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Associate Professor of Economics at Emory University
CQER Senior Research Fellow at Federal Reserve Bank of Atlanta
Associate Editor: International Economic Review; China Economic Review
Email: kaiji.chen@emory.edu
A. Publications and forthcoming papers
“Constructing Quarterly Chinese Time Series Usable for Macroeconomic Analysis,” with Patrick Higgins and Tao Zha, forthcoming, Journal of International Money and Finance.
Download here for the NBER working paper version.
Abstract: During episodes such as the global financial crisis and the Covid-19 pandemic, China experienced notable fluctuations in its GDP growth and key expenditure components. To explore the primary sources of these fluctuations, we construct a comprehensive dataset of GDP and its components in both nominal and real terms at a quarterly frequency. Applying two SVAR models to this dataset, we uncover the principal drivers of China's economic fluctuations across different episodes. In particular, our findings reveal the stark and enduring impacts of consumption-constrained shocks on GDP and all of its components, especially household consumption, both during and in the aftermath of the COVID-19 pandemic.
Download here for the dataset used in this paper.
“Monetary Stimulus amidst the Infrastructure Investment Spree: Evidence from China's Loan-level Data,” with Haoyu Gao, Patrick Higgins, Daniel Waggoner, and Tao Zha, 2023, Journal of Finance, 78(2), 1147-1204 .
Download here for the NBER working paper version.
"Cyclical Lending Standards: A Structural Analysis," with Patrick Higgins and Tao Zha, 2021, Review of Economic Dynamics, 42, 283-306.
Download here for the NBER working paper version.
"China's Housing Policy and Housing Boom and Their Macroeconomic Impacts," Oxford Research Encyclopedia of Economics and Finance, 2020, December.
"Macroeconomic Effects of China's Financial Policies", with Tao Zha, Chapter for the Handbook of China's Financial Markets, ed. by Marlene Amstad, Guofeng Sun and Wei Xiong.
This research is supported by NSF Grant SES-1558486.
Download here for the NBER working paper version.
"The Nexus of Monetary Policy and Shadow Banking in China", with Jue Ren and Tao Zha, American Economic Review, 2018, 108 (12), 3891-3936.
A previous version, entitled by "What Do We Learn from China's Rising Shadow Banking: Exploring the Nexus of Monetary Tightening and Banks' Role in Entrusted Lending", is replaced by this new version.
This research is supported by NSF Grant SES-1558486.
Download here for the NBER working paper version.
"The Great Housing Boom of China", with Yi Wen, American Economic Journal: Macroeconomics, 2017, 9 (2), 73-114.
Winner of 3rd Sun Yefang Financial Innovation Award.
This research is supported by NSF Grant SES-1558486.
See VoxChina for a non-technical summary.
Media coverage Wall Street Journal, Financial Times (China), Bloomberg.
"Trends and Cycles in China's Macroeconomy", with Chun Chang, Daniel Waggoner and Tao Zha, NBER Macroeconomic Annual, Vol. 30 (lead article), 1-84
Non-technical summary VoxEU and NBER Digest.
“Debt in the U.S. Economy,” with Ayse Imrohoroglu.
Economic Theory, 2017, 64(4), 675-706 .
“Investment-Specific Technological Changes: The Source of Long-run TFP Fluctuations”, with Edouard Wemy, European Economic Review, 2015, Vol. 80, 230-252.
"The Role of Allocative Efficiency in A Decade of Recovery," with Alfonso Irarrazabal, Review of Economic Dynamics, 2015, Vol. 18, 523-550, .
“Markovian Social Security in Unequal Societies", with Zheng Song, Scandinavian Journal of Economics, 2014, Vol. 116(4), 982-1011,
"Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations", with Zheng Song, Journal of Monetary Economics, 2013, Vol. 60, 683-703
Matlab code and the data.
“A Life-Cycle Analysis of Social Security with Housing,” Review of Economic Dynamics, 2010, Vol 13(3), 597-615.
“A Quantitative Assessment of the Decline in the U.S. Current Account,” with Ayse Imrohoroglu and Selo Imrohoroglu, Journal of Monetary Economics, Vol. 56(8), 2009, 1135-1147.
“The Japanese Saving Rate between 1960-2004: Productivity or Demographics,” with Ayse Imrohoroglu and Selo Imrohoroglu, Economic Theory, Vol. 32, 87-104, 2007,
“The Japanese Saving Rate,” with Ayse Imrohoroglu and Selo Imrohoroglu, American Economic Review, Vol. 96(5), 1850-1858, 2006,
B. Working Papers
“Aggregate and Distributional Impacts of LTV Policy: Evidence from China's Micro Data,” with Qing Wang, Tong Xu and Tao Zha.
Download here for the NBER working paper version.
Abstract: We study how loan-to-value (LTV) policy specifically targeting house purchases for speculative investments influences housing and mortgage markets. Using China’s administrative data of more than 3 million mortgage originations, we find that such a policy change during 2014Q4-2016Q3 fueled a housing boom by encouraging mortgage demand for primary homes, especially from middle-aged highly educated households. We develop a theoretical model to show that this LTV policy has a quantitatively large impact on house prices and mortgage originations to primary homes as homeowners trade up existing primary homes to larger ones via housing speculation.
“China's Monetary Transmission and Systemic Risk: A Role of Interbank Bond Markets,” with Yiqing Xiao and Tao Zha.
Abstract: We study how interbank wholesale funding in China influences monetary policy transmission under a dual-track interest-rate system and how it contributes to increasing systemic risks in recent years. By constructing a bank-panel dataset, we find that wholesale funding via interbank certificates of deposit not only facilitates policy interest rates to transmit into loan by non-state banks, but also leads to fast growth in their shadow banking activities as an unintended consequence. Accordingly, non-state banks with a heavier exposure to wholesale funding witness a larger increase in systemic risks in response to negative shocks to the economy since 2018. We advance a theoretical explanation of our empirical findings and quantify the trade-off of banking regulation on wholesale funding between the effectiveness of monetary policy transmission and exposure to systemic risks within this framework.
“The Impact of Monetary Policy on Bank Funding Composition: The Role of Deposit Market Regulation,” with Yiqing Xiao and Tao Zha.
Download here for the NBER working paper version.
Abstract: In well-developed financial markets, wholesale funding comoves negatively with retail deposits in response to interest rate changes, thereby weakening monetary policy transmission. By contrast, our study finds that in economies such as China where deposit rate ceilings are regulated, (i) retail deposits and wholesale funding comove positively as the policy rate changes, and (ii) wholesale funding strengthens the transmission of the policy rate to bank lending. We develop a theoretical model underscoring the role of deposit market regulation for the impact of monetary policy on bank funding composition in the context of the world's largest emerging market economy.
"China's Macroeconomic Development: The Role of Gradualist Reforms," with Tao Zha, R&R at Journal of Economic Literature
Download here for the NBER working paper version.
Abstract: This paper reviews recent literature on China's macroeconomic development,
emphasizing the critical role of the gradualist approach over the past four decades. Beyond
China's structural transformation, we explore various aspects such as high saving rates, the
housing boom, an expanding current account surplus, and rising inequality. We propose
a unifying framework that encapsulates key development stages, contrasting gradualism
with a laissez-faire counterfactual. Our analysis illustrates how China's gradual policy re-
forms, amidst highly imperfect financial markets, have effectively helped spur GDP growth
throughout its macroeconomic evolution. We highlight the tradeoffs between accelerating
GDP growth and safeguarding China's long-term financial stability.
"Preferential Credit Policy with Sectoral Markup Heterogeneity," with Yuxuan Huang, Xuewen Liu, Zhikun Lu, and Yong Wang
Abstract: Many emerging economies adopt preferential credit policy towards selected sectors.
This paper provides an analysis of the economic rationale behind the preferential credit policies in the presence of market imperfections. Using firm-level data, we first empirically establish that sectors with higher markups are also those enjoying preferential credit subsidy. Disciplined by these empirical findings, we develop a dynamic model featuring sectoral markup heterogeneity and endogenous firm entry and exit. We show that sector-specific preferential credit policies can be used to improve aggregate
productive efficiency by reducing sectoral markup dispersion, despite the inefficiency introduced by allowing for less productive firms to enter and survive without exiting. We quantify the effect of preferential credit policy on aggregate TFP through the two opposite channels.
"Impacts of Monetary Stimulus on Credit Allocation and Macroeconomy: Evidence From China," with Patrick Higgins, Daniel Waggonor and Tao Zha
Abstract: We develop a new empirical framework to identify and estimate the effects of monetary stimulus on the real economy. The framework is applied to the Chinese economy when monetary policy in normal times was switched to an extraordinarily expansionary regime to combat the impact of the 2008 financial crisis. We show that this unprecedented monetary stimulus accounted for as high as a 4% increase of real GDP growth rate by the end of 2009. Monetary transmission to the real economy was through bank credit allocated disproportionately to financing investment in real estate and heavy industries. Such an asymmetric credit allocation resulted in the persistently high investment rate and debt-to-GDP ratio. Our findings provide a broad perspective on a tradeoff between short-run GDP growth and longer-run accumulated debt in response to large monetary interventions.
"News-Driven Borrowing Capacity and Corporate Savings", with Zheng Song and Yikai Wang
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.
C. Work in Progress
"The Role of Housing in Inter-generational Wealth Sharing in a Rapidly Economy: The Case of China"
"Understanding the Secular Decline in China's Household Saving Rates"
"The Speculative Investment Channel of Monetary Policy Transmission "
D. Discussions
Rural-Urban Migration, Structural Transformation, and Housing Market in China, by Carlos Garriga, Yang Tang and Ping Wang
Equity Extraction and Mortgage Default, by Steven Laufur
Financial Development and Total Factor Productivity: Evidence from India's Manufacturing Sector”, by Zhenhui Xu
Negative Investment in China: Restructuring and Financing Constraints versus Growth, by Sai Ding
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