Dalton Rongxuan Zhang
Dalton Rongxuan Zhang
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I am a 5th year Ph.D. candidate in Economics at Northwestern University, specializing in macroeconomics.
My research focuses in fiscal policy, and bounded rationality. I also work on understanding the interplay between product and labor market power in driving inequality.
Here is my CV
Working Papers
Working Papers
Price Markups or Wage Markdowns? with Kevin Ren,
We offer guidance and tools for augmenting macroeconomic models with a realistic friction in ex- pectations and for quantifying its implications. We start by distilling the common essence of a few popular alternatives to FIRE (Full Information Rational Expectations), including noisy or sticky information, rational or behavioral inattention, level-k thinking and cognitive discounting. We then develop a new specification, which captures the same essence while maximizing tractabil- ity. We show how this works in both RANK (the Representative-Agent New Keynesian model) and HANK (Heterogeneous-Agent New Keynesian models). We further clarify the separate partial- and general-equilibrium effects of informational frictions or bounded rationality; emphasize the inter- action of such frictions with the Intertemporal Keynesian Cross and other forms of strategic com- plementarity; review concrete lessons for business cycles and macroeconomic policy; and discuss how to discipline the theory with appropriate survey evidence.
This paper revisits conventional wisdom on market power by decomposing it into product and labor components theoretically and empirically. We find: (i) the rise in aggregate market power is driven by wage markdowns, while price markups remain stable; (ii) larger firms have lower product but higher labor market power; and (iii) incomplete price pass-through reflects monopsony power rather than demand curvature. A general equilibrium model with nonparametrically identified demand and supply shows about 30% of rising markdowns stem from productivity dispersion, with the rest from demand-supply shifts and their interaction.
From RANK to HANK, without FIRE with George-Marios Angeletos and Joao Guerreiro
We offer guidance and tools for augmenting macroeconomic models with a realistic friction in ex- pectations and for quantifying its implications. We start by distilling the common essence of a few popular alternatives to FIRE (Full Information Rational Expectations), including noisy or sticky information, rational or behavioral inattention, level-k thinking and cognitive discounting. We then develop a new specification, which captures the same essence while maximizing tractabil- ity. We show how this works in both RANK (the Representative-Agent New Keynesian model) and HANK (Heterogeneous-Agent New Keynesian models). We further clarify the separate partial- and general-equilibrium effects of informational frictions or bounded rationality; emphasize the inter- action of such frictions with the Intertemporal Keynesian Cross and other forms of strategic com- plementarity; review concrete lessons for business cycles and macroeconomic policy; and discuss how to discipline the theory with appropriate survey evidence.
Demand or Supply? Expectations and Inflation under Confusion with Xiaojie Liu
Episodes of high inflation are often accompanied by confusion over the origins of shocks. We develop a theory of confusion between aggregate shocks. Agents receive signals about inflation and output. When inflation signals are more informative, agents confuse negative supply shocks for positive demand shocks, amplifying inflation through price complementarities and muted wage expectations; when output signals dominate, the direction of confusion is reversed, dampening inflation. Estimating the model before and after 1990 reveal a shift from inflation signal- to output signal- dominant regimes, generating (1) the Phillips-curve flattening, (2) a “supply-side view”, and (3) the inflation–output disconnect.
Anatomy of Subjective Macroeconomic Expectations with Jose Lara
(1) Develop a method to structurally identify idiosyncratic shocks in cross-sectional macroeconomic expectations. Show that a broad pessimism shock, a uniform decline in beliefs about all aggregates, is as important as the supply-side view in explaining the co-movement in household expectations. (3) Pessimism is concentrated among physically, economically and financially vulnerable individuals, who also expect lower earnings, higher risk, and plan to dissave.
The Rise of Negative Earnings and Demand Shifting Investment with Jacob Toner Gosselin
Explains the rise of negative and persistent earnings since 1980 through a heterogeneous-firm model where firms invest in both (1) supply-shifting physical capital and (2) demand-shifting customer capital. A rising scale elasticity of demand increases returns to customer acquisition, leading to (3) higher SG&A spending, wider sales and earnings dispersion, more persistent losses, and a 9.1% GDP decline through labor and demand misallocation.
Market Power, Expectations, and Asset Prices with Kevin Ren
(1) Show that subjective expectations of long-run earning growth—and their deviations from full-information rational expectations—systematically vary with firms’ market power. (2) Using U.S. Census LBD data and analyst forecasts, document that product market power amplifies and prolongs overreaction, while labor market power dampens it. (3) Firm-level overreactions far larger than aggregate ones. (4) Embed these heterogeneities in a macro-finance model and demonstrate that distorted expectations interacting with market power generate high excess returns, volatility, predictable reversals, and procyclical misallocation.
Working in Progress
Working in Progress
Are Fiscal Deficit Sunspots? with George-Marios Angeletos, Chen Lian and Christian Wolf
Draft Coming Soon!
A Macroeconomic Model of Casual Discovery: Endogenizing Narratives with Hiro Endo
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