Essays on macroeconomics and financial intermediation [electronic resource]

This dissertation analyzes the role of financial intermediation and its implications for the macroeconomy. The first chapter entitled "Business Cycles and the Balance Sheets of the Financial and Non-Financial Sectors" studies the different roles of the condition of banks' and firms' balance sheets in real activity. I propose a dynamic model of financial intermediation in which the net worth of firms determines their borrowing capacity both from households and banks. Banks provide risky loans to multiple firms and use their diversified portfolio as collateral to borrow from households. This intermediation process allows additional funds to flow from households to firms. Banks require net worth for intermediation as they are exposed to aggregate risks. The net worth of banks and firms are both state variables. In normal times, the net worth of banks and firms play the same role, and their sum determines the allocation of capital. During financial crises, shocks to the net worth of banks have an additional effect beyond that in standard financial frictions' models. This mechanism works through intermediation, affecting collateral, investment, and output, even if shocks redistribute net worth from banks to firms. I estimate my model and find that the new mechanism accounts for 40% of the fall in output and 80% of the fall in banks' net worth during the Great Recession. Finally, the model is consistent with the different dynamics of the share of bank loans in total firm debt and credit spreads during the recessions of 1990, 2001, and 2008. The second chapter, "Macroprudential Policy with Liquidity Panics", is co-authored with Daniel Garcia-Macia. It analyzes the optimality of macroprudential policies in an environment where the role of the banking sector is to efficiently allocate liquid assets across firms. Informational frictions in the banking sector can lead to an interbank market freeze. Firms react to the breakdown of the banking system by inefficiently accumulating liquid assets by themselves. This reduces the demand for bank loans and bank profits, which further disrupts the financial sector and increases the probability of a freeze, inducing firms to hoard even more liquid assets. Liquidity panics provide a new rationale for stricter liquidity requirements, as this policy alleviates the informational frictions in the banking sector and paradoxically can end up increasing aggregate investment. On the contrary, policies encouraging bank lending can have the opposite effect. The final chapter, "Capital Structure, Debt Structure and Firm Dynamics", develops a dynamic agency model of financial contracting, where the borrower has two sources of financing: outside investors and banks. Endogenous borrowing constraints arise as part of the optimal long-term contract. Borrowing constraints appear because the entrepreneur faces limited liability and some source of moral hazard. Banks have the ability to monitor firms and alleviate financial frictions. However, banks cannot commit to monitor and are also subject to an enforcement problem. The optimal long-term contract implies a relation between the capital and debt structure and firm dynamics. I analyze the composition of debt during the life cycle of the firm, and its relation to firm size, age, and probability of survival. The model implies a non-monotonic relation between bank credit and firm's size. Small and young firms tend to rely on bank credit. The relation with the bank increases as the firm grows, but up to a point where the firm decides to leave the bank and rely only on direct credit. I also find that the presence of the bank increases survival probability, reduces borrowing constraints and increases firm's value for all levels of equity, even for firms that do not have bank credit in their capital structure.

Keywords: Economics.
Advisor: Piazzesi Monika primary advisor. Thesis advisor
Schneider Martin (Professor of economics) primary advisor.
Tonetti Christopher advisor. Thesis advisor