Essays on uncertainty shocks and financial frictions


This dissertation covers the impacts of uncertainty shocks, oil price shocks, and financial development on the US as well as on the global economy. This document is divided into three main chapters to allow for a separate discussion of each individual category.

The first chapter studies the impacts of uncertainty shocks on the US economy in the presence of different specifications of financial constraints. Different specifications of financial constraints include assets-based constraints and earnings-based frictions. Quantitative analysis based on empirical and New Keynesian models suggests that uncertainty shocks have adverse impacts on the US economy. Furthermore, the New Keynesian analysis also suggests that uncertainty shocks might have economic impacts of different nature depending upon the nature of financial frictions considered. Additionally, the chapter suggests that both the collateral constraints and earnings-based constraints might have tightened due to uncertainty shocks during the great recession of 2008/09.

The Second Chapter studies the impacts of oil price shocks on US employment growth. Using the GARCH-M-VAR model on monthly data of employment growth and oil price growth from 1974 February to 2018 November, this paper finds that oil price shocks have asymmetric impacts on employment growth in private sector while public sector employment growth show symmetric responses. Furthermore, the paper argues that asymmetric impacts of oil price shocks on aggregate and sectoral job growths might be attributed to oil price uncertainty.

The Third Chapter assesses the roles of financial development and financial openness on policy effectiveness in spurring economic growth. This chapter uses the Dynamic Panel GMM model on the data of 107 countries from 1980 to 2018. The empirical model analysis suggests that financial development is negatively associated with monetary policy effectiveness on increasing output growth. Additionally, the paper also finds that the diminishing impacts of financial development on policy effectiveness are more pronounced in countries with a higher level of financial development. Lastly, the paper also finds that the negative impacts of financial development on monetary policy effectiveness are independent of the degree of financial openness of a country. However, financial openness is itself found to have negative impacts on the contribution of monetary policy on output growth.



Uncertainty Shocks, Financial Frictions