Essays in monetary economics
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Abstract
This dissertation consists of three chapters on macroeconomics and monetary economics. In the first chapter, I provide an equilibrium model of the pass-through of direct central bank lending to banks (CBL) into loans and quantitatively analyze the most significant such policy, the ECB’s Targeted Long Term Refinancing Operations (TLTRO). The banking sector features bank market power in deposits and lending, and banks borrow funds from the central bank and choose to adjust deposits, liquid asset holdings, and loans. I embed this into a New Keynesian model in which aggregate loan demand and deposit supply are endogenous. I calibrate the model to match the cross-sectional empirical literature on TLTRO, allowing me to translate these micro estimates into an aggregate impact of CBL. I find a 32% pass-through of CBL into bank lending; correspondingly, an increase in central bank lending of 10% of outstanding loans provides stimulus equivalent to a 54 basis point cut to the policy rate. The model also implies that CBL will be more effective when banks hold few liquid assets and lending markets are more competitive.In the second chapter, I study how conventional and unconventional monetary policies differentially affect lending by banks in the United States. Using bank-level data and high-frequency instruments for standard monetary shocks and quantitative easing, I find that the two policies predominantly affect different types of banks as measured by their balance sheets. Interest rate shocks have a stronger impact on loans for banks that are illiquid, bigger, less capitalized, and less reliant on deposit funding. The opposite is true for quantitative easing shocks, where loans decline more in banks that are liquid, smaller, more capitalized, and more reliant on deposit funding. The amount of heterogeneity is large, with the more affected banks having a two to three times larger response of lending after three years.
The last chapter studies the fact that low-skilled workers tend to display both more cyclical employment and more cyclical earnings compared to high-skilled workers. I develop a model with wage stickiness, differential labor market frictions, and two sectors employing separately high and low-skilled workers. Firms face two cost components when they adjust employment: the wage paid to new employees and hiring costs. Although wages are more flexible in the low-skill sector, the hiring cost is more volatile in the high-skill sector. The implication is that total costs are more volatile for high-skilled workers, thus leading to a lower cyclicality in their employment while also preserving a lower cyclicality in their wages. The result is driven by different matching function elasticities (or equivalently bargaining powers) and Frisch elasticities for high and low-skilled workers.
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2024