Working Paper
Monetray Policy and Capital Misallocation.(Job Market Paper)
Abstract: This paper studies how monetary policy transmission would affect the degree of capital misallocation. Using the post-event approach and local projection, our firm-level evidence shows that monetary expansions increase investment of high-productivity firms by more than that of low-productivity ones in the short run, but the effect is reversed over a longer horizon. We then build a tractable New Keynesian model with heterogeneous firms and time-varying productivity selection. In our model, capital misallocation is countercyclical, and it first enhances monetary policy but then weakens it, in line with documented evidence.
Abstract: This paper studies how monetary policy transmission would affect the degree of capital misallocation. Using the post-event approach and local projection, our firm-level evidence shows that monetary expansions increase investment of high-productivity firms by more than that of low-productivity ones in the short run, but the effect is reversed over a longer horizon. We then build a tractable New Keynesian model with heterogeneous firms and time-varying productivity selection. In our model, capital misallocation is countercyclical, and it first enhances monetary policy but then weakens it, in line with documented evidence.
Reputation Cost of Price Cut: Modern Theory and Evidence for Price Stickiness.(with Pengfei Wang, Zhongchao Yang)
Abstract: Using the dataset collected from one of the Chinese largest E-commerce platform – JD.com and some price comparison websites, we provide modern evidence that the reputation cost measured by online consumer reviews is a novel source of price stickiness. Particularly, we find that the reputation cost is asymmetric and shops which decrease price earlier than their peers would incur a higher reputation cost. Based on our empirical results, we provide an information flow model to explain the specific mechanism of delays and staggers of price cuts. In other words, the reputation cost provides a novel micro-foundation for the modern price stickiness.
Abstract: Using the dataset collected from one of the Chinese largest E-commerce platform – JD.com and some price comparison websites, we provide modern evidence that the reputation cost measured by online consumer reviews is a novel source of price stickiness. Particularly, we find that the reputation cost is asymmetric and shops which decrease price earlier than their peers would incur a higher reputation cost. Based on our empirical results, we provide an information flow model to explain the specific mechanism of delays and staggers of price cuts. In other words, the reputation cost provides a novel micro-foundation for the modern price stickiness.
Risk Experimentation and the Conditional Investment Channel of Monetary Policy.(with Dun Jia and Pengfei Wang)
Abstract: We document the investment channel of monetary policy per Ottonello and Winberry (2018) is only conditional, in that the investments of underleveraged firms are sensitive to interest rate shocks if and only if firms are operating in riskier sectors. These sectors are characterized by larger firm TFP dispersion and greater churning of firms. We then build up a New Keynesian model with heterogeneous firms and endogenous technology adoption. We show that at the firm level, growth firms endogenously take the extra risk and exhibit sensitivity to interest rate changes. At the aggregate level, the investment channel of monetary policy transmission operates only in those sectors of riskier technology but with growth potential. The conditional investment channel of monetary policy is allocative efficient by selecting the exact universe of growth firms to enhance the productivity.
Abstract: We document the investment channel of monetary policy per Ottonello and Winberry (2018) is only conditional, in that the investments of underleveraged firms are sensitive to interest rate shocks if and only if firms are operating in riskier sectors. These sectors are characterized by larger firm TFP dispersion and greater churning of firms. We then build up a New Keynesian model with heterogeneous firms and endogenous technology adoption. We show that at the firm level, growth firms endogenously take the extra risk and exhibit sensitivity to interest rate changes. At the aggregate level, the investment channel of monetary policy transmission operates only in those sectors of riskier technology but with growth potential. The conditional investment channel of monetary policy is allocative efficient by selecting the exact universe of growth firms to enhance the productivity.
Selected Publication
[1] COVID-19 and labour market resilience: Evidence from large-scale recruitment behaviour. (Regional Studies, 2024, with Xinguo Yu, Ting Ren and Yanbo Xue)
[2] A quantitative analysis of credit subsidy in China. Economic Modelling China. (Economic Modelling, 2023, with Zhongchao Yang and Yue Zhou)
[3] Can monetary policy undo asset-freezing sanctions? (China & World Economy, 2023, with Pengfei Wang)