Essays in capital markets
This dissertation consists of three essays. The essay "On Trees and Logs" critically examines the main workhorse model in asset pricing theory, the Lucas (1978) tree model extended to include heterogeneous agents and multiple goods, and contrasts it to the benchmark model in financial equilibrium theory, the real assets model. We demonstrate that the two models may deliver contradictory implications. Specializing households' preferences in the Lucas model to be additively separable log-linear, we show that the only possible equilibria are very peculiar: there is no trade on the bond market after the initial period, while the stock market is completely degenerate--and yet, allocations are Pareto optimal. An equilibrium is either unique, or there is a continuum of equilibria. Finally, we investigate the effects of various portfolio constraints. The essay "A Dynamic Model with Import Quota Constraints" develops a pure-exchange continuous-time general equilibrium model to study the dynamic behavior of a country facing an import quota restriction over a period of time. In our setup, the quota manifests itself as an integral constraint. In sharp contrast to the analysis of a period-by-period constraint as is in the existing literature, the optimal consumption of our quota-constrained country falls into three regions where the country exhibits distinct economic behavior: export, import and an extended region of no trade. In the import region only, the country behaves as if facing an additional cost and an additional source of risk to consumption driven by the expected severity of hitting the quota constraint at the horizon. The essay "Adjustment Costs, Learning-by-Doing, and Technology Adoption under Uncertainty" considers a variety of vintage-capital models of a firm's choice of technology under uncertainty. Similar models have been studied in deterministic settings. Our objective is to examine the robustness of the implications of the certainty models to uncertainty. Our analysis highlights the role of the specification of costs of adjustment: seemingly similar deterministic models may yield increasingly different predictions under uncertainty. We also provide characterization of optimal policies, demonstrate the impact of uncertainty on the frequency of technology adoptions and growth in the economy, and present comparative statistics.
|Year of publication:||
|Authors:||Pavlova, Anna V|
|Type of publication:||Other|
Dissertations available from ProQuest
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