Financial frictions, informality and income inequality

We studied the effects of changes in banking spreads on distributions of income, wealth and consumption as well as the welfare of the economy. This analysis was based on a model of heterogeneous agents with incomplete markets and occupational choice, in which the informality of firms and workers is a relevant transmission channel. The main finding is that reductions in spreads for firms increase the proportion of entrepreneurs and formal workers in the economy, thereby decreasing the size of the informal sector. The effects on inequality, however, are ambiguous and depend on wage dynamics and government transfers. Reductions in spreads for individuals lead to a reduction in inequality indicators at the expense of consumption and aggregate welfare. By calibrating the model to Brazil for the 2003-2012 period, it is possible to find results in line with the recent drop in informality and the wage gap between formal and informal workers

On Labor Complementarity, Cultural Frictions and Strategic Immigration Policies

In this paper we consider a model with two industrialized countries that face a flow of immigration from the "rest of the world." The countries differ in three characteristics: the labor complementarity between the "native" population and immigrants, the population size, and the magnitude of the cultural friction between the natives and immigrants. We consider a non-cooperative game between two countries' when their strategic instrument is the choice of an immigration quota and the world immigrant wages introduce the spill-over effect between two countries. We first show that the quota game admits unique pure strategies Nash equilibrium. We then compare the equilibrium choices of two countries and show that even though the larger country attracts more immigrants, it chooses lower quota than its smaller counterpart. It also turns out that higher degree of labor complementarity between natives and immigrants and a lower degree of cultural friction between two groups yield higher immigration quota. We also examine the welfare implications of countries choices' and argue that coordinated and harmonized immigration policies may improve the welfare of both countries.

Patterns and Determinants of Off-Farm Migration: Transfer frictions and persistency of relative income gaps. Factor Markets Working Papers No. 36, February 2013

The inter-sectoral migration of agricultural labour is a complex but fundamental process of economic development largely affected by the growth of agricultural productivity and the evolution of the agricultural relative income gap. Theory and some recent anecdotal evidence suggest that as an effect of large fixed and sunk costs of out-farm migration, the productivity gap between the agricultural and non-agricultural sectors should behave non-monotonically or following a U-shaped evolution during economic development. Whether or not this relationship holds true across a sample of 38 developing and developed countries and across more than 200 EU regions was empirically tested. Results strongly confirm this relationship, which also emphasises the role played by national agricultural policy.

Věstník Ministerstva financí státu Československého.

Has supplements.

Munkapiac keresési súrlódásokkal (Job seeking on the labour market, with frictions)

A munkapiac különleges piac, jellegzetességeinek köszönhetően számos modell elemzi. Ezek közül a legismertebbek a keresési-párosítási modellek, amelyek több egymáshoz kapcsolódó kérdéskör vizsgálatára is alkalmasak. A modellcsalád által megmagyarázható munkapiaci jelenségek széles köre, a belőlük levonható következtetések, a modellek magyarázóképességéről folytatott vita egyaránt hozzájárult, hogy a modellek kidolgozói 2010-ben közgazdasági Nobel-emlékdíjban részesültek. Modelljük kiterjeszti a munkanélküliség természetes rátájának elméletét, képes a jóléti intézkedések és intézményrendszer beépítésére. A szerző e modellek elméleti előzményei, valamint egy alapmodell ismertetése után felvázolja az újabb generációs modellek alapvonásait, a hatékonyságelemzések tanulságait, az állami intézkedések vizsgálatának lehetőségeit, valamint a Shimer-kritika alapjait. / === / The labor market is a specialized market with characteristics that have produced several different models for analysing it. One of the best known is the search and matching model, which is suitable for analysis of several related issues. The broad range of labour market phenomena that can be described by this family of models, the conclusions to be drawn from them, and the debate on their explanatory capability have all contributed to the fact that three economists who made important contributions to developing them - P. A. Diamond, D. T. Mortensen and C. A. Pissar-ides - were awarded the Nobel Prize in Economics in 2010. The DMP model named after them expands the theory of the natural rate of unemployment and is capable of integrating the analysis of welfare measures and institutions. This paper follows up on the contribution of the Nobel Prize winners by examining the theoretical preliminaries of these models, a basic search and matching model, and by looking at the typical characteristics of a new generation of models, the lessons of efficiency analyses, the possibility of investigating the role of policy measures, and the foundations of Shimer's critique.

Essays on Information Frictions, Prices and Unemployment

I investigate the effects of information frictions in price setting decisions. I show that firms' output prices and wages are less sensitive to aggregate economic conditions when firms and workers cannot perfectly understand (or know) the aggregate state of the economy. Prices and wages respond with a lag to aggregate innovations because agents learn slowly about those changes, and this delayed adjustment in prices makes output and unemployment more sensitive to aggregate shocks. In the first chapter of this dissertation, I show that workers' noisy information about the state of the economy help us to explain why real wages are sluggish. In the context of a search and matching model, wages do not immediately respond to a positive aggregate shock because workers do not (yet) have enough information to demand higher wages. This increases firms' incentives to post more vacancies, and it makes unemployment volatile and sensitive to aggregate shocks. This mechanism is robust to two major criticisms of existing theories of sluggish wages and volatile unemployment: the flexibility of wages for new hires and the cyclicality of the opportunity cost of employment. Calibrated to U.S. data, the model explains 60% of the overall unemployment volatility. Consistent with empirical evidence, the response of unemployment to TFP shocks predicted by my model is large, hump-shaped, and peaks one year after the TFP shock, while the response of the aggregate wage is weak and delayed, peaking after two years. In the second chapter of this dissertation, I study the role of information frictions and inventories in firms' price setting decisions in the context of a monetary model. In this model, intermediate goods firms accumulate output inventories, observe aggregate variables with one period lag, and observe their nominal input prices and demand at all times. Firms face idiosyncratic shocks and cannot perfectly infer the state of nature. After a contractionary nominal shock, nominal input prices go down, and firms accumulate inventories because they perceive some positive probability that the nominal price decline is due to a good productivity shock. This prevents firms' prices from decreasing and makes current profits, households' income, and aggregate demand go down. According to my model simulations, a 1% decrease in the money growth rate causes output to decline 0.17% in the first quarter and 0.38% in the second followed by a slow recovery to the steady state. Contractionary nominal shocks also have significant effects on total investment, which remains 1% below the steady state for the first 6 quarters.

Essays on Market Frictions and Securitization

This dissertation provides a novel theory of securitization based on intermediaries minimizing the moral hazard that insiders can misuse assets held on-balance sheet. The model predicts how intermediaries finance different assets. Under deposit funding, the moral hazard is greatest for low-risk assets that yield sizable returns in bad states of nature; under securitization, it is greatest for high-risk assets that require high guarantees and large reserves. Intermediaries thus securitize low-risk assets. In an extension, I identify a novel channel through which government bailouts exacerbate the moral hazard and reduce total investment irrespective of the funding mode. This adverse effect is stronger under deposit funding, implying that intermediaries finance more risky assets off-balance sheet. The dissertation discusses the implications of different forms of guarantees. With explicit guarantees, banks securitize assets with either low information-intensity or low risk. By contrast, with implicit guarantees, banks only securitize assets with high information-intensity and low risk. Two extensions to the benchmark static and dynamic models are discussed. First, an extension to the static model studies the optimality of tranching versus securitization with guarantees. Tranching eliminates agency costs but worsens adverse selection, while securitization with guarantees does the opposite. When the quality of underlying assets in a certain security market is sufficiently heterogeneous, and when the highest quality assets are perceived to be sufficiently safe, securitization with guarantees dominates tranching. Second, in an extension to the dynamic setting, the moral hazard of misusing assets held on-balance sheet naturally gives rise to the moral hazard of weak ex-post monitoring in securitization. The use of guarantees reduces the dependence of banks' ex-post payoffs on monitoring efforts, thereby weakening monitoring incentives. The incentive to monitor under securitization with implicit guarantees is the weakest among all funding modes, as implicit guarantees allow banks to renege on their monitoring promises without being declared bankrupt and punished.

Financial crisis spillovers to the corporate sector: Bank-dependent borrowers versus bond market paticipants

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Individual and aggregate money demands

I construct a model in which money and bond holdings are consistent with individual decisions and aggregate variables such as production and interest rates. The agents are infinitely-lived, have constant-elasticity preferences, and receive a fraction of their income in money. Each agent solves a Baumol-Tobin money management problem. Markets are segmented because financial frictions make agents trade bonds for money at different times. Trading frequency, consumption, government decisions and prices are mutually consistent. An increase in inflation, for example, implies higher trading frequency, more bonds sold to account for seigniorage, and lower real balances.

Macro determinants of nonperforming loans in Portugal

This study uses a VAR methodology to evaluate the impact of the macroeconomic conditions and money supply in the fluctuation of nonperforming loans for the Portuguese economy. Additionally, the feedback effect of nonperforming loans growth to the economy and specially to the credit supply is analised. The study is motived by the hypothesis that loan quality is procyclical and that the fast growth of credit supply has a positive relation with the growth of nonperforming loans. The hypothesis that nonperforming loans reinforce economic fragilities and credit market frictions is also tested. Empirical results corroborate both hypothesis presented. Hence, it was possible to establish that the macroeconomic conditions measured by GDP and unemployment and the fast growth of credit supply contribute to the development of nonperforming loans. Furthermore, the growth of nonperforming loans reinforces the economic cycle, as it contributes to the deterioration of macroeconomic conditions and creates frictions in the credit market that may results in a credit crunch.

Cross-delisting, financial constraints and investment sensitivities

We investigate the impact of cross-delisting on firms’ financial constraints and investment sensitivities. We find that firms that cross-delisted from a U.S. stock exchange face stronger post-delisting financial constraints than their cross-listed counterparts, as measured by investment-to-cash flow sensitivity. Following a delisting, the sensitivity of investment-to-cash flow increases significantly and firms also tend to save more cash out of cash flows. Moreover, this increase appears to be primarily driven by informational frictions that constrain access to external financing. We document that information asymmetry problems are stronger for firms from countries with weaker shareholders protection and for firms from less developed capital markets.

The real economic effects of cross-delistingfrom the united states: evidence on post-operating performance, financial constraints and stock crash risk

Tese de Doutoramento em Ciências Empresariais.

On the identification of monetary (and other) shocks

The purpose of this paper is twofold. First, we construct a DSGE model which spells out explicitly the instrumentation of monetary policy. The interest rate is determined every period depending on the supply and demand for reserves which in turn are affected by fundamental shocks: unforeseeable changes in cash withdrawal, autonomous factors, technology and government spending. Unexpected changes in the monetary conditions of the economy are interpreted as monetary shocks. We show that these monetary shocks have the usual effects on economic activity without the need of imposing additional frictions as limited participation in asset markets or sticky prices. Second, we show that this view of monetary policy may have important consequences for empirical research. In the model, the contemporaneous correlations between interest rates, prices and output are due to the simultaneous effect of all fundamental shocks. We provide an example where these contemporaneous correlations may be misinterpreted as a Taylor rule. In addition, we use the sign of the impact responses of all shocks on output, prices and interest rates derived from the model to identify the sources of shocks in the data.