Three essays on savings and the term structure of lending

This dissertation explores two subjects. The first one is the relationship between low liquidity in secondary markets for capital and the insufficient supply of long term funding for productive investment. The first chapter shows how shallow or non-existent secondary markets for capital can induce a short term bias in lending, a problem observed in developing countries. A general equilibrium model is developed with government debt and private capital that is costly to trade. The transaction costs reduce the proportion of savings held as capital. Three main results are established. First, larger government deficits cause a greater proportion of savings to be held as debt. Second, deficit finance alternatives (taxes vs. debt) have different effects on investment. And third, a rationale is provided for why intermediation occurs when capital trading is costly.