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PhD Theses

     Essays on the Interactions between Financial Markets, the Macroeconomy, and Economic Policy
Ravn, Søren Hove

This dissertation consists of four chapters, each of which can be read separately. All four chapters are concerned with the same overall topic though, namely the linkages between financial markets, the real economy, and economic policy. The importance of such linkages has been made painfully clear during the recent financial and economic crises. In retrospect, many macroeconomic models failed to pay sufficient attention to financial markets before the crisis. As a result, the last five years have seen the emergence of a large literature seeking to incorporate financial factors into models of the macroeconomy. In the first three chapters of this dissertation, I contribute to this literature. A particular topic that has received a certain attention in the wake of the crisis is the potential existence of non-linearities in the way financial markets affect the real economy. The first two chapters of this dissertation contain studies of the effects of various types of asymmetries or non-linearities that arise at the intersection between financial markets and the macroeconomy. In the third chapter, I introduce profit-maximizing banks and a version of relationship banking into a general equilibrium model of the macroeconomy. The absence of a banking sector was one important shortcoming of macroeconomic models before the crisis. Finally, in the fourth chapter of this dissertation, which is joint work with Morten Spange, we study the effects of fiscal policy in Denmark. In the wake of the crisis, fiscal policy has made a forceful return to the academic research agenda. Our study contributes to the recent literature about the circumstances under which the fiscal multiplier is likely to be large or small.

Date: 21-08-2013

     Essays in Payment Systems and Financial Stability
Rørdam, Kirsten Bonde

This thesis consists of three papers within the field of payment systems and banks' financial stability. The first paper The Topology of Danish Interbank Money Flows is joint work with Morten L. Bech. It explores the first topological analysis of Danish interbank money market flows. We identify two different networks; 1) the money market network, which consists of overnight money market loans 2) the payments network consisting of all other transactions, primarily the settlement of customer driven transactions and banks' proprietary transactions. The structure of these two networks differs as the types of transactions differ across the networks. Furthermore, seasonal effects and temporaneous stops in the settlement process affect the structure of the networks. The results in the second paper Competition from Settlement Banks in RTGS-Systems: The Case of Indirect Settlement imply that it can be an optimal choice for the banks to settle payments outside of a Real Time Gross Settlement (RTGS)-system. Indirect settlement via a settlement bank enables non-members to settle transactions to banks that are members of a RTGS-system. Three market equilibria can arise; 1) all banks settle indirectly via the settlement bank, 2) all banks settle directly within the RTGS-system or 3) large banks settle directly and small banks settle indirectly. However, 1) and 2) are the only possibilities, when the settlement bank obtains a higher profit in 1) than in 3). The market solution is inefficient in the sense that it differs from the social planner's solution. The market solution changes, but is still inefficient, when including risk of illiquidity for the banks and the settlement bank. The third paper is Financial Soundness in Danish Banks: Does the Composition of Customers Matter? To my knowledge, this is the first paper that analyzes the relationship between the banks' financial soundness and their lending to specific industries and sectors. The financial soundness of banks is measured by the Z-score technique, which combines three different indicators for bank health in one number. The results show that the impact of the customer composition is surprisingly small both for industries and sectors. What really matters is business cycle effects and the bank size.

Date: 20-06-2012

     The Dynamics of Bank and Sovereign Credit Risk
Kallestrup, René

The thesis consists of three articles where the overall purpose is to gain further understanding of bank and sovereign credit risk. The first article is about the importance of domestic bank fundamentals for the dynamics of sovereign credit risk. The second article shows that banks’ cross-border exposures are priced in credit default swap (CDS) markets. Finally, the third article is a case study on the collapse of the Icelandic banking system in the Autumn 2008.

Date: 19-06-2012

    Essays on the modeling of risks in interest-rate and inflation markets
Andersen, Allan Sall Tang

This thesis considers the modelling of interest-rate and inflation-markets in four separate essays, where two of the essays are mainly theoretical and two are mainly empirical. The first essay considers the modelling of stochastic skewness in arbitrage-free term-structure models. By specifying a model which is part of the Heath-Jarrow-Morton-framework and calibrating the model to caps and floors on EURIBOR rates, we show how stochastic skewness can be modelled. The second essay considers the modelling of inflation derivatives in a Heath-Jarrow-Morton-framework with jumps and stochastic volatility. The model allows for pricing through standard numerical methods, e.g. numerical integration. Furthermore we show how the model improves the fit to data compared to a Gaussian model. The third essay considers estimation of inflation risk premia. By using data on nominal interest-rates, inflation swaps, a consumer price index and surveys on inflation expectations, we estimate an arbitrage-free model. We show that inflation risk premia are moderate, with an average 1-year inflation risk premia of 18 basis points and an average 10-year inflation risk premia of 43 basis points. Finally, we find indications that inflation risk premia related to yields with more than five years to maturity are driven by GDP-growth expectations. The fourth essay considers a test of term-structure models with a risk management perspective. The essay contains a comparative study of 6 so-called affine Nelson-Siegel models and a 2-factor Cox-Ingersoll-Ross model. The analysis shows that the simulation-horizon has an impact on the optimal choice of model, and generally a suite of models, rather than a single model, should be used.

Date: 03-04-2012

Measuring FDI and Its Impact on the Danish Economy
Damgaard, Jannick

The thesis consists of an introduction and three essays related to the measurement of foreign direct investment (FDI) and its impact on the Danish economy; each essay is self-contained. The first essay (FDI and the External Wealth of Nations: How Important is Valuation?) studies the importance of FDI equity valuation methods. The balance sheet approach used in macroeconomic analysis has increased the focus on stocks of external assets and liabilities, but different valuation practices for FDI positions make cross-country comparisons difficult. To enhance comparability, the recently adopted IMF Balance of Payments and International Investment Position Manual, Sixth Edition, introduces seven valuation methods for unlisted FDI equity. This essay identifies the most generally applicable methods in terms of data requirements and demonstrates, using the Danish international investment position (IIP), that both the choice of valuation method and estimation technique can still fundamentally change a country's external wealth data. The second essay (Forecasting FDI Equity Income for the Danish Balance of Payments) addresses the late and significant revisions that are often observed in FDI equity income in many countries, hampering the quality of preliminary balance of payments statistics. The empirical study tests a range of models on Danish data and finds that forecasts for FDI equity income based on a combination of past profitability and consensus data for changes in expected private consumption growth outperform earlier forecasts solely based on historical profitability. The third and final essay (Productivity Spillovers from FDI: Ownership Structures, Domestic Firm Characteristics, and FDI Characteristics) is the first one to study productivity spillovers from FDI by exploiting the rich details offered by official Danish firm-level panel data. The analysis displays significant evidence of negative spillovers at the aggregate level, but the results differ widely across industries. It also reveals that not including firms under indirect foreign control in the group of foreign firms, as is done in some studies, leads to biased results. With regard to domestic firm characteristics, high export orientation and high competition mitigate some of the negative productivity spillovers. Finally, the estimations show that the negative spillovers largely stem from foreign firms (i) with low productivity, (ii) with high foreign trade orientation, and (iii) ultimately controlled by investors outside Scandinavia.

Date: 30-08-2011

Applications of Financial High-Frequency Data
Overby, Lars Jul

Event studies measuring the impact of macroenomic announcements rely on surveys as a measure of market expectations. However, these survey measures are noisy indicators of actual market expectations as they are collected with a time lag and not among actual market participants. Based upon a Hellwig (1980) type market microstructure model, a market-based survey measure is proposed that takes into account orderflow/price movements prior to release in order to capture changes in market expectations. The model is tested on US and German 10-year bond futures contracts for 6 US and 2 German macroeconomic announcements and con…rms the presence of expectation adjustments for the most important releases. Furthermore, the market-based survey measure captures the directionality of the surprise better than the standard Bloomberg survey measure.

Date: 15-11-2010

Quantitative Studies on the Monetary and Financial History of Denmark
Abildgren, Kim

The thesis consists of an introduction with a brief discussion on the nature and evolution of quantitative economic history followed by ten essays with quantitative studies on the monetary and financial history of Denmark. The first objective of the research project behind the thesis has been an attempt to close some of the gaps in the existing monetary and macroeconomic historical statistics for Denmark, and several new data sets are presented: Financial accounts 1875-2008 (essay 1), interest rates 1875-2008 (essay 2), nominal and real effective krone-rate indices 1875-2003 (essay 3), a detailed input-output table for 1934 (essay 4), the general government budget balance 1875-2005 (essay 5), an input-output based underlying inflation measure 1903-2002 (essay 6), cross-border portfolio flows 1984-2004 (essay 7), credit by sector and industry 1951-2008 (essay 8), time series on labour market structures 1875-2007 (essay 9) and a consumer price index 1502-2007 (essay 10). The second objective of the research project behind the thesis has been an attempt to enhance our insight into the monetary and financial history of Denmark through several new empirical analyses of a range of specific key issues based on the new data sets presented in the thesis. The topics covered are: Monetary trends and business cycles (essay 1 and 8), interest rates and inflation expectations (essay 2), exchange controls, exchange-rate behaviour and capital flows (essay 3, 4 and 7), the cyclical impact on the government budget balance (essay 5), inflation dynamics (essay 6 and 10) and the monetary-regime dependence of labour market structures (essay 9).

Date: 30-04-2010

Essays on Macro-Finance and Monetary Policy
Pedersen, Jesper

The thesis explores theoretical and empirical aspects of monetary policy and financial issues. Chapter 1 investigates the real-time effects of foreign exchange intervention on the Danish kroner - Euro exchange rate using official intraday intervention data. We find that intervention exerts a statistically and economically significant influence on exchange rate returns only when the direction of intervention is consistent with monetary policy stance. Chapter 2 investigates the intraday effects of sterilized foreign exchange intervention on exchange rate spreads using official intraday intervention data. The main result is that intervention purchases and intervention sales both exert a significant influence on exchange rate spreads but in opposite directions: Intervention sales of EUR, on average, reduce the spread while intervention purchases of EUR, on average, increase the spread. Chapter 3 includes in consistent way a role for a monetary policy transmission mechanism through long interest rates in a DSGE model. A financial constraint makes the representative consumer to issue bonds of long maturities equal to the value of new housing stock. Finally, chapter 4 tries to resurrect the troubles DSGE models have in modeling empirical plausible bond risk premia. The model in the paper is able to generate empirical plausible moments for term premia, and provides a micro foundation for models which are known to generate plausible risk premia namely the affine term structure models originated in finance.

Date: 16-06-2009

Aspects of Household Heterogeneity in New Keynesian Economics
Seneca, Martin

The thesis consists of two parts each divided into two self-containing chapters. Chapter 1 is called Labour market asymmetries in a monetary union and is joint work with Torben M. Andersen. This paper takes a first step in analysing how a monetary union performs in the presence of labour market asymmetries. The title of Chapter 2 is Monetary policy and welfare in a monetary union with labour market heterogeneity. The paper addresses the question of how monetary policy should be conducted in a monetary union when labour market structures are different in member countries. Chapter 3, Rule of thumb consumers, productivity and hours, is joint work with Francesco Furlanetto. In this chapter we study the transmission mechanisms of productivity shocks in a model with rule-of-thumb consumers. In Chapter 4, Fiscal shocks, rule-of-thumb consumers and real rigidities, which is joint work with Francesco Furlanetto, we show that empirically plausible results on the effects of fiscal shocks in Galí et al. (2007) rely on an excessive degree of price stickiness and an implausibly large percentage of financially constrained agents. We show that it is possible to obtain an empirically appealing consumption multiplier for plausible values of these parameters if real rigidities are added to the model.

Date: 10-10-2008

Essays on Credit Risk and Credit Derivatives
Bajlum, Claus

This Ph.D. thesis consists of three self-contained chapters, which can be read independently. The chapters are interrelated through their use of structural credit risk models and a credit derivative known as the Credit Default Swap (CDS). Chapter 1 estimates the impact of accounting transparency on the term structure of CDS spreads for a large cross-section of firms. Chapter 2 analyzes the use of CDS spreads in a convergence-type trading strategy known as capital structure arbitrage. Finally Chapter 3 estimates the time-series behaviour of the credit risk premium in the market for Credit Default Swaps.

Date: 29-05-2008

Accounting-based Credit-scoring models: Econometric Investigations
Rommer, Anne Dyrberg

This PhD thesis consists of four chapters, which can be read independently. All chapters fall within the field of accounting-based credit-scoring models. Chapter 1 focus on a number of analytical and modelling issues, and it sets up a credit-scoring model for Danish non-financial firms. Chapter 2 investigates the determinants of corporate failure in Italian, Spanish and French small and medium-sized companies. Chapter 3 discusses the specification of credit-scoring models and provides a framework for the investigation of various specification issues. Chapter 4 analyses the consequences on the calculated capital requirements of setting up single-country versus multi-country credit-scoring models.

Date: 28-06-2005


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