Essays in Finance and Econometrics

Abstract

This thesis presents two essays studying the role of banks in financial markets and one which studies statistical inference in matching markets. The first chapter presents a new theory of the role of banks, providing an explanation for the role of publicly available securities on bank balance sheets. The model provides a unified framework for studying asset prices, portfolio choices, capital structure, and macroeconomic policies such as quantitative easing. Relative to existing models of banking, the paper emphasizes the demand for deposits rather than the expertise of bankers in making loans. The second chapter expands on the research agenda presented in the first by studying why traders might demand bank deposits. It formalizes the idea that deposits function as a form of money, because they are safe assets that avoid adverse selection problems in trade. The model presents a fundamental tension between banks creating large quantities of money-like assets and being vulnerable to financial panics. The third chapter studies identification and estimation in two sided matching markets where the desirability of matching with an agent can be summarized by a latent index. The paper first studies identification, showing that a many-to-one matching market allows for the estimation of parameters that cannot be estimated in a one-to-one matching market. It then studies the limiting distribution of a class of estimators and develops novel methods for proving such limit theorems.