Dissertation Defense: Givi Melkadze

Candidate Name: Givi Melkadze

Advisor: Pedro Gete, Ph.D.

Major: Economics

Title: Essays on Uncertainty and Credit Market Frictions

Chapter 1 studies the role of credit market frictions in transmitting time-varying aggregate uncertainty to economic activity. First, we document that changes in country-specific aggregate volatility are positively correlated with the current account dynamics but negatively correlated with investment, output and credit flows. Then we build an International Real Business Cycle model with credit market frictions that matches these empirical facts. The version of the model with no financial frictions can only account for positive correlation between volatility and current account, but implies counterfactual predictions for the other correlations.

In Chapter 2, we analyze banking crises and lending of last resort (LOLR) in a quantitative model of financial frictions with bank defaults. We find that the LOLR, even if it induces an increase in banks’ leverage, is beneficial for small open economies. We show that pools of small economies cannot be successful LOLRs for empirically reasonable levels of liquidity support: They need too many uncorrelated countries or large initial levels of reserves to be sustainable. A country with ample reserves like China can be a sustainable international LOLR.  

Chapter 3 analyzes supranational deposit insurance in a quantitative model of financial and sovereign debt crisis. We show that the common deposit insurance fund can bring about sizable economic benefits by weakening an adverse link between domestic banking sector stress and sovereign default risk. The model simulations suggest that the sustainability of such a fund requires a certain number of participating countries with strong fundamentals, while feasibility calls for risk-based insurance premiums. These results can inform the design of the common European deposit insurance fund.

Wednesday, April 24 at 9:00am to 11:00am

Edward B. Bunn, S.J. Intercultural Center, 550
37th and O St., N.W., Washington

Event Type

Academic Events, Dissertation Defense

Departments

Georgetown College, Economics, Graduate School of Arts and Sciences

Cost

Free

Open to the public and the press?

Yes

Event Contact Name

Julius Shapiro

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