Research

Research Interests

• Macroeconomics, Financial Economics
• Time-series Econometrics, Empirical Finance

 

PUBLICATION

Regime Dependent Dynamics of Parallel and Official Exchange Markets in China: Evidence from Cryptocurrency (with Huachen Li)

Applied Economics (2023). Online Appendix. Published Version.

 

Working Paper

Monetary Policy and Credit Supply Adjustment with Endogenous Default and Prepayment (Job Market Paper) – Appendix

This paper develops a general-equilibrium model to study how the credit supply mechanisms in the financial intermediation sector, which lends to households and entrepreneurs subject to financial frictions, influence monetary policy. In the model, endogenous default of mortgage and business loans and prepayment of household mortgages influence the costs of supplying credits in the financial intermediary (FI). The FI optimizes her loan portfolio composition given these cost variations with frictions. The loan contracts between the FI and borrowers allow these two parties to share aggregate risk, deviating from the canonical work by Bernanke et al. (1999). I estimate the model with US data. Likelihood inference indicates positive credit supply cost elasticities, significant frictions to portfolio adjustment, and balance-sheet strength fluctuation to borrowers’ default and prepayment variations. Given households’ endogenous behaviors, conventional monetary policy’s effectiveness in stabilizing inflation is enhanced under a TFP shock but reduced under a mortgage loan risk shock, and the credit supply channels worsen the latter situation. The effectiveness of unconventional monetary policy is enhanced by the credit supply channel.

 

Bank Loan Portfolio, Monetary Policy Transmission, and Financial Downturns

This paper studies the change in the financial sector’s asset portfolio following a monetary policy contraction, as well as a tightening of financial conditions measured by loan-to-value (LTV) ratios in the residential mortgage market. By using three different datasets relating to bank loans and private sector liabilities in the U.S., the paper provides indirect support to active portfolio composition changes in the banking sector. This evidence is from the observed differences in the dynamics of loan responses between these datasets and over time. In terms of econometrics, both fixed and time-varying parameter vector autoregressive models are employed to identify these findings. Specifically, under a monetary contraction, results confirm the puzzling commercial and industrial (C&I) loan increase found in the literature. However, different degrees of the puzzling increase materialize depending on the dataset employed. Along the business cycles, this business loan puzzle is found to be more prominent in the 1980s, but varying over time, and slightly weaker after the Great Recession. Also, banks tend to favor real estate loans after the 2000s following a monetary contraction. Under a negative LTV ratio shock, banks tend to adjust their asset portfolio by cutting C&I loans more than real estate loans; over time, this response pattern shows little time variation across datasets, other than a notable boom in real estate liabilities after the 2000s. The response of monetary policy to credit crunches (or booms) seems to be time-varying: more aggressive before the Great Recession but weaker near and after the recession.

 

Work in Progress

Government Consumption: On the Effectiveness of Fiscal Stimulus at the Zero Lower Bound (with Nora Traum)