AbstractThis thesis consists of three essays at the intersection of banking, corporate finance and macroeconomics.Unifying the essays are two themes: firstly a focus on how firms (Chapter 1 andChapter 2) and individuals (Chapter 3) insure against, and react to, sources of macroeconomicrisk; secondly the role of financial institutions in the transmission of macroeconomic shocks.Turning to specifics, Chapter 1 is a theoretical and empirical examination of risk managementbehavior amongst small and medium sized firms, in particular firms’ choices between fixedand adjustable rate loan contracts. (Although theory suggests small, privately held firms shouldhave strong incentives to engage in risk management, such firms are rarely studied in empiricalwork.) I develop a simple agency model of risk management behavior, and then present severalpieces of empirical evidence that suggest small US firms do use the banking system to helpmanage interest rate risk, based on microeconomic data on bank dependent US firms.Chapter 2 presents evidence that banking relationships are most valuable to firms duringperiods of tight credit, in the extreme during a ‘credit crunch’. Relationships alleviate delegatedmonitoring costs; when banks are credit constrained, these costs are extreme, so the informationaladvantage of relationships is magnified. I develop these intuitions using a simple agencymodel. Empirical evidence, based on data from a survey of manufacturing firms during theAsian financial crisis, supports the thesis. Several pieces of evidence also suggest my empiricalresults are not driven by the endogenous nature of bank relationship formation.Financial institutions in co-operation with the World Bank and the International Taskforceon Commodity Risk Management have begun implementing strategies to provide commodityprice and weather insurance in the developing world. In Chapter 3 (joint with Professor RobTownsend from the University of Chicago), we examine how shocks to the price of rubber,an important but volatile Thai export commodity, affect the income, consumption and intrahouseholdremittances of rural Thai households. In contrast to related work on rainfall shocks,we find rubber price innovations are not well insured or smoothed — remittances, borrowingand saving play only small roles in ameliorating the effect of these shocks on the consumptionof affected households. We argue that differences in the relative persistence of the two typesof shocks provide a plausible reason for these divergent findings, drawing on the literature onbuffer stock models of consumption behavior and risk sharing with limited commitment.