Essays on financial aspects of macroeconomics and monetary policy

The principal theme of this thesis is to examine how financial market imperfections affect the economy. This thesis consists of three chapters.;Chapter 2 examines implications of finance constraints and corporate governance problems for investment. Finance constraints imply that some firms with good investment opportunities may under-invest because they cannot raise enough funds. Governance problems, on the other hand, refer to the agency problems arising between managers and owners in firms with high free cash flows but poor investment opportunities. Using a firm level balance sheet and income statement dataset from Statistics Canada I find that investment in some firms that are less likely to be finance constrained can yet show high cash flow sensitivity due to the potential presence of the corporate governance problems.;Chapter 3 explores the role of financial innovation in the moderation of macroeconomic volatility in Canada. Like most of the developed countries, Canada has also experienced a moderation in the business cycle in recent decades. Better monetary policy, and improved inventory management are just some of the explanations usually put forward for this moderation. More recently, it has been argued that financial innovation may be yet another source of the decline in macroeconomic volatility. However, the recent financial crisis has raised the possibility that financial innovation might, under some circumstances, lead to substantially greater macroeconomic volatility. The findings in this chapter suggest that even if we look at the pre-crisis period data, it is difficult to find definitive evidence that financial innovation has played a role in the great moderation.;Chapter 1 examines the credit channel of monetary policy transmission mechanism. In particular I examine the credit channel's role as a propagating mechanism in Canada. A structural vector auto-regression (SVAR) framework is used to identify monetary policy shocks. The results suggest a propagating role of the credit channel. I also compare the responses of prices to monetary policy shocks between the most and least financially dependent firms. I find important differences that suggest a link between nominal rigidities and sensitivity to credit market imperfections.