Moral hazard in lending and the real economy

The focus of my dissertation is on understanding the important role played by financial frictions in the aggregate economy. While it is agreed that a firm's access to external financing may be vital for their economic prosperity, it is not clear how frictions that impede this access impact business cycle fluctuations at the aggregate level. In order to capture these effects, I develop two dynamic stochastic general equilibrium (DSGE) models of the macro-economy and use them to demonstrate how the presence of financial frictions effect the model's simulated business cycle. The results indicate that the inclusion of financial frictions is necessary in allowing the model to replicate key business cycle properties, such as asymmetry and internal shock propagation, that are evident in the U.S. data.