ESSAYS ON MACROECONOMICS AND MONETARY ECONOMICS
Georgiev, Yordan Georgiev
The first chapter uses an event-study approach to analyze the impact of ECB's monetary policy decisions on the interbank money markets in countries maintaining a currency board with the euro. It compares the reaction of money markets in these countries to the response of the common Euro Area market. Similarities demonstrate the level of convergence of the economies, given their commitment to adopt the euro. Comparing the reaction of money market rates among countries, the chapter finds a sizable and significant response of Estonian and Lithuanian markets, while in Bulgaria the reaction is muted and sluggish. The results suggest that the level of financial integration and the dependence on foreign funding are key factors for the transmission of ECB's monetary policy shocks.The second chapter examines the role of over-indebtedness and the process of deleveraging in driving the economy into a protracted recession. It develops a dynamic model of sectoral deleveraging within the framework of a New Keynesian model with nominal rigidities. A key contribution of the chapter is the analysis of debt reduction on a sectoral level. The chapter explores the deleveraging process and the transmission of the deleveraging shock between sectors, highlighting the key role of factor markets. Most importantly, it demonstrates that a multisectoral simultaneous debt deleveraging is particularly damaging to economic activity. Furthermore, the chapter confirms that structural reforms and highly accommodative monetary policy are effective tools for ameliorating the macroeconomics impact of deleveraging.The third chapter examines the processes of leveraging and deleveraging that occurred in the Euro Area since the introduction of the euro. It highlights the key factors that instigated the credit expansion and accounts for debt dynamics before and after the crisis. The chapter relates the deleveraging effort of the private sectors to the associated shifts in spending behavior. Furthermore, adapting a standard public debt accounting framework, the chapter decomposes the evolution of private leverage into separate components and highlights their role in aggregate debt dynamics. The approach demonstrates the central role of autonomous debt dynamics in shaping private leverage after the financial crisis.
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