THESIS
2022
1 online resource (viii, 101 pages) : illustrations
Abstract
Chapter 1 considers a heterogeneous agent New Keynesian model with time-varying asset
market liquidity. A lesson from the Great Recession is that the difficulty in asset liquidation
and the shortage of liquid assets to households can have a substantial effect on
aggregate demand. In this paper, I use a Heterogeneous Agent New-Keynesian (HANK)
model to quantify the impact of time-varying market liquidity on the monetary transmission
mechanism. I document that the effect of monetary policy is amplified through
countercyclical response of the liquidation time for illiquid assets. Furthermore, monetary
policy generates substantial redistribution across heterogeneous households in my model.
Wealthy hand-to-mouth households suffer the most from contractionary monetary policies
because of the...[
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Chapter 1 considers a heterogeneous agent New Keynesian model with time-varying asset
market liquidity. A lesson from the Great Recession is that the difficulty in asset liquidation
and the shortage of liquid assets to households can have a substantial effect on
aggregate demand. In this paper, I use a Heterogeneous Agent New-Keynesian (HANK)
model to quantify the impact of time-varying market liquidity on the monetary transmission
mechanism. I document that the effect of monetary policy is amplified through
countercyclical response of the liquidation time for illiquid assets. Furthermore, monetary
policy generates substantial redistribution across heterogeneous households in my model.
Wealthy hand-to-mouth households suffer the most from contractionary monetary policies
because of the significant delay in the liquidation process of illiquid assets, whereas
agents with enough liquid assets only mildly adjust their consumption. Finally, the model
matches the empirical finding that contractionary monetary policies are more powerful
than expansionary intervention because more agents become liquidity constrained during
recessions.
Chapter 2 is an empirical studies on stock market liquidity and aggregate economy.
This chapter studies the relationship between aggregate demand and stock market liquidity.
I first provide empirical evidence to justify that the stock market liquidity moves
around with the aggregate market. I further show that under different levels of stock
market liquidity, the economy will react differently to monetary shocks. In particular,
monetary policy is more effective if the market liquidity is low.
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