Ghironi, FabioKhurana, Mikita2025-08-012025-08-012025-08-012025Khurana_washington_0250E_28379.pdfhttps://hdl.handle.net/1773/53528Thesis (Ph.D.)--University of Washington, 2025This dissertation examines the interactions between sudden stops in international capital flows, the structure and behavior of the banking sector, and the broader dynamics of external debt across economic sectors in emerging and advanced economies.Chapter 1 investigates the consequences of sudden stops for the competitive landscape of the banking sector and, in turn, how changes in the latter amplify the effects of sudden stops. Using data for 46 emerging economies, I present evidence of a reduction in banking competition following sudden stop episodes. A small open economy model with imperfectly competitive banks that face an occasionally binding collateral constraint can explain this evidence and other standard effects of sudden stops on the economy. Entry and exit of banks influence market power in the banking sector. The diminished availability of external funds during sudden stops causes the sector to contract, resulting in a reduced number of banks. This amplifies market concentration and allows surviving banks to exercise stronger monopoly power. In turn, this results in higher loan rates, exacerbating borrowing costs for firms and households, and amplifying the negative consequences of sudden stops for the aggregate economy. Chapter 2 introduces heterogeneous banks into a small open economy dynamic stochastic general equilibrium (DSGE) framework to study how endogenous market structure interacts with macroeconomic shocks. Banks differ in productivity governed by Pareto distribution. Two structural shocks, a permanent reduction in bank entry costs and a permanent increase in government spending are analyzed to understand their effects on credit markets and aggregate outcomes. Lower entry costs increase selection pressure, raising average bank productivity and expanding credit despite a declining number of operating banks. Conversely, higher government spending boosts loan demand, lowers the profitability threshold for entry, and draws more marginal banks into operation. The degree of productivity heterogeneity, shaped by the thickness of the Pareto tail, governs the intensity of reallocation, market power dynamics, and the resulting changes in lending spreads. Chapter 3 turns to the sectoral composition of external debt. Leveraging a three-state Markov-switching model, I analyze portfolio and other investment debt flows to banks, corporates, and sovereigns across advanced and emerging economies. I uncover pronounced differences in the timing, persistence, and severity of regime shifts across sectors and regions, highlighting the importance of sector-specific vulnerabilities. In sum, this dissertation shows that the macroeconomic consequences of sudden stops are shaped not only by the availability of external finance but also by the structure and granularity of domestic financial intermediation. Bank competition, productivity heterogeneity, and the sectoral allocation of external debt jointly determine how external shocks transmit through the economy. The findings underscore the importance of accounting for institutional features of the financial sector when designing macroprudential and capital flow management policies.application/pdfen-USnoneBank CompetitionBank HeterogeneityCapital FlowsDSGE ModelingFinancial FrictionsSudden StopsEconomicsBankingFinanceEconomicsThesis