-ante information acquisition problems between lenders and borrowers in credit markets. It examines the ways in which the costs associated with the screening of privately informed heterogeneous borrowers affect contractual arrangements, efficient allocation of credit and macroeconomic fluctuations. In the first chapter, screening can be achieved by collateral requirements and credit limits. We analyze how changes in collateral availability affect aggregate investment and output dynamics through the misallocation of credit across heterogeneous investors. Groups of investors with different observable quality finance investment projects through bank loans, pledging part of their projects. Borrower risk is private information within a group, which requires financial contracts that may pool or separate borrowers with common quality. Pooling contracts offer efficient loan amounts but entail cross subsidization of high-risk borrowers, while separating contracts offer efficient loan rates but entail credit rationing of low-risk borrowers. A financial shock that reduces the collateral capacity of investors may switch the financial contracts designed for low-quality investors from pooling to separating, which increases credit rationing and reallocates credit in favor of high-quality investors. This flight to quality in bank lending reduces aggregate investment efficiency and real economic activity. In the second chapter, screening can be achieved by incurring resource costs. We build a dynamic model featuring costly screening of borrowers to examine how aggregate shocks are amplified and propagated through net-worth effects compared to a standard model of ex-post monitoring costs. Costly screening is a way to economize on agency costs induced by cross subsidization, but is an agency cost itself, making investment dependent on borrower net-worth. Thus, costly screening can be an alternative to widely assumed monitoring costs in generating net-worth effects that enhance the propagation of aggregate shocks. One advantage of the screening framework is that it yields wealth effects that induce persistent dynamics especially in bad times when screening is more likely, which may create deeper and longer recessions than booms. Moreover, by yielding efficient risk pricing and quantity rationing endogenously, the screening framework constitutes an empirically plausible alternative to monitoring costs to motivate the agency costs in unsecured lending.Item Essays on Financial Crises and Financial Regulation(2011) Bianchi Caporale, Javier Ignacio; Mendoza, Enrique G; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation studies the optimal regulatory response to financial crises. The first two chapters focus on prevention of financial crises, and the third chapter focuses on resolution of financial crises. Chapter 1 develops a quantitative theory of overborrowing based on a systemic risk externality in an emerging market economy. In the model, debt denominated in foreign currency and balance sheet constraints cause depreciations of the real exchange rate to be contractionary. The externality arises because when private agents take debt in good times, they do not internalize that during bad times, the reduction in demand for consumption causes a higher depreciation of the real exchange rate and a further tightening of balance sheet constraints across the economy. The quantitative analysis suggests that there is an important role for policies that ``throw sand in the wheels of international finance." Chapter 2 analyzes an externality that arises because of a feedback loop between asset prices and collateral constraints in a dynamic stochastic general equilibrium model calibrated to US data. In the model, a collateral constraint limits private agents not to borrow more than a fraction of the market value of their collateral assets, which take the form of an asset in fixed aggregate supply (e.g. land). When the collateral constraint binds, fire-sales of assets cause a Fisherian debt-deflation spiral that causes asset prices to decline and the economy's borrowing ability to shrink in an endogenous feedback loop. The externality produces deeper recessions and a larger collapse in asset prices compared to the constrained efficient allocations. Chapter 3 studies the macroeconomic and welfare effects of government intervention in credit markets during financial crises. A DSGE model to assess the interaction between ex-post interventions in credit markets and the build-up of risk ex ante is developed. During a systemic crisis, the central bank finds it beneficial to bail out the financial sector to relax balance sheet constraints across the economy. Ex ante, this leads to an increase in risk-taking, making the economy more vulnerable to a financial crisis. We ask whether the central bank should commit to avoiding a bailout of the financial sector during a systemic crisis. We find that bailouts can improve welfare by providing insurance against systemic financial crises.