Kaiji Chen
Department of Economics, University of Oslo

Curriculum Vitae


A. Publications

  • The Japanese Saving Rate,” American Economic Review, Vol. 96(5), 1850-1858, 2006, with Ayse Imrohoroglu and Selo Imrohoroglu.


  • The Japanese Saving Rate between 1960-2004: Productivity or Demographics,” Economic Theory, Vol. 32, 87-104, 2007, with Ayse Imrohoroglu and Selo Imrohoroglu.


  • A Quantitative Assessment of the Decline in the U.S. Current Account,” Journal of Monetary Economics, Vol. 56(8), November 2009, with Ayse Imrohoroglu and Selo Imrohoroglu.


  • A Life-Cycle Analysis of Social Security with Housing,” forthcoming, Review of Economic Dynamics.


B. Working Papers

Abstract: This paper provides a theory of financial frictions as a transmission mechanism for primitive shocks to translate into aggregate TFP fluctuations. In our model, financial frictions affect aggregate productive efficiency via capital allocation across different production units. News shocks on future technology improvement are introduced as a device to identify TFP fluctuations originating from this mechanism. We find that variations of financial frictions in response to news shocks can generate sizable fluctuations in aggregate TFP and thus business cycles before the actual technology improvement is realized. Our empirical evidence using a combined dataset from Compustat and IBES provides strong support for the transmission mechanism proposed by our theory.


Abstract: We develop a theory of corporate liquidity demand, capturing the fact that a firm's borrowing capacity depends on news on future investment profitability. In our model, good news on future investment profitability expands a firm's borrowing capacity and therefore reduces the need for internal finance. Consequently, the firm's cash savings respond negatively to news on future profitability. This negative correlation is strongly supported by our empirical evidence using a combined data set of Compustat and IBES. Moreover, both our simulation and empirical results show that the sensitivity of cash savings to news on future profitability is a reliable indicator of the presence of financial constraints at firm level.


Abstract: In this paper, we develop a dynamic politico-economic theory of social security to address two questions. First, how is social security sustained? Second, how does inequality affect the size of social security, and can the theoretical predictions be consistent with the observed puzzling relationships between inequality and the size of social security? As a stark framework, our model economy features the absence of altruism, commitment, reputation mechanism and electoral uncertainty. We characterize analytically a Markov perfect equilibrium and find that the joint between Markovian tax policy and tax distortion on private investment shapes an intertemporal policy rule linking taxes positively over time. The positive intertemporal tax linkage, by allowing current taxpayers to influence their own future social security benefit, provides the political support for social security. Moreover, we find that a larger wage inequality weakens the intertemporal tax linkage and, thus, reduces inter-generational redistributive benefit. This may lead to a smaller size of social security. Our theoretical predictions are in line with both time-series and cross-country correlations between inequality and social security.


C. Work in Progress

  • "Entry, Exit and the Dynamics of Chilean TFP," with Alfonso Irarrazabal
  • "Financial Frictions, Endogenous Entry and Aggregate TFP Fluctuations," with Zheng Song
  • “Demographics and Hours Worked in the U.S.”, with Ayse Imrohoroglu and Selahattin Imrohoroglu
  • "Housing Price Dynamics and Demographic Transition," with Lin Shao and Zheng Song


D. Discussions

·        Housing Bubble by Oscar J. Arce and J. David López-Salido

·        The First-Order Approach to Moral Hazard Problems with Hidden Savings by Sebastian Koehne

·        Optimal Unemployment and Disability Insurance by Erik Hoglin

·        Democracy as a Middle Ground: Development and Growth Implications of Alternative Political Regimes by Anna Larsson and Stephen Parente


D. Teaching

  • Numerical Methods for Economics Dynamics (Spring 2006)



Tel  (+47) 2258 5495
Fax (+47) 2285 5035
Email  kaijic@econ.uio.no
Office1138 Eilert Sundts Hus, Blindern

Mail address
Department of Economics, University of Oslo
Box 1095 Blindern
N-0317 Oslo