Essays in Macroeconomics and Finance

The goal of this dissertation is to shed some light on three separate aspects of the financial system that can lead to greater instability in the banking sector and greater macroeconomic volatility. The starting point of the Great Recession was the collapse of the banking sector in late 2007; in the subsequent months, liquidity evaporated in many markets for short term funding. The process of creating liquidity carried out by the banking system involves the transformation of long term illiquid assets into short term liquid liabilities. This engine functions properly as long as cash lenders continue to roll over short term funding to banks; whenever these lenders fear that banks will not be able to pay back these obligations, they immediately stop funding banks ’ short term liabilities. This makes banks unable to repay maturing short term debt, which leads to large spikes in default risk. This is often referred to as a modern bank run. Virtually all the theories of bank runs suggest that the severity of a run depends on how well lenders can coordinate their beliefs: whenever a lender expects many others to run, he becomes more likely to run as well. In a joint work with Emanuele Brancati, the first chapter of my dissertation, we empiricall