OPTIMAL INTERMEDIATED INVESTMENT IN A LIQUIDITY-DRIVEN BUSINESS CYCLE

The first essay of this dissertation presents a general equilibrium model of a finan-cial intermediary that extends the model first introduced by D. Diamond and P. Dybvig(JPE, 1983) to an infinite-horizon environment. This extension enables the relationshipbetween the real business cycle and the composition of assets held in the banking sectorto be studied. As in the D-D model, the bank is modeled as an optimal financial in-termediary coalition here. Moreover, the banks optimal policy involves decisions aboutliquidity that vary systematically over the business cycle. The second essay studies aversion of the model in the first essay with a broader set of contractsthe direct mecha-nisms. We design an efficient allocation of the direct mechanism such that truth tellingreporting strategy is an Perfect Bayesian Nash equilibrium of the mechanism. Furtheranalysis show that there may still exist other equilibrium. The third essay describes thenumerical algorithm we use to solve the model and provides an estimate for the approx-imation error.