Welcome! I am an Assistant Professor of Economics at Simon Fraser University. I received my PhD in Economics from University of Rochester. My research interests cover fiscal policy, monetary policy, debt sustainability, sovereign default, and other topics in macroeconomics and international finance.
Recently, I mainly work on topics on sovereign default risk and its interactions with households and firm dynamics.
Abstract: During sovereign debt crises, countries experience persistent economic declines, spiking spreads, and outflows of capital and workers. To account for these salient features, we develop a sovereign default model with migration and capital accumulation. The model has a two-way feedback. Default risk lowers workers’ welfare and induces emigration, which in turn intensifies default risk by lowering tax base and investment. Compared with a no-migration model, our model produces higher default risk, lower investment, and a more profound and prolonged recession. We find that migration accounts for almost all of the lack of recovery in GDP during the recent Spanish debt crisis.
Inequality, Taxation, and Sovereign Default Risk
Abstract: Income inequality and worker migration significantly affect sovereign default risk. Governments often impose progressive taxes to reduce inequality, which redistribute income but discourage labor supply and induce emigration. Reduced labor supply and a smaller high-income workforce erode the current and future tax base, reducing the government's ability to repay debt. I develop a sovereign default model with endogenous non-linear taxation and heterogeneous labor to quantify this effect. In the model, the government chooses the optimal combination of taxation and debt, considering its impact on workers' labor and migration decisions. With the estimated model, I find that income inequality and its interactions with migration explain one-third of the average U.S. state government spread.
Intangible Investment during Sovereign Debt Crisis: Firm-level Evidence, with Chang Liu
Abstract: This paper measures the cost of sovereign debt crises by focusing on the impact of sovereign risk on firms’ intangible investment and TFP. Using Italian firm-level data, we find that small firms and high-leverage firms significantly reduce their intangible investment during the Italian sovereign debt crisis. High-leverage firms reallocate their resources from intangible capital to tangible capital to offset the tightening of financial conditions because tangible capital can be used as collateral. We analyze these patterns by developing a quantitative model incorporating sovereign default risk, financial intermediations, and firm investment decisions on both tangible and intangible capital. In the model, government default risk deteriorates banks’ balance sheets, disrupting banks’ ability to finance firms. Since firms depend on external funding to cover a fraction of investment, firms – especially small and high-leverage ones – reduce intangible investment, which hurts their future total factor productivity. We estimate the model using Italian data and find that the increase in sovereign risk explains the slow recovery of productivity after the debt crisis through the intangible investment channel.
Debt Heterogeneity and Investment Responses to Monetary Policy, with Min Fang
Abstract: We study how debt heterogeneity determines firm-level investment responses to monetary policy shocks focusing on the role of debt maturity. We first document that debt heterogeneity in both leverage and maturity significantly affects the responses of firm-level investment to monetary policy shocks: firms who hold more debt and/or hold more long-term debt are less responsive to monetary policy shocks. Evidence from credit ratings and borrowing behavior indicates that the higher default risk embedded in long-term debt plays an essential role. We then develop a heterogeneous firm model with investment, long-term and short-term debt, and default risk to quantitatively interpret these facts. In the model, firms with higher leverage and/or more long-term debt are more likely to default on their external debt and consequently face a higher marginal cost of external finance. As a result, these firms are less responsive in terms of investment to expansionary monetary policy shocks. The effect of monetary policy on aggregate investment, therefore, depends on the joint distribution of firms' leverage and maturity.