Serletis, ApostolosIstiak, Khandokar Mohammad2015-06-162015-11-202015-06-162015http://hdl.handle.net/11023/2305In recent years the Federal Reserve has set very low policy interest rates in response to the global financial crisis and Great Recession. But as the federal funds rate has become almost constant since the first quarter of 2009, it partially has lost its appeal to affect the major macroeconomic and financial indicators. In this backdrop, an interesting question is whether leverage of financial institutions can play a role in business cycle analysis and forecasting the economy through the leverage‒asset price‒output relationship. In Essay 1 (Chapter 2), I investigate whether the relationship between leverage and real GDP is nonlinear and asymmetric, using slope-based tests as well as tests of the null hypothesis of symmetric impulse responses. I find that in general the relationship between leverage and real GDP is nonlinear and asymmetric, meaning that when leverage declines the effect is much more stronger on real GDP compared to when leverage increases. In Essay 2 (Chapter 3), I explore the effects of broker-dealer leverage on the economy and the interdependence between monetary policy and broker-dealer leverage in the context of a structural vector autoregression model. I apply short-run and long-run restrictions based on economic theory to identify monetary policy and leverage shocks. I also use the sign restrictions approach to the identification of a leverage demand shock and examine its effect on the economy. My results show that broker-dealer leverage demand shocks can influence monetary policy decisions and also can affect key macroeconomic indicators. In Essay 3 (Chapter 4), I investigate whether the macroeconomic effects of broker-dealer leverage and the interdependence between monetary policy and broker-dealer leverage vary over time, by using a time-varying parameter vector autoregression model. I find that the procyclical nature of broker-dealer leverage has become evident since the year 2000. Based on my finding that leverage and economic activity move in the same direction in recent times, I conclude that regulation of leverage under the Basel III regulation is not promising for the economy. I suggest countercyclical capital requirements, which works as a supportive tool for the current apparently easy monetary policy in the United States.engUniversity of Calgary graduate students retain copyright ownership and moral rights for their thesis. You may use this material in any way that is permitted by the Copyright Act or through licensing that has been assigned to the document. For uses that are not allowable under copyright legislation or licensing, you are required to seek permission.EconomicsEconomics--FinanceEconomics--TheoryLeverageMacroeconomicsFinancial Economicsdoctoral thesis10.11575/PRISM/28446