Essays in Financial Economics / Thomas Paul Bonczek.

9798522994891

[New Haven, Connecticut] : Yale University, 2021.

1 online resource (112 pages)

My dissertation consists of three essays exploring how economic agents' reception of updated information about macroeconomic developments impacts their actions and investment choices and the effect this has on asset prices and macroeconomic fluctuations. The first essay provides evidence that variations in the treasury supply and foreign demand for safe assets have been a source of priced predictability in domestic consumer credit and consumption growth. In the second essay I set out to explain the sequential order of devaluations during contagious currency crises employing a Global Games model featuring informational cascades where individual currencies share a common exposure to adverse macroeconomic factors. In my third essay I argue that shocks to the slope of aggregate uncertainty rather than the level lead to declines in aggregate economic activity through a "wait and see" channel. Chapter 1: Consumption Growth Predictability and Global Safe Asset DemandIn the first chapter, I provide evidence that changes in treasury supply and foreign demand for safe assets have been a source of predictable variation in subsequent consumption growth in the US. Inflation risk contributes to global demand for safe assets as foreign capital shifts into US debt instruments in anticipation of inflation in its home country. A limited supply of treasuries results in excess demand for safe assets which is satisfied by the US banking system's production of private safe assets. The resulting variation in consumer credit and consumption growth are predictable over a multi-year horizon using a Q measure for the banking system. Innovations to this consumption news measure and contemporaneous consumption growth are priced in the cross-section of domestic stock and bond returns. My measure's predictive power for consumption growth is robust to controlling for other consumption growth predictors, excluding short-run consumption growth, and various tests for spuriousness. The cross-sectional pricing power is robust to the inclusion of standard pricing factors as well as intermediary factors.Chapter 2: Sequential Unraveling of Currency PegsSpeculative attacks often cluster in time and affect countries with similar macroeconomic weaknesses. The 1990s alone saw the EMS Crisis in Europe following German Reunification as well as the South East Asian Crisis. In this chapter I document two more recent episodes of contagious currency devaluations suffered by some of the world's major oil and gas exporters. Both episodes occurred after global energy prices collapsed, during the Ruble Crisis in 2014 following the North American fracking boom and more recently in response to the demand shock caused by the first wave of the Covid-19 pandemic. Using the technique of Global Games, I aim to explain the ordering of speculative attacks during such contagious currency crises. I therefore develop a model of contagious currency attacks based on a common exposure to adverse macroeconomic factors and informational cascades. Speculators facing a borrowing constraint coordinate on sequential attacks, the order of which only depends on the ex-post pay-off in case of success and not on expected pay-offs. The coordination problem is solved by speculators with extreme beliefs who are almost certain of success. Bayesian updating based on the outcome of previous attacks results in sequential unraveling and abating attacks after successful defenses. Devaluations during the South East Asian Crisis and the Ruble Crisis of 2014 empirically support the notion that the order of speculative attacks depends on ex-post pay-offs.Chapter 3: The Term Structure of UncertaintyIn the final chapter I explore how delays in the replacement of lumpy capital, hiring and firing decisions, and the acquisition of durable consumption goods are affected by the term structure of uncertainty. I argue that a "wait and see" approach to the timing of investment and durable goods purchases in the presence of uncertainty requires that a resolution is expected in the medium term, while a flat term structure of uncertainty provides little rationale for delayed action. It is therefore the slope of aggregate uncertainty which matters for delays in the acquisition of lumpy capital and durable goods as well as labor market fluctuations. Robust to controlling for realized volatility and the cost of credit, this effect contributed to aggregate fluctuations in the aftermath of the terrorist attacks of 9/11 and the lead up to the Iraq War, during the Financial Crisis and during the Debt Ceiling Debates of 2011.Motivated by this finding I explore whether unexpectedly persistent short-term uncertainty con-tributes to business cycle fluctuations by reducing economic activity through continuing delays. I find support for this mechanism in the lead up to the Iraq War and during the Financial Crisis of 2008-2009.

Proquest dissertation Dissertations & Theses @ Yale University.

Books / Online

English

December 16, 2021

Ph.D. Yale University 2021.

Academic theses.