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- Genre: Doctoral Dissertation
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This dissertation consists of three essays studying the relationship between corporate finance and monetary policy and macroeconomics. In the first essay, I provide novel estimations of the monetary policy’s working capital channel size by estimating a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill is borrowed. But the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. These results provide evidence that monetary policy could have varying effects across industries through the working capital channel. In the second essay, I study the effects of the Unconventional Monetary Policy (UMP) of purchasing corporate bonds on firms’ decisions in the COVID-19 crisis. Specifically, I develop a theoretical model which predicts that the firm’s default probability plays a crucial role in transmitting the effects of COVID-19 shock and the UMP. Using the model to evaluate two kinds of heterogeneities (size and initial credit risk), I show that large firms and high-risk firms are more affected by COVID-19 shock and are more responsive to the UMP. I then run cross-sectional regressions, whose results support the theoretical predictions suggesting that the firm’s characteristics, such as assets and operating income, are relevant to understanding the UMP effects. In the third essay, I document that capital utilization and short-term debt are procyclical. I show that a strong positive relationship exists at the aggregate and firm levels. It persists even when I control the regressions for firm size, profits, growth, and business cycle effects. In addition, the Dynamic Stochastic General Equilibrium (DSGE) model shows that in the presence of capital utilization, positive real and financial shocks cause the firm to change its financing of the equity payout policy from earnings to debt, increasing short-term debt.
ContributorsGalindo Gil, Hamilton (Author) / Pruitt, Seth (Thesis advisor) / Schreindorfer, David (Thesis advisor) / Bessembinder, Hendrik (Committee member) / Mehra, Rajnish (Committee member) / Arizona State University (Publisher)
Created2022
Description
This dissertation contains a portfolio of papers in economics. The first paper, ``Vehicle Emissions Inspection Programs: Equality and Impact," presents the results of a study of the Arizona Vehicle Emissions Inspection Program. Using a unique data set, I find that the Arizona Vehicle Emissions Inspection Program is regressive in that it constrains the vehicle repair decisions of people on the low end of the income distribution more than those on the high end. I also find that the social cost of the program in Arizona is more than twice the social benefit, assuming a \$7 million value of statistical life. The second paper is ``Fiat Value in the Theory of Value." Because of advances in information processing technology, it is now technically feasible to have a currency-less monetary system. This paper explores one such system. In the model, prices are in units currency-less fiat money called fiat value, fiat value is a form of government debt, and the services of the stock of fiat value are a factor of production. In this system, the National accounts must be revised to account for money as a production factor, Friedman satiation is possible even with positive inflation, and various monetary policy regimes are explored. The third paper, ``Unconventional Monetary Policy in a Modern Paradigm of Money," uses the model developed in ``Fiat Value in the Theory of Value" to evaluate quantitative easing and interest on reserves policies as a response to liquidity shocks. I find that quantitative easing is an effective response to liquidity crises because it drives the marginal product of money to zero. When the marginal product of money is zero, the business sector does not have to pay to rent the services of money, a production factor that is free to create. I also show that a positive interest on reserve policy hampers the effectiveness of quantitative easing, and that quantitative easing does not cause a high inflation rate.
ContributorsWessel, Ryan J (Author) / Prescott, Edward C. (Thesis advisor) / Schoellman, Todd (Committee member) / Hobijn, Bart (Committee member) / Arizona State University (Publisher)
Created2017