Essays on macroeconomics

The first essay studies the consequences of job-preserving subsidized loans on TFP. It develops a General Equilibrium model with a finance sector and entry and exit of firms, where inefficient firms are subsidized to avoid closures and the associated jobs losses. In this framework, when savings are invested based on political criteria, the economy is saturated with inefficient firms, that would have otherwise closed down. Thus, TFP levels are lower than in an economy without political pressures in the credit-allocation.{09}This theory can shed light to the differences in the economic performance in Chile and Mexico after their 1982 crises and Sweden and Japan after their early 1990's crises. Mexico and Japan subsidized inefficient firms, for political reasons and experienced large TFP decreases whereas Chile and Sweden allowed inefficient firms to close down and experienced remarkable recoveries, after their crises.; The second essay investigates why the Canadian banking sector was more profitable than the US one from 1929--89. I conjecture that the 1967 Bank Act which prohibited price-collusion by Canadian banks did not effectively deter the Canadian Banker's Association from being an effective cartel enjoying monopoly profits. I provide evidence of the collusive behavior undertaken by Canadian banks until 1980; they coordinated interest rate changes, bailed-out each other to avoid foreign acquisition of distress banks and controlled and owned the payments system. I argue that the effectiveness of the cartel deteriorated in 1980 as new banks were allowed to enter the market, especially after the NAFTA agreement. From then onwards, Canadian banks' profitability converged to the US levels.; The third essay combines the literature on financial intermediation and mechanism design. In a GE framework with overlapping-generations and banking, I derive a direct revelation mechanism for a bank-cartel to use, with asymmetric information about intermediation costs, in order to maximize its expected ex ante joint profits. The mechanism, which is shown to be incentive compatible and implementable, dictates which bank(s) should operate and how the proceeds should be distributed. I show that the lowest cost bank will operate as a monopolist and share the monopoly profits with the remaining banks as side payments.