Date of Award

Spring 1-1-2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Moscarini, Giuseppe

Abstract

This dissertation consists of three independent essays in which I study how financial markets affect macroeconomic outcomes. I combine rich micro-data and structural models with heterogeneity to shed light on how interactions among different agents influence business cycle fluctuations and the distribution of resources in the economy. I leverage this approach to address central questions covering financial intermediation, household and corporate finance, and their implications for macroeconomic policy and financial stability. Chapter 1: Banking Relationship and Loan Pricing Disconnect. In the first chapter, I study how long-term relationships between banks and firms shape loan pricing and capital allocation. I use administrative data from Mexico’s credit registry that covers the near universe of bank-firm loans. I find strong evidence supporting an insurance view of relationship lending, which I formalize in a model where banks compete for borrowers by offering optimal long-term contracts. While the benchmark competitive pricing model predicts that lending rates should move one-for-one with firm default risk and the risk-free rate, I show that this only holds when firms are switching across lenders. Instead, within established relationships, this pass-through is close to zero and loan spreads exhibit substantial history-dependence, a typical feature of insurance arrangements. In my model, I leverage the insight that switching costs, by limiting firm mobility, can help sustain long-term contracts and the insurance mechanism, which improves capital allocation and, therefore, enhances welfare. When embedded in a New Keynesian framework, banking relationships are important determinants of the transmission of monetary and fiscal policy, as banks optimally absorb a portion of these policy shocks. Chapter 2: Fiscal Multipliers and Phillips Curves with a Consumption Network (Joint work with Cedomir Malgieri). In the second chapter, we study how the patterns of household spending affect the transmission of fiscal policy. We show that households spend their marginal and their average dollar differently across sectors, with marginal spending skewed toward sectors employing high-MPC (marginal propensity to consume) workers. This introduces a new redistribution channel that benefits high-MPC workers during expansions. We develop a Multi-Sector New Keynesian model with heterogeneous agents where these spending patterns are captured in a consumption network. The documented spending patterns, when embedded in the model, increase the fiscal multiplier by 10 percentage points and the inflationary impact of fiscal shocks by over 70%. Our model also predicts steeper Phillips curves in high-MPC sectors, which we validate empirically using a novel identification strategy. Chapter 3: Equity Flows in Uncertain Times: the Role of Heterogeneous Information (Joint work with Alessandro D. Lavia and Chenping Yang). In the third chapter, we formalize the insight that heterogeneity in the access to information across investors in different countries can be an important determinant of capital flows. We then provide empirical support for this channel using forecast data. Domestic forecasters more accurately predict their own country’s economic outcomes, and their advantage becomes more marked in periods of high uncertainty. However, the US is an exception, where domestic forecasters do not outperform foreign institutions, consistently with the exceptional behavior of their capital inflows, which surge during episodes of uncertainty.

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