Essays on financial markets and the macroeconomy
Essays on financial markets and the macroeconomy
This thesis investigates how disturbances on the demand side of credit markets affect economic fluctuations. In a first survey chapter, I analyse the importance of financial and non-financial shocks for economic fluctuations in macroeconomic models with financial frictions. With respect to existing similar surveys that analyse macro-financial linkages, my focus is to highlight the importance of exogenous shocks that originate on the demand side of finance for business cycle fluctuations, and show that the channels through which these shocks propagate to the economy are different from the financial accelerator mechanism which variants are at play in most macro-financial frameworks. Then, in a second chapter, I evaluate the relative effects of credit demand and supply shocks on economic fluctuations using UK data.
To tackle the identification problem, I use the unique Bank of England’s credit conditions survey data to construct loan supply and demand variables, which I then combine with macroeconomic variables to account for the linkages between the credit and the business cycles in a VAR setting where credit supply and demand shocks are identified using a combination of zero and sign restrictions, and estimate the model using Bayesian methods. I find that not only are credit demand shocks important for economic fluctuations, but also that they are as important as credit supply shocks for the UK economy, and this finding is robust across various alternative specifications. I also find that the UK economy, when subject to credit supply and demand shocks in a heterogeneous loan-types setting that includes business, mortgage and consumer loans, is significantly driven by the mortgage loans market. Finally, in a third chapter, to provide a structural interpretation for the main empirical finding and shed light on the transmission mechanisms of credit demand shocks to the real economy, I build a financial frictions DSGE model which simulations suggest that credit demand shocks propagate to the economy through both a Fisher deflation and a collateral channel. In addition, the model predicts that when borrowing constraints are allowed to bind occasionally, the effects of credit demand shocks are more persistent and amplified through the combined effects of the Fisher deflation and collateral channels on the economy.
University of Southampton
Kima, Richard
478fa0be-a48c-4ec1-9649-803ad3f4b378
2020
Kima, Richard
478fa0be-a48c-4ec1-9649-803ad3f4b378
Hatcher, Michael
e0846252-6d46-44f8-ba3c-05cf1fba64ab
Kima, Richard
(2020)
Essays on financial markets and the macroeconomy.
University of Southampton, Doctoral Thesis, 122pp.
Record type:
Thesis
(Doctoral)
Abstract
This thesis investigates how disturbances on the demand side of credit markets affect economic fluctuations. In a first survey chapter, I analyse the importance of financial and non-financial shocks for economic fluctuations in macroeconomic models with financial frictions. With respect to existing similar surveys that analyse macro-financial linkages, my focus is to highlight the importance of exogenous shocks that originate on the demand side of finance for business cycle fluctuations, and show that the channels through which these shocks propagate to the economy are different from the financial accelerator mechanism which variants are at play in most macro-financial frameworks. Then, in a second chapter, I evaluate the relative effects of credit demand and supply shocks on economic fluctuations using UK data.
To tackle the identification problem, I use the unique Bank of England’s credit conditions survey data to construct loan supply and demand variables, which I then combine with macroeconomic variables to account for the linkages between the credit and the business cycles in a VAR setting where credit supply and demand shocks are identified using a combination of zero and sign restrictions, and estimate the model using Bayesian methods. I find that not only are credit demand shocks important for economic fluctuations, but also that they are as important as credit supply shocks for the UK economy, and this finding is robust across various alternative specifications. I also find that the UK economy, when subject to credit supply and demand shocks in a heterogeneous loan-types setting that includes business, mortgage and consumer loans, is significantly driven by the mortgage loans market. Finally, in a third chapter, to provide a structural interpretation for the main empirical finding and shed light on the transmission mechanisms of credit demand shocks to the real economy, I build a financial frictions DSGE model which simulations suggest that credit demand shocks propagate to the economy through both a Fisher deflation and a collateral channel. In addition, the model predicts that when borrowing constraints are allowed to bind occasionally, the effects of credit demand shocks are more persistent and amplified through the combined effects of the Fisher deflation and collateral channels on the economy.
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Published date: 2020
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Local EPrints ID: 451370
URI: http://eprints.soton.ac.uk/id/eprint/451370
PURE UUID: d3fb434c-ae23-4bd4-81d8-12fc459d080a
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Date deposited: 22 Sep 2021 16:32
Last modified: 17 Mar 2024 03:35
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Richard Kima
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