ABSTRACTS
“Are There Any Spillovers between Household and Firm Financing Frictions? A Dynamic General Equilibrium Analysis” [Job Market Paper]
Economic commentators frequently imply the existence of positive spillovers between the financing frictions affecting households and firms, suggesting another way in which credit constraints may amplify aggregate shocks and increase the persistence of aggregate fluctuations. To examine this possibility, I develop a new model that incorporates both firm and household external finance spreads, while improving in several dimensions on existing frameworks. Contrary to a common intuition, the baseline Real Business Cycle model with credit constraints produces small negative spillovers between the costs of external financing for firms and households. A key factor in this result is the income effect of changes in the external finance premium on borrower labour supply. The reduction in households’ cost of borrowing in a boom decreases labour supply, increases the risk free interest rate and crowds out investment, raising borrowing costs for financially constrained firms.
“Bank Capital, Housing and Credit Constraints” (with Jing Yang)
We integrate household financing frictions with bank financing frictions and housing price fluctuations in a dynamic stochastic general equilibrium model. We use a two-sided debt contract framework in which the bank cannot fully diversify shocks to its borrowers to study the link between household and bank sectors' default risks. The cyclical behaviour of the banks’ external finance premium is determined by two main factors. Booms improve the financial health of the banks' borrowers which tends to reduce the cost of bank funding. At the same time, consumption smoothing by savers and borrowers makes the proportion of costly external financing in the banks' balance sheet more procyclical. As a result of these opposing effects, the model matches procyclical profits and leverage in the financial sector, as observed in the data. Nevertheless the banking frictions in the model have an insignificant impact on the main macroeconomic aggregates such as output, consumption and investment.
“Banks as Better Monitors and Firms' Financing Choices in Dynamic General Equilibrium”
This paper builds a dynamic general equilibrium model that emphasizes banks' comparative advantage in monitoring financial distress in order to explain firms' choice between bank loans and market debt. Banks can deal with financial distress more cheaply than bond holders, but this requires a higher initial expenditure proportional to the loan size. In contrast, bond issues may involve a small fixed cost. Entrepreneurs' choice of bank or bond financing depends on their net worth. The steady state of the model can explain why smaller firms tend to use more bank financing and why bank financing is more prevalent in Europe than in the US. A higher fixed cost of issuing market debt is a key factor in replicating the higher use of bank financing relative to market debt in Europe. Finally, we find that for plausible calibrations one can predict aggregate quantities just as well using a model with only one type of loan with costs of financial distress that are an average of the costs for bank loans and market debt.
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BERNARD DANIEL SOLOMON
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Université de Montréal, Department of Economics email: bd.solomon@umontreal.ca
3150 Jean Brillant, Montréal, Qc, H3T 1N8, CANADA tel +1 514 341 7346; +1 514 661 6771
http://www.webdepot.umontreal.ca/Usagers/p0767868/MonDepotPublic/Web/SolomonBD.html
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EDUCATION
Ph.D. Economics - Université de Montréal, Canada, expected summer 2010
Dissertation “Essays on Financing Frictions in Dynamic General Equilibrium Models”
Advisors: Francisco Ruge-Murcia and Onur Özgür
M.A. Economics - McGill University, Canada, 2004
“Loss Aversion, Declines in Cash Flow and Investment: Evidence from Industry Level Data ” Advisor: John Galbraith
M.Sc. Management/Finance - Queen’s University- Queen’s School of Business, Canada, 2003
“Inflation, Cash Flow and Investment at Business Cycle Frequencies: Some Evidence from US Aggregate Data “. Advisor: Huw Lloyd-Ellis
B.Com. Finance and Economics - McGill University, Canada, 2002 (first class joint honors)
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FIELDS
Macroeconomics ▪ Econometrics
RESEARCH INTERESTS
Macroeconomics ▪ Business Cycles ▪ Financial Markets and the Macroeconomy ▪
Dynamic General Equilibrium Models ▪ Monetary Economics ▪ Applied Econometrics
TEACHING INTERESTS
Macroeconomics ▪ Econometrics ▪ Money and Banking, ▪ Corporate Finance
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PAPERS [abstracts on page 4]
§ “Are There Any Spillovers between Household and Firm Financing Frictions? A Dynamic General Equilibrium Analysis, ” 2009 [JOB MARKET PAPER]
§ “Bank Capital, Housing and Credit Constraints,” 2009 (with Jing Yang)
§ “Banks as Better Monitors and Firms' Financing Choices in Dynamic General Equilibrium,” 2008
WORK IN PROGRESS
§ “Contagion between Firm and Household Credit Spreads through Bank Funding Frictions”
§ “Leverage and Precautionary Savings of Firms and Households in General Equilibrium”
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PROFESSIONAL EXPERIENCE
European Central Bank Ph.D. intern, Capital Markets/Financial Structure Division, June-Sep 2009
Bank of England Ph.D. intern, Monetary Assessment and Strategy Division, May-Aug 2008
Export Development Canada Analyst intern, International Markets Department, May-Aug 2002
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TEACHING EXPERIENCE
Teaching Assistant Université de Montréal, Department of Economics
§ Macroeconomic Theory 2, ECN2055, Winter 2009;
§ Quantitative Analysis Methods, POL2809, Fall 2008
§ Introductory Macroeconomics, ECN1050, Winter 2006, 2007,2008
McGill University, Department of Economics
§ History of Economic Thought, ECON334, Winter 2004
Tutor McGill University, McGill Tutorial Services
§ Honors Econometrics, ECON467, Winter 2004
§ Investments & Portfolio Management, FINE 441, Fall 2001
Queen’s University – Queen’s School of Business
§ Introduction to Finance, COM121, Fall 2002
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PRESENTATIONS
“Are There Any Spillovers between Household and Firm Credit Constraints? A Dynamic General Equilibrium Analysis“
2010 Midwest Macroeconomics Meetings, East Lansing ▪ Canadian Economics Association, Annual Meeting, Quebec City ▪ Seminar, Banque de France, Paris ▪ Royal Economic Society PhD Meeting, London ▪ Seminar, Technische Universität, Berlin ▪ European Economic Association Congress, Glasgow (scheduled)
2009 European Central Bank, division seminars, Frankfurt am Main ▪ Université de Montréal CIREQ Brown Bag Seminar
“Bank Capital, Housing and Credit Constraints”
2009 European Economic Association and The Econometric Society Meeting (EEA-ESEM), Barcelona ▪ European Workshop in Macroeconomics, Mannheim ▪ Université de Montréal CIREQ Brown Bag Seminar ▪ Canadian Economics Association, Annual Meeting, Toronto ▪ Midwest Macroeconomics Meetings, Bloomington ▪ CIREQ 5th Ph.D. Students’ Conference, Montreal
“Financing Frictions, Housing and Bank Capital”
2008 Bank of England, divisional seminar, London
“Banks as Better Monitors and Firms’ Financing Choices in Dynamic General Equilibrium”
2008 Canadian Economics Association, Annual Meeting, Vancouver ▪ Université de Montréal CIREQ Brown Bag Seminar ▪ Société Canadienne de Science Économique, Annual Meeting, Montebello
2007 CIREQ 3rd Ph.D. Students’ Conference, Montreal
Discussant
2009 Canadian Economics Association, Annual Meeting, Toronto, “How Important are Financial Shocks for the Canadian Business Cycle?” by Shin-Ichi Nishiyama
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HONORS & AWARDS
§ Ph.D. Fellowship, Department of Economics, Université de Montréal, 2004-2009
§ Canadian Economics Association Conference Travel Grant , 2009
§ CIREQ Conference Travel Grant - 2008, 2009, 2010
§ Frank Carrell Fellowship, Queen’s University, 2002-2003
§ International Studies Scholarship, Export Development Canada, 2001-2002
§ First Class Honours, Dean’s Honor List, McGill University, 2000-2002
§ Golden Key International Honor Society, since 2001-
§ J.W. McConnell Scholarship, McGill University, 1999-2002
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COMPUTER SKILLS
Matlab ▪ Fortran ▪ Stata ▪ Mathematica ▪ Scientific Workplace ▪ MS Office
LANGUAGES
English (fluent) ▪ French (fluent) ▪ Romanian (native) ▪ Spanish (good) ▪ German (basic)
AFFILIATIONS
Canadian Economics Association ▪ European Economic Association ▪ Econometric Society ▪ American Economic Association ▪ Center for Interuniversity Research in Quantitative Economics (CIREQ)
OTHER TRAINING & EXPERIENCE
Teaching Assistantship Workshop, Université de Montréal, 2007 ▪ Canadian Securities Course, Canadian Securities Institute, 2001 ▪ Tutored new immigrants in French and English
CITIZENSHIP
Canada and Romania
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REFERENCES
Francisco Ruge-Murcia, Université de Montréal, Department of Economics
+1 514 343 2396 francisco.ruge-murcia@umontreal.ca
Onur Özgür, Université de Montréal, Department of Economics
+1 514 343 5961 onur.ozgur@umontreal.ca
Alessandro Riboni, Université de Montréal, Department of Economics
+1 514 343 2397 alessandro.riboni@umontreal.ca
Jing Yang, Bank of England, Monetary Analysis, Monetary Assessment and Strategy Division
+ 44 20 7601 4905 Jing.Yang@bankofengland.co.uk
Matthieu Darracq Paries, European Central Bank, Capital Markets/ Financial Structure Division
+49 69 1344 6631 matthieu.darracq_paries@ecb.europa.eu
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