| Popis: |
My research focuses on the determination of risks in modern macroeconomic models and their impact on aggregate prices. In the first chapter, I examine the mechanism that led to the divergence of sovereign bond spreads of countries like Italy from the rest of Europe during the 2010 sovereign debt crisis. This divergence was likely driven in part by the differential default risk of some countries affecting them more adversely than other European Union member nations following the 2007 U.S. financial crisis. At the same time, capital flow reversal to safety lowered available capital in the regional banks of Portugal, Italy, Ireland, Greece, and Spain (PIIGS). It has been proposed that the resulting reductions in international liquidity also may have been a driving factor in the increased sovereign bond spreads for these nations leading up to the 2010 sovereign debt crisis. I develop a quantitative sovereign default model to accommodate this phenomenon. My sovereign default model allows a country borrowing from a financial intermediary to default on its outstanding debt obligations. The financial intermediary receives deposits from abroad that it can lend to the domestic government. However, the intermediary faces a capital requirement limiting the amount of such loans to the borrowing country. As a result, the loan discount factor on government debt is influenced by default risk and liquidity risk. Next, I simulate business cycles in my calibrated quantitative model and confirm that it predicts a strong correlation between financial crisis abroad and sovereign bond spreads. Finally, I use it to conduct policy experiments, examining the effectiveness of alternative stabilization interventions on the mean and volatility of spreads. I find that a Eurobond is an effective policy tool as it lowers the average spreads and its volatility while also generating a lower average debt-to-GDP ratio. In the second chapter, I examine how changes in trade intensities between any two countries lead to a contagion of sovereign default risk across borders. My work is motivated by empirical research in international trade, which indicates that strong cross-country business cycle comovements are, to a large extent, attributable to strong trade linkages. This suggests that tighter trade ties might also imply higher sovereign default risk contagion. I empirically confirm this relationship as I find that a one percent increase in bilateral trade intensity increases the bilateral correlation of credit spreads by about 0.22 percentage points. Given my empirical finding, I next develop a structural model to allow trade intensities to vary with trade barriers. My international business cycle model studies two small open countries that each can borrow from a large country. The lending country is deep-pocketed, risk-neutral, and prices in default risk on its loans. The two small countries are directly linked through their intermediate goods trade and, therefore, linked in their default risk. Given an empirically consistent degree of trade intensity, I find that my calibrated model successfully generates the observed correlation of credit spreads between these two countries. In the third chapter, I study the labor supply responses to extensive and intensive margins in an incomplete asset market framework to explain the low risk-free interest rate in the equity premium puzzle. I allow the households to choose labor supply on both margins since the U.S. data suggests that most labor input fluctuations occur on an extensive margin than the intensive margin. Households differ in productivity and wealth. Agents with lower productivity use their savings to avoid working as the decision to work is costly. For agents with higher wealth, it takes a higher productivity level for them to work. My model generates a low risk-free interest rate when compared to existing models with exogenous labor supply. |
