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Essays on Macroeconomics with Financial Frictions
Audzei, Volha ; Slobodyan, Sergey (advisor) ; Wouters, Rafael (referee) ; Benigno, Pierpaolo (referee)
This dissertation analyzes how relaxing the assumption of rational expectations modifies the output of macroeconomic models. In particularly we show how imperfect information among the financial agents modifies their risk-taking decisions, the effect of monetary policy on banks' lending or equilibrium selection. In the first paper we incorporate a model of the interbank market into a standard DSGE model, with the interbank market rate and the volume of lending depending on market confidence and the perception of counterparty risk. As a result, a credit crunch occurs if the perception of counterparty risk increases. Changes in market confidence then can generate credit crunches and contribute to the depth of recessions. We conduct an exercise to mimic some central bank policies: targeted and untargeted liquidity provision, and reduction of the reserve rate. Our results indicate that policy actions have a limited effect on the supply of credit if they fail to influence agents' expectations. A policy of a low reserve rate worsens recessions due to its negative impact on banks' revenues. Liquidity provision stimulates credit slightly, but its efficiency is undermined by liquidity hoarding. The second paper is devoted to a problem of excessive risk-taking by financial agents. Recent central banks' policies...
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Monetary Policy, Inflation and Dollarization in the Economies of Central Asia
Isakova, Asel ; Kočenda, Evžen (advisor) ; Čihák, Martin (referee) ; Wouters, Rafael (referee)
The present dissertation consists of three studies on the issues of inflation, monetary policy effects and dollarization in three economies in Central Asia-Kazakhstan, the Kyrgyz Republic and Tajikistan. These economies have undergone a deep transformation from central planning to market economies. The profound economic transformation which took place after these countries became independent, combined with liberalization of prices and trade, resulted in hyperinflation, general economic instability, and large fiscal and external imbalances. Central banks in the region had managed to combine the policies and tools to take control of inflation in the late 1990s. This was the period when positive economic growth was observed in the region. A negative shock for these countries was caused by the Russian crisis in 1998, though the consequences of this financial turmoil were softened by the measures of the regional central banks concerning the flexibility of the exchange rates. Since 2000, these economies have been characterized by single-digit inflation rates, except Tajikistan, and high positive economic growth. The monetary policy framework has evolved over the transition period. Macroeconomic stabilization has brought important developments in the financial systems of the countries while at the same time a need...
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