Essays on macroeconomic and financial risks and uncertainties

Cho, Minyoung

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https://hdl.handle.net/2142/129178 Copy

Description

Title

Essays on macroeconomic and financial risks and uncertainties

Author(s)

Cho, Minyoung

Issue Date

2025-03-24

Director of Research (if dissertation) or Advisor (if thesis)

Lee, Ji Hyung

Doctoral Committee Chair(s)

• Lee, Ji Hyung
• Xie, Shihan

Committee Member(s)

• Howard, Greg
• Medeiros, Marcelo

Department of Study

Economics

Discipline

Economics

Degree Granting Institution

University of Illinois Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Macroeconomic and Financial Risks
• Climate Risk
• Inflationary Risk
• Uncertainties

Abstract

This dissertation consists of three chapters that study topics on various macroeconomic and financial risks and uncertainties. Chapter 1 investigates the dynamic relationship between tornado outbreaks and regional housing market uncertainty in the United States, using a novel methodological approach that integrates panel quantile regression with two-way fixed effects and local projection techniques. Specifically, it analyzes the dispersion between tail conditional quantiles and central quantiles in the predicted house price index growth distribution within each Metropolitan Statistical Area (MSA). The findings reveal that weaker tornadoes are predominantly associated with decreased housing demand, while stronger and more destructive tornadoes are more linked to decreased housing supply. Furthermore, the results show that these strong tornadoes are associated with increased dispersion of the regional house price growth distributions, signaling heightened uncertainty in these markets. This underscores the potential for extreme weather events, particularly tornadoes intensified by climate change, to raise uncertainty levels in regional housing markets, highlighting the need for targeted policy interventions to maintain market stability. In Chapter 2, Ji Hyung Lee and I examine the impact of monetary policy shocks on inflationary risks in the United States using a quantile local projection approach. We focus on the predictive effects of contractionary monetary policy on the distribution of future inflation, with Inflation-at-Risk (IaR) used to measure the tail behavior of inflation rates. Our key findings show that inflationary risks increase following a positive monetary policy shock, with the most pronounced effects observed in the lower tail of the inflation distribution, indicating heightened disinflationary or deflationary risks. These results are robust across multiple empirical specifications, reinforcing the importance of considering the broader distributional impacts of monetary policy beyond the mean. Based on these findings, we suggest caution in adopting overly aggressive tightening policies, as they may exacerbate downside risks to inflation, with potential implications for economic stability. Chapter 3 investigates the flight-to-safety behavior from the US stock market to the US Treasury bond market in response to increases in stock market uncertainty, using a Mixed-Frequency Vector Autoregression (MF-VAR) approach. The MF-VAR model allows for the incorporation of both macroeconomic and financial variables with different data frequencies, providing a more accurate assessment of the timing and dynamics of flight-to-safety. The key findings reveal that flight-to-safety is acute but short-lived, lasting for less than a week. Additionally, significant and persistent responses from macroeconomic variables, such as output growth and inflation, are observed, following a shock to stock market uncertainty. These results highlight the importance of considering macroeconomic conditions in understanding capital flows during periods of financial stress. The paper demonstrates the usefulness of MF-VAR in capturing these dynamics and offers a potential solution for future research requiring variables with different data frequencies.

Graduation Semester

2025-05

Type of Resource

Thesis

Handle URL

https://hdl.handle.net/2142/129178

Copyright and License Information

Copyright 2025 Minyoung Cho

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