Loenser, Christian (2020). Essays on Monetary Policy and Financial Regulation. PhD thesis, Universität zu Köln.

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How do monetary policy and financial regulation affect economies populated by heterogeneous households under financial frictions? The existing theoretical literature that analyzes the impact of these policy interventions on household saving and consumption typically applies relatively stylized frameworks concerning the role of household heterogeneity and financial frictions. As a contribution to this literature, this doctoral thesis consists of three self-contained chapters that examine how heterogeneous households interact in quantitative models of household saving and consumption under financial frictions and how monetary policy and financial regulation affect these economies. The first chapter examines how financial constraints affect redistribution via monetary policy in a Huggett (1993)-type heterogeneous household economy calibrated to match distributional targets based on US data. We explore a novel mechanism of monetary non-neutrality, which is based on debt limits imposed in nominal terms. Specifically, when debt is constrained by current income, monetary policy can alter the real terms of borrowing. Changes in inflation exert ambiguous effects, depending on the initial debt/wealth position and the willingness to borrow. It is analytically shown that borrowers can benefit from increased debt limits under lower inflation rates. This novel effect can dominate conventional debt deflation effects. This chapter finds that particularly less indebted borrowers as well as potential future borrowers gain and that aggregate welfare can be enhanced under a permanent reduction in inflation. The second chapter analyzes the relative magnitude of direct effects and indirect ones arising from changes in market prices on household saving and consumption in a calibrated heterogeneous agent model in which borrowing is limited by a collateral constraint. In this economy, changes in market prices influence household decisions via collateral- and distributive effects. The analysis shows that adjustments in household saving and consumption under preference shocks are mainly driven by the indirect price effects and especially by distributive ones. Furthermore, the analysis works out that the elasticity of aggregate supply of the collateral asset has an important impact on the relative magnitude of direct- and indirect effects by strongly affecting the sensitivity of the collateral price. The last chapter examines financial regulation and corrective taxes in a heterogeneous agent economy with pecuniary externalities induced by a collateral constraint. A loan-to-value reduction benefits only few unconstrained borrowers and reduces social welfare. A Pigouvian-type debt-tax/savings-subsidy raises collateral prices and lowers interest rates, which stimulates borrowing and generates welfare gains for almost all income groups. A Pigouvian-type asset subsidy induces a wealth appreciation, while an asset tax particularly benefits low-wealth borrowers and enhances social welfare. Overall, collateral effects are of minor importance and interest rate rather than asset price responses are decisive for welfare effects of corrective policies.

Item Type: Thesis (PhD thesis)
CreatorsEmailORCIDORCID Put Code
Loenser, Christianchristian.loenser@gmx.deUNSPECIFIEDUNSPECIFIED
URN: urn:nbn:de:hbz:38-205292
Date: 17 September 2020
Language: English
Faculty: Faculty of Management, Economy and Social Sciences
Divisions: Faculty of Management, Economics and Social Sciences > Economics > Macroeconomic, Financial and Economic Policy > Professorship for Macroeconomic
Subjects: Economics
Uncontrolled Keywords:
Monetary policy; redistribution; borrowing limits; non-state contingent nominal debt; heterogeneous agents;English
Direct and indirect price effects; heterogeneous agents; collateral constraint; distributive effects; supply elasticityEnglish
Financial regulation; heterogeneous agents; collateral constraint; pecuniary externalitiesEnglish
Date of oral exam: 17 September 2020
NameAcademic Title
Schabert, AndreasUniv.-Prof. Dr.
Krause, MichaelUniv.-Prof. Ph.D.
Refereed: Yes
URI: http://kups.ub.uni-koeln.de/id/eprint/20529


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