This dissertation consists of four self-contained chapters connected to the financial crisis and its aftermath. The first chapter investigates the effect of higher capital requirements for banks, which was one on the early regulatory responses to the crisis. We find that banks increase their capital ratios mainly by cutting back on lending to the firm sector, while maintaining lending to the household sector. The finding has implications for the effectiveness of counter-cyclical capital buffers, implemented in several countries in response to the crisis. In the second chapter of this thesis, we consider the long-term trend of declining interest rates. We show that while the interest rate – an often used proxy of the marginal return on capital – has been declining steadily since the 1980s, the average return on capital has remained high. This is in contrast to the predictions of the standard neoclassical model. Further, we present and discuss four related puzzles observable in macroeconomic data. By constructing a DSGE model to address these features in a unified framework, we show that an increase in monopoly power can match all five trends quantitatively. In the third chapter, we explore whether policy rate cuts below zero are expansionary. We first establish that the deposit rate does not respond to further policy rate cuts once it has reached its lower bound. Second, using daily bank level data from Sweden, we show that the pass-through to mortgage rates also breaks down once the deposit rate is bounded. We build a New Keynesian model with a bank sector and central bank reserves, and show that negative policy rates are not expansionary once the deposit rate has reached its lower bound. In the final chapter of the dissertation we use Norwegian tax data and a novel natural experiment to show that higher job loss risk increases savings. Further, we show that the data is consistent with the increase in savings reducing employment in the non-tradable sector – typically assumed to be the most sensitive to local household demand. The results suggest that higher job loss risk could be a potential amplifier of economic downturns.
Wold, Ella Getz,
"Essays in Macroeconomics"
(2019).
Economics Theses and Dissertations.
Brown Digital Repository. Brown University Library.
https://doi.org/10.26300/94ty-j328
