Perez, Ander
(2008) Essays in Macroeconomics and
Corporate Finance. PhD Thesis, LSE-UK.
This thesis consists of three essays at the
intersection of macroeconomics and corporate finance. The broad theme that
links the three chapters is the study of how endogenous borrowing constraints
that affect firms and financial intermediaries influence aggregate investment.
In Chapter I, the existing theoretical framework studying how financial
constraints in firms may make economies more sensitive to shocks (the
'financial accelerator') is extended to take account of firms' precautionary
investment behavior when they anticipate future liquidity constraints. This behavior
is at the source of a powerful amplification mechanism of shocks, and is also
able to account for the documented dynamics of the composition of investment
across the business cycle: in particular how risky, illiquid investment as a
share of total investment fluctuates both at the firm and at the aggregate
level. Chapter II studies how the public supply of liquidity affects the
private creation of liquidity by firms (inside liquidity), and how this
interacts with firms' demand for liquidity to influence investment and capital
accumulation. The conditions under which government debt may boost or reduce
private investment are shown to depend on three channels: (1) a crowding-in
effect, by enhancing aggregate liquidity, (2) a crowding-out effect, by
reducing the collateral value of entrepreneurial assets and (3) a
redistributive effect. The model also shows how a production economy with
endogenous liquidity can help resolve some important asset pricing puzzles.
Finally, the business cycle properties of the model are studied. Chapter III
shows how recent developments in financial markets may have made economies less
vulnerable to banking crises as they widen access to liquidity, but by relaxing
financial constraints facing financial intermediaries, they imply that, should
a crisis occur, its impact could be more severe than previously. These effects
may be reinforced by greater macroeconomic stability. Finally, financial
intermediaries are shown to under-insure and over-borrow from a
constrained-efficient viewpoint.
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