Essays on Monetary Policy, Housing Market, and Business Finance

Abstract

The dissertation studies the intersection of macroeconomics and finance. The first chapter presents new empirical evidence that in the U.S., employment by younger and smaller firms responds more to monetary policy shocks than that by older and larger firms. I find that younger and smaller firms rely on pledging personal houses as collateral to obtain bank loans, and thus, these firms are more sensitive to interest rate changes. I build a monetary business cycle model featuring housing collateral constraints that explains 67% of the heterogeneous employment responses found in the data. The second chapter examines the causal effects of housing prices on small business borrowing. Small businesses can obtain loans from banks by collateralizing their personal residences. Through this channel, when housing prices and collateral value go high, small business borrowing may increase. I apply the method of instrumental variables and quantify that 1% increase in housing prices induces 0.54% - 1.78% increase in small business borrowing.