Viktoriya Hnatkovska

Associate Professor

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Dissertations completed in 2010 or later are listed below. Please note that there is a 6-12 month delay to add the latest dissertations.

Essays in macroeconomics (2021)

The first chapter investigates how households’ smooth consumption against idiosyncratic wage shocks in recessions and expansions. Labour market uncertainty amplifies during recessions, captured through the cross-sectional dispersion of wages. I focus on the relative contribution of adjustments in labour supply and net assets as insurance mechanisms. My identification strategy exploits variation in expenditures, hours worked and wages over the business cycle, and is applied to US household panel data. I document a new empirical fact -- the contribution of labour supply to consumption smoothing increases during economic downturns. I then examine the nature of this cyclicality through the lens of a standard life-cycle model with multiple asset-types (liquid and illiquid). The model shows that shifts in portfolio composition towards liquid assets in high uncertainty periods can rationalize the empirical observation.The second chapter examines the joint evolution of a pandemic and its macroeconomic consequences. We outline a macro-pandemic model where individuals can select into working from home or in the market. Market work increases the risk of infection. Occupations differ in the ease of substitution between market and home work, and in the risk of infection. The model is calibrated to British Columbian micro data to examine the implications of individuals exiting market work to insure against the risk of infection. We find that endogenous choice to self-isolate reduces the peak weekly infection rate by 2 percentage points but reduces the trough consumption level by 4 percentage points, even without policy mandated lockdowns.The third chapter examines whether improving access to financial institutions always facilitates consumption smoothing. I document new empirical evidence that emerging economies with better access to banks are worse at consumption smoothing defined as the ratio of consumption volatility to income volatility. Though developed economies with better access to banks are better at consumption smoothing. A simple one-good small open economy model supplemented with trend shocks and financial access heterogeneity is calibrated to match business cycle moments of developed and emerging markets. The model can qualitatively account for the relationship between consumption smoothing and financial access for developed and emerging economies, as seen in the data.

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Essays in time series econometrics and international finance (2021)

Chapter 1 develops a new econometric framework to model persistent and low-frequency stochastic cycles (referred to as "long cycles") in the data. Existing inferential procedures based on the conventional asymptotic theory may produce misleading results in presence of such cycles. This work provides a new asymptotic theory for statistical inference on long-cycle data. The proposed procedure can be used to rule out cyclical dynamics in the data and to test for the periodicity of cycles. Chapter 2 examines the cyclical properties of business and financial cycles in the U.S. Using the methodology developed in Chapter 1, it provides a set of new empirical results on the cyclical dynamics of macro and financial aggregates. Results from this chapter find evidence of stochastic cycles in key business cycle indicators, as well as in credits to non-financial corporations and households. Moreover, the credit cycle operates at a lower frequency and has more prominent and persistent oscillations. In contrast, fluctuations in the asset market variables related to risk and uncertainty do not exhibit any cyclical dynamics. Chapter 3 studies the relationship between industrial structure of economies and their international portfolio composition. Using U.S industry-level data, it uncovers a new empirical fact: industries with higher capital intensity tend to exhibit lower degrees of equity home bias. This empirical pattern is rationalized in a two-sector and two-country framework with incomplete asset markets. This work contributes to the literature by adding two novel channels affecting international portfolio choices: (i) differences in capital intensity and productivity processes across sectors, which have opposite effects on international portfolio diversification; (ii) differences in capital intensity across sectors, which affect the strength of the demand for domestic equities to hedge fluctuations in non-tradable risk.

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Essays on credit booms and rational bubbles (2017)

Why are credit booms and bubbles harmful to the economy? A dominant view points tothe risk of bust. Traditional theories of bank runs and recent theories of rational bubblesdescribe the costs of jumping to a bad equilibrium when the economy accumulates too muchdebt. In this work, I propose a theory of rational bubbles where the boom, not the ensuingbust, reduces the output by promoting a misallocation of factors.In the model presented in Chapter 2, financial markets are imperfect and the rise of a bubblealleviates credit constraints and boosts capital accumulation. However, capital accumulationoccurs in unproductive sectors and aggregate output is reduced. The result is driven by thefact that heterogeneous borrowers have an advantage with respect to issuing different types ofdebt contracts. In normal times, High-productive borrowers have higher collateral and therebyattract most of the funds. In bubbly times, borrowers can also issue “bubbly debt,” a debtthat is repaid with future debt. The possibility to keep a pyramid scheme and raise bubblydebt depends on the probability of surviving in the market. Therefore, a bubble misallocatesresources towards borrowers with low fundamental risk, even if they invest in projects withlower productivity.In Chapter 3, I propose an augmented version of the model with nominal rigidities. Thegoal is to explain the timing of expansions and recessions during “bubbly episodes.” In thisversion of the model, the initial boom in output is caused by a positive demand effect; thelong run reduction in TFP is driven by a misallocation process. In this chapter, I also analyzethe optimal policy prescriptions. In particular, I stress the importance of the central bankmonopoly on the issuing of bubble-like instruments.Finally, Chapter 4 presents an investigation of American banks’ balance sheets motivatedby the theory of the previous chapters. I test models of credit bubbles versus models of liquiditytransformation. I provide evidence that the recent expansion in liquid debt instruments canbe interpreted by the emergence of a bubble on bank’s liabilities.

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