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: This paper studies the impact of income inequality on sovereign spreads under elastic labor and endogenous taxation. We first document that high pre-tax income inequality is associated with high spreads both across countries and across U.S. states. We then develop a sovereign default model with endogenous progressive taxation and heterogeneous labor in productivity and migration cost. The government chooses the optimal combination of tax and debt, considering their interaction. Progressive taxes redistribute income but discourage labor supply and induce emigration, eroding the tax base and the government's ability to repay debt. Default risk increases sovereign spreads and borrowing costs. Thus, the government faces a trade-off between redistribution and spreads. In more unequal economies, the government opts for more redistribution and higher spreads. With the model parameterized to state-level data, we find that income inequality is an important determinant of spreads, generating more than 20% higher spreads compared with a model without income inequality. In a recession, more unequal economies suffer a larger increase in spreads.
Lumpy Debt, Monetary Policy, and Investment, with Min Fang
Abstract: We study how financial heterogeneity determines firm-level investment responses to monetary policy shocks. In Compustat, a significant amount of firms hold almost zero debt, and among the firms who hold debt, both the amount and the maturity of debt vary greatly. We refer to these financial heterogeneity characteristics as lumpy debt. We first document that lumpy debt significantly affects the responses of firm investment to monetary policy shocks: firms who hold debt, hold more debt, and hold more long-term debt, are less responsive to monetary policy shocks. We then develop a heterogeneous firm model with investment, long-term and short-term debt, and default risk to interpret these facts. In the model, firms with higher leverage or more long-term debt are less responsive to monetary policy shocks because their marginal cost of external finance is high. The effect of monetary policy on aggregate investment, therefore, depends on the distribution of firm financial positions.
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.