Essays on heterogeneous agent models

There is a continued interest among economists on the interconnections between financial markets, credit markets and the real economy. The three main chapters of this dissertation contribute to the understanding of how financial and credit frictions - either at the fi rm or household level - can aff ect the real economy, and even trigger a financial crisis. Chapter 1 studies the causes of fi nancial crises. I show that shocks to the volatility of total factor productivity (TFP) can generate endogenous variations in loan-to-value (LTV) ratios and trigger credit crunches, without appealing to fi nancial shocks. Using a panel of countries, I find that nancial crises coincide with the reversal of a long period of low volatility of TFP. To explain this new fact, I develop a general equilibrium model in which volatility shocks to TFP interact with an occasionally binding borrowing constraint and housing serves as collateral. I introduce search frictions in the housing market to capture the liquidity of housing and endogenize the LTV ratio: households borrow at higher LTV ratios when the collateral is more liquid. In this environment, volatility shocks cause financial crises by changing the liquidity of the collateral. In a quantitative exercise, I feed the model with the stochastic volatility of the U.S. Solow residual. I fi nd that the interaction of volatility shocks and search frictions in the housing market increases the frequency of fi nancial crises by 47% and the associated output drop by 30%. In addition, volatility shocks generate volatile LTV ratios, thus providing a foundation for fi nancial shocks. Chapter 2 studies whether households’ limited attention to the stock market can quantitatively account for the bulk of asset prices. I address this question introducing an observation cost in a production economy with heterogeneous agents, incomplete markets and idiosyncratic risk. In this environment inattention changes endogenously over time and across agents. I calibrate the observation cost to match the observed duration of inattention of the median agent in the data. The model generates limited participation in the stock market, a weak correlation between consumption growth and stock returns, and countercyclical dynamics for both the stock returns volatility and the excess return. It also generates forms of predictability in stock returns and consumption growth. Nonetheless, the level of the equity premium is still low, around 1%. Finally, I fi nd that inattention a ects asset prices if borrowing constraints are tight enough. Chapter 3 - which is joint work with Alessandro Peri - studies the series of US annual corporate default rates from 1950 until 2012. We document the presence of one structural break in the unconditional mean, which is dated in 1986. Meanwhile credit spreads hardly moved. We present a dynamic equilibrium model where the development of credit markets accounts for this empirical evidence. Financial development increases both the default rate and fi rms’ expected recovery rates. These two e ffects off set each other and translate into constant credit spreads. In the model nancial development explains 64% of the rise in default rates and predicts just a 2 basis point increase in the credit spreads. Furthermore, the model accounts for a number of trends that characterized public fi rms over the last decades: the fall in the number of firms distributing dividends, the rise in the degree of dividend smoothing, and the increase in the volatility of public fi rms.Programa Oficial de Doctorado en EconomíaPresidente: Manuel Santos; Secretario: James Costain; Vocal: Ctirad Slavi