Dynamic Uncertainty Shocks, Agency Costs and Cross-Country Investment Behavior: Comparison of U.S. and European Economies

点击翻译按钮获取中文摘要

The current literature on uncertainty shocks and macroeconomic fluctuations has pointed to financial market frictions as an additional channel along with uncertainty shocks that can affect macroeconomic outcomes. The literature then addresses two key issues: Are uncertainty shocks quantitatively important in explaining real aggregate fluctuations, and can models with uncertainty shocks reproduce co-movement between consumption and output? The literature on uncertainty and macroeconomics is, however, divided on the effects and the propagation mechanism of uncertainty on aggregate fluctuations.The objective of this research is threefold. First, in order to address the questions raised above, I suggest a novel approach to modeling uncertainty shocks, that is grounded in empirical work rather than being an ad-hoc assumption. Empirical uncertainty proxies rise and falls over time, i.e. display a hump-shaped time path. Previous literature, however, has not accounted for this property and, instead, models uncertainty shocks as jump to the peak. The second objective is to analyze the credit channel effect on investment behavior for the U.S. and the Euro Area. To highlight the differences between the U.S. and European financial sectors, I focus on two key components of the lending channel: the risk premium associated with bank loans and the bankruptcy rates. The question I seek to answer is "How do differences in the credit channel affect investment behaviour in the U.S. and the Euro area?" I compare the U.S. and the Euro Area for my analysis as it has been shown that these two economies exhibit similar business cycle patterns but are quite different in financial structures. I am interested in whether the differences in financial structures amplifies the impact of shocks to the credit channel. I take Austria, Ireland and Spain as the representative European member states for the calibration analysis as these three countries represent three different legal systems and are known to have either low bankruptcy rate (e.g. Spain) or high risk premium (e.g. Ireland).Third, I propose a different approach to modeling the credit channel. The financial accelerator literature addresses the question "can credit constraints and (or) asymmetric information between entrepreneurs and financial intermediaries propagate and amplify business cycles?" The recent economic crisis, however, highlights the importance credit market frictions associated with household loans. Consequently, I seek to model a contract between households and financial intermediaries that is optimal for the households rather than based on an ad-hoc assumption.