Kaiji Chen
Department of Economics, University of Oslo
Curriculum
Vitae
A. Publications
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
D. Teaching
|