Download or read book Essays on Consumption Smoothing and Risk Sharing written by Yingchun Liu and published by . This book was released on 2002 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Financial Development Consumption Risk Sharing and New Keynesian Price Setting Model written by Wai-Yip Alex Ho and published by . This book was released on 2011 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The first chapter investigates the effects of inflation, accessibility and depth of credit markets on wealth distribution. We find that from 1995 to 2002 in China, the inequality of wealth distribution decreased, the money-wealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio-adjustment cost and a borrowing constraint. The accessibility and depth are measured by the portfolio-adjustment cost and the borrowing constraint, respectively. Model calibration based on the Chinese data shows that the portfolio-adjustment cost was reduced and the borrowing constraint was relaxed from 1995 to 2002. We find that financial development lowers the inequality of wealth distribution by reducing the precautionary motive of households. In addition, tight monetary policy increases the value of money and, in turn, raises the money-wealth ratio for all wealth levels and the aggregate money-output ratio. The second chapter examines inter-provincial consumption risk sharing and intertemporal consumption smoothing across Chinese provinces before and after the 1979 economic reform. Our results indicate that the degree of consumption risk sharing among Chinese provinces is lower than that within the U.S. and across the national boundaries of OECD countries. On the other hand, the level of consumption smoothing among Chinese provinces is higher than that across OECD or EU countries, but lower than that in the U.S. Moreover, our results show that consumption risk sharing and smoothing in China have deteriorated since the 1979 economic reform. Finally, we show that eliminating consumption fluctuations yields substantial welfare gains, which suggests that stabilization policies are desirable for China. The third chapter compares continuous and discrete time sticky price models. For given menu costs, continuous time models imply shorter average contracts but larger real effects of inflation.

Download or read book Essays on Consumption Smoothing written by Ka Fai Li and published by . This book was released on 2011 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Smoothing Consumption Across Households and Time written by Cynthia Georgia Kinnan and published by . This book was released on 2010 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis studies two strategies that households may use to keep their consumption smooth in the face of fluctuations in income and expenses: credit (borrowing and savings) and insurance (state contingent transfers between households). The first chapter asks why insurance among households in rural Thai villages is incomplete. The second chapter analyzes the impacts of micro-credit. The third chapter examines the interaction between interpersonal insurance and access to savings. The first chapter is motivated by the observation that interpersonal insurance within villages is an important source of insurance, yet consumption, while much smoother than income, is not completely smooth. That is, insurance is incomplete. This chapter attempts to identify the cause of this incompleteness. Existing research has suggested three possibilities: limited commitment-the inability of households to commit to remain within an insurance agreement; moral hazard-the need to give households incentives to work hard; and hidden income-the inability of households to verify one another's incomes. I show that the way in which "history" matters can be used to distinguish insurance constrained by hidden income from insurance constrained by limited commitment or moral hazard. This history dependence can be tested with a simple empirical procedure: predicting current marginal utility of consumption with the first lag of marginal utility and the first lag of income, and testing the significance of the lagged income term. This test is implemented using panel data from households in rural Thailand. The results are consistent with insurance constrained by hidden income, rather than limited commitment or moral hazard. I test the robustness of this result to measurement error using instrumental variables and by testing over-identifying restrictions on the reduced form equation for consumption. I test robustness to the specification of the utility function by nonparametric ally estimating marginal utility. The results suggest that constraints arising from private information about household income should be taken into account when designing safety net and other policies. My second chapter (co-authored with Abhijit Banerjee, Esther Duflo and Rachel Glennerster) uses a randomized trial to analyze the impacts of micro credit in urban South India. We find that more new businesses are created in areas where a micro credit branch opens. Existing business owners increase their spending on durable goods but not non-durable consumption. Among households that did not have a business before the program began, those with high estimated propensity to start a business reduce non-durable consumption and increase spending on durables in treated areas. Those with low estimated propensity to start a business increase non-durable consumption and spend no more on durables. This suggests that some households use micro credit to pay part of the fixed cost of starting a business, some expand an existing business, and others pay off more expensive debt or borrow against future income. We find no effects on health, education, or women's empowerment. My third dissertation chapter (co-authored with Arun Chandrasekhar and Horacio Larreguy) is motivated by the observation that the ability of community members to insure one another may be significantly reduced when community members also have the ability to privately save some of their income. We conducted a laboratory experiment in rural South India to examine the impact of savings access on informal insurance. We find that transfers between players are reduced when savings is available, but that, on average, players smooth their consumption more with savings than without. We use social network data to compute social distance between pairs, and show that limited commitment constraints significantly limit insurance when risk-sharing partners are socially distant, but not when pairs are closely connected. For distant pairs, access to savings helps to smooth income risk that is not insured interpersonally.

Download or read book Two Essays on Consumption Smoothing and Saving written by Francisco Torralba and published by . This book was released on 2010 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is comprised of two essays on the importance of two consumption smoothing mechanisms.

Download or read book Essays on Corporate Finance and Interstate Risk Sharing written by Liu Hong and published by . This book was released on 2019 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation consists of two topics: the relation between derivatives and corporate finance, and the relation between bank deregulation and interstate risk sharing. In the first essay, I study the use of commodity derivatives among U.S. oil and gas producers. Using hand-collected data, I find large variations in hedging intensity and hedging profits. On average, firms generate significantly positive profits, and their profits relate positively to the intensity of hedging. I further decompose the hedge ratio into two components: the pure hedging component and the market timing component. I find that the hedging profits relate strongly and positively to the market timing component. I also identify a group of firms that can consistently generate profits from their hedging activities. Among firms who actively change their hedging positions, the winners tend to be the larger firms. The hedging outcome does not increase equity beta while the pure hedging component tends to decrease equity beta. The positive profits are exclusive for the commodity derivative transactions of the oil and gas producers, while they do not profit from their interest rate or foreign exchange derivative transactions. In the second essay, I look at the relation between the trading of CDS contracts and corporate’s risk-taking behavior. Because the CDS hinders successful debt renegotiation with creditors and weakens shareholders’ put option to strategically default, equity values of CDS firms are more sensitive to cash flow risk. As a result, I show that the onset of CDS trading is accompanied by a rise in equity market beta and return volatility, particularly for firms with poor credit ratings, high liquidation costs, and a more liquid CDS market. In the years after CDS trading is initiated, I find that firms reduce corporate risk-taking by expanding diversification across industries, scaling back risky investment, and reducing demand for leverage. The final essay studies the impact of two types of banking deregulation, interstate banking deregulation, and interstate branching deregulation, on interstate risk sharing. We consider both the initial permission of interstate banking and interstate branching, and the follow-up changes in state-level restrictions. From the residential perspective, interstate risk sharing has two components: personal income smoothing and personal consumption smoothing. Our results provide evidence that interstate banking deregulation plays an important role in improving personal income smoothing, while it slightly hinders personal consumption smoothing. On the contrary, interstate branching deregulation does not have a significant impact on personal income smoothing, but does improve personal consumption smoothing.

Download or read book Consumption Smoothing Across Space written by Jonathan Morduch and published by . This book was released on 2002 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Risk Sharing Consumption and Saving written by Seewon Kim and published by . This book was released on 1999 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt: The middle class has been possibly most affected by the social security. The comparison of the saving behaviors of the working classes in the turn of the century and in the recent years, however, does not support the hypothesis.

Download or read book A Heterogeneous Household Model of Consumption Smoothing with Imperfect Capital Markets and Income Risk sharing written by Malena Svarch and published by . This book was released on 2011 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: The proposed statistical test is applied to Townsend Thai Data. The results show evidence that households surveyed either do engage in risk-sharing arrangements and face high costs of accessing capital markets or do not engage in risk-sharing arrangements and face high costs of accessing capital markets.

Download or read book Three Essays on Imbalances in a Monetary Union written by Ida Maria Hjortsø and published by . This book was released on 2012 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the implications of imbalances within a monetary union. In the first chapter, I study how international financial frictions lead to international imbalances and affect optimal fiscal policy in a two-country, two-good DSGE model of a monetary union. I show that the presence of international imbalances affects the optimal conduct of cooperative fiscal policies when the traded goods are complements. Government expenditures optimally play a cross-country risk sharing role which is in conflict with the domestic stabilization role: optimal fiscal policy consists in setting government expenditures such as to reduce international imbalances at the expense of higher domestic inefficiencies. In the second chapter, I assess the implications of strategic fiscal policy interactions in a two-country DSGE model of a monetary union with nominal rigidities and international financial frictions. I show that the fiscal policy makers face an incentive to set fiscal policy such as to switch the terms of trade in their favour. This incentive results in a Nash equilibrium characterized by excessive inflation differentials as well as sub-optimally high current account imbalances within the monetary union. There are thus non-negligeable welfare losses associated with strategic fiscal policy making in a monetary union. The third chapter investigates empirically the degree of risk sharing in the European Economic and Monetary Union (EMU), using two different methods. The first measure relates to the capacity of consumption smoothing. This measure indicates that risk sharing is rather low and that the introduction of the common currency did not lead to higher intra-EMU risk sharing. The second measure is based on the welfare losses associated with deviations from full risk sharing. These welfare losses have fallen since the introduction of the common currency. However, this is mostly due to changes in macroeconomic risk - not to changes in risk sharing per se.

Download or read book Essays on Consumption Risk sharing in Emerging Economies written by Samreen Malik and published by . This book was released on 2012 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contributes to the growing literature of international finance on capital market integration and consumption risk sharing in emerging economies. I identify threshold effects in terms of financial market integration to demarcate regimes with varying extent of international risk sharing in emerging economies. In Chapter 2, I study a model of a small open economy to see how default decisions affect incentives for international consumption risk-sharing based on varying levels of debt to capital ratio in emerging economies while in Chapter 3, I employ a novel endogenous threshold identification method developed by Hansen (1999) for balanced panels, to empirically identify threshold effects of capital market integration on consumption risk-sharing in emerging economies. Finally in Chapter 4, I study the determinants of the capital market integration via level and composition of foreign assets held by emerging economies, exploiting temporal and cross-sectional variation in a panel data set of 37 emerging economies from 1970 - 2007.

Download or read book Essays in Cross country Consumption Risk Sharing written by Zhaogang Qiao and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Macroeconomics written by Anna Rogantini Picco and published by . This book was released on 2020 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three chapters of this thesis are inspired by some aspects of the complex world where we live in. The first chapter uncovers the role of firms' hiring decisions as a key source of state dependence in the fiscal spending multiplier. When the hiring rate is high, a larger share of workers has to be relocated from production to recruitment and training of the new hires. This diversion of resources lowers firms' productivity and reduces the effect of government spending stimulus on output. I establish this result using local projections and I illustrate this mechanism building a non-linear dynamic general equilibrium model. The second chapter, joint with Joonseok Oh, shows how uninsurable unemployment risk is crucial to qualitatively and quantitatively match macro responses to uncertainty shocks. Empirically, uncertainty shocks i) generate de ationary pressure; ii) have considerably negative consequences on economic activity; iii) produce a drop in aggregate consumption, which is mainly driven by the response of the households in the bottom 60% of the income distribution. Standard representative-agent New Keynesian models have diffculty to deliver these effects. A heterogeneous-agent framework with search and matching frictions and Calvo pricing allows us to jointly attain these results. Uncertainty shocks induce households' precautionary saving and firms' precautionary pricing behaviors, triggering a fall in aggregate demand and supply. These precautionary behaviors increase the unemployment risk of the imperfectly insured households, who strengthen precautionary saving. When the feedback loop between unemployment risk and precautionary saving is strong enough, a rise in uncertainty leads to i) a drop in in ation; ii) amplified negative responses of macro variables; iii) heterogeneous consumption responses of households, which are consistent with the empirical evidence. The third chapter, joint with Alessandro Ferrari, empirically evaluates whether adopting a common currency has changed the ability of euro area member states to share risk. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali, Sorensen and Yosha (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro has reduced consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.

Download or read book Preferences Consumption Smoothing and Risk Premia written by Martin Lettau and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Home Bias and Capital Income Flows Between Countries and Regions written by Michael J. Artis and published by . This book was released on 2011 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents a marked increase in international consumption risk sharing throughout the recent globalization period. Unlike earlier studies that have found it difficult to document a consistent effect of financial globalization on international consumption comovements, we make use of the information implicit in the relative levels of consumption and output to measure long-run risk sharing among OECD countries and US federal states.We derive our empirical setup from a deliberately simplistic model in which countries can trade perpetual claims to each other's output (Shiller securities). Our framework allows us to distinguish between two channels of risk sharing: ex ante diversification that leads to income smoothing through capital income flows and ex-post consumption smoothing through savings and dissavings. The model successfully replicates the patterns of income and consumption smoothing observed in both U.S. state-level and international data. The increase in international consumption risk sharing is closely associated with the decline in international portfolio home bias. While capital income flows remain relatively limited as a channel of risk sharing at business cycle frequencies, we find that better international portfolio diversification has led to a considerable increase in capital income flows at medium and long horizons.

Download or read book Essays in Financial Economics written by Jinji Hao and published by . This book was released on 2017 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter of my dissertation, I provide a novel framework -- the cumulant generating function (cgf) of the market risk on the positive half real line -- for studying the market risk which can be replicated by cross sections of index option prices in a model-free manner. Within this unifying framework, independent of the underlying price process, the VIX index measures the height of the cgf at one while the SVIX index proposed by Martin (2016) measures the convexity of the cgf over the interval [0, 2]. A tail index of the market risk, TIX, is proposed based on this framework which measures the tail decay rate of the distribution of market risk revealing the market perceptions of extreme risk. The change in TIX strongly predicts market returns both in and out of sample, with monthly R2 statistics of 3.33% and 6.15%, respectively, outperforming the popular return predictors in the literature.In the second chapter of my dissertation, I study a shadow banking system featuring collateral constraints to investigate the joint determination of haircut and interest rate, as well as its interaction with collateral asset pricing. The banks with limited commitment serve the households' need for consumption smoothing by taking deposits with a risky asset used as collateral and pursue the maximal leverage returns. In a collateral equilibrium as in Geanakoplos (1997, 2003), agents' marginal rates of substitution are equalized only in non-default states, only the deposit contract with the highest liquidity value per unit of collateral is traded, and the risky asset price is boosted such that banks earn zero profit. Relative to the traditional banking with full commitment, banks are better off if they are endowed with the collateral asset while households are strictly worse off. I also find (i) higher households' risky asset endowment leads to a higher asset price because a stronger saving motive creates a scarcity of collateral, while higher banks' collateral endowment has the opposite effects; (ii) for the quality of collateral, the higher asset price resulting from an upside improvement simply leads to a higher haircut with the interest rate unchanged since lenders do not care about upside risk; on the contrary, for lenders with a high risk aversion, a downside improvement of quality decreases the asset price because it alleviates the tension of imperfect risk sharing and, therefore, reduces the collateral value, but everything goes in opposite directions for a low risk aversion; (iii) collateral use exhibits a diminishing return to scale in the amount of borrowing supported.In the third chapter of my dissertation, I study specifically the implications of disaster concerns about financial intermediaries for stock market returns. Manela and Moreira (2017) develop a text-base measure of disaster concerns using phrase counts of front-page articles of the Wall Street Journal. While they do not find evidence for return predictability at the monthly horizon and, in particular, at any horizon for the financial intermediation category of this measure, I document that an increase in the news coverage of intermediation is followed by lower stock market returns next month in the sample since the World War II. The effect is economically large with a one-standard-deviation increase in the coverage associated with an 44 basis point decrease in next month's stock market excess return.

Download or read book Essays on International Consumption Risk Sharing in the Presence of Incomplete Markets and Heterogeneous Preferences written by Geun Mee Ahn and published by . This book was released on 2003 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: