Essays in dynamic macro-finance Luigi Falasconi

Format:

Book

Thesis/Dissertation

Author/Creator:

Falasconi, Luigi, author.

Contributor:

University of Pennsylvania. Economics., degree granting institution.

Language:

English

Subjects (All):

American studies.

Finance.

0501.

0323.

0508.

0770.

0511.

Local Subjects:

American studies.

Finance.

0501.

0323.

0508.

0770.

0511.

Genre:

Academic theses

Physical Description:

1 online resource (263 pages)

Contained In:

Dissertations Abstracts International 87-12A

Place of Publication:

Ann Arbor : ProQuest Dissertations and Theses, 2026

Language Note:

English

Summary:

Chapter 1 studies the role of bailout expectations in shaping the dynamics of bank credit spreads and the implications for bank risk-taking behavior. I propose a dynamic model of financial intermediation with bank default and time-varying bailout probabilities, in which credit spreads are driven by both fundamental risk and bailout expectations. These two forces have contrasting implications for the joint comovement of credit spreads and default probabilities. Combining the model with US bank credit default swap spreads and option-implied default probabilities, I indirectly infer the relative importance of fundamentals and bailout expectations as drivers of spreads. I find that 28 basis points out of the 34-basis-point rise in credit spreads after 2010 are due to lower perceived bailout probabilities, and that the remainder reflects weaker fundamentals and is partly offset by tighter capital requirements. I then use the model to measure the effect of lower bailout expectations and tighter regulation on the expected returns of bank assets and the cost of bank credit. Abstracting from lower bailout expectations overstates the importance of regulatory tightening by a factor of two.Chapter 2 is the product of joint work with Pablo Herrero, Caterina Mendicino, and Dominik Supera. We examine the effects of tighter capital requirements in a quantitative model of risky financial intermediaries partially funded with defaultable and flighty foreign currency debt. Higher capital requirements enhance banks' resilience against sudden losses and insolvency risk. However, by reducing bank default risk, they also lower uninsured foreign funding costs, increasing banks' reliance on foreign liabilities. This reveals a novel trade-off: higher capital requirements strengthen banks' resilience against domestic shocks, but increase their exposure to foreign funding disruptions. Foreign prudential tools complement capital requirements in mitigating financial vulnerabilities. Empirical evidence from Peru's capital requirement reform supports model predictions.Chapter 3 is the product of joint work with Andrew Hannon, Caterina Mendicino, and Enrique Mendoza. We study the two-way feedback loop between bank failure risk and sovereign default risk in a dynamic general equilibrium model in which both are endogenous. Sovereign stress weakens bank balance sheets and raises bank default probabilities, while banking fragility raises government-guarantee costs and sovereign spreads. Domestic banks may absorb a larger share of public debt in bad states because limited liability makes risky sovereign debt attractive at the margin, which supports sovereign financing but crowds out productive investment and amplifies the recession. Quantitative results calibrated to Spain match the key fiscal moments in the data and show that rare sovereign stress events feature joint spikes in sovereign spreads and bank default, together with higher government-guarantee needs and larger bank holdings of sovereign debt. These episodes are driven in large part by shocks to bank fragility, and their effects are weakened by tighter capital requirements

Notes:

Source: Dissertations Abstracts International, Volume: 87-12, Section: A.

Advisors: Dovis, Alessandro; Mendoza, Enrique G. Committee members: Jermann, Urban J.; Diamond, William F.

Ph.D. University of Pennsylvania 2026

Vendor supplied data

Local Notes:

School code: 0175

ISBN:

9798247973164

Access Restriction:

Restricted for use by site license