Interests
Monetary Policy
Financial Economics
China's Macroeconomics
Education
PhD in Economics, 2022
MA in Applied Economics, 2018
BA in Finance, 2014
Working papers
“Monetary Policy Transmission Under Financial Repression”, with Kaiji Chen and Tao Zha.
Abstract: According to the conventional bank lending channel of monetary policy, wholesale funding in economies with well-developed financial markets moves negatively with retail deposits in response to changes in the monetary policy rate, thereby weakening the transmission of monetary policy. We present a theoretical model to demonstrate that in economies with financial repression, (i) retail deposits and wholesale funding comove positively in response to changes in the policy rate and (ii) wholesale funding strengthens, rather than weakens, the transmission of monetary policy to bank loans. We support these findings by bank-level evidence with deposit rate ceilings.
“Bank Wholesale Funding, Monetary Transmission, and Systemic Risks: Evidence from China”, with Kaiji Chen 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.
Abstract: I study how the de-leverage regulation on banks would affect monetary policy transmission to enterprises in China. China central bank has taken ease monetary policy since 2018, but private-owned enterprises’ financing cost increases and financing amount drops accordingly, as opposed to state-owned enterprises’. I argue that it is because of the de-leverage regulation on banks. Since non-state banks suffer more from the regulation, more credit goes to state banks, then state-owned enterprises. In the paper, I construct four sets of panel data and a theoretical model to show that private-owned enterprises get less loan with higher interest rate after the de-leverage regulation takes place, while state-owned enterprises are not affected. As a result, the default risk of private-owned enterprises increases, which further tightens their credit.
Abstract: I study how the regulation of restructuring zombie firms influences the impact of monetary policy on output. By constructing three panel data sets and a theoretical model, I identify there are “Substitute Effect” and “Not-lending-out Effect”. “Substitute Effect” is that zombie and non-zombie firms are substitutes in getting loans from banks when there is monetary ease, and the removal of government subsidy to zombie firms would make more credit go to non-zombie than before. “Not-lending-out Effect” is that the decrease of subsidy for zombie firms leads to higher default risk of their loans, which does harm to banks’ return, thus banks are less willing to provide loans to all firms even there is monetary ease. These two effects have opposite impacts on the efficiency of monetary policy on output. And the theoretical results show that it is better to decrease the government subsidy to zombie firms gradually rather than eliminate it at once, which would generate efficiency loss of monetary policy.
Work in progress
"Macroeconomic Policy Role of State-owned Enterprises(SOEs) under Vertical Structure in China", with Yao Yao and Yong Wang.
Abstract: As a result of the deregulation reform of state-owned enterprises (SOEs), China has formed a vertical structure in the 2000s, with SOEs monopolizing upstream industries and private enterprises (POEs) concentrating in downstream markets. In the aftermath of the global financial crisis of 2008, state-owned enterprises (SOEs) served as a tool of countercyclical policies to restore the economy through the vertical structure mechanism. To address this issue, we develop a dynamic stochastic general equilibrium (DSGE) model featuring vertical structure and special policy objectives of SOEs. By estimating the model, we find that after the crisis, SOEs are more concerned with policy objectives than they were before to the economic slump. In the meantime, the SOEs with a greater countercyclical role are better able to stabilize the economy and reduce fluctuations. This study represents a substantial advance toward a more comprehensive understanding of the function of Chinese state-owned enterprises after a slump under the vertical structure.
"Liquidity-based Strategic Default and Credit Market Frictions", with Boyang Mu
Abstract: We study the liquidity-driven strategic default decision of debt-financed firms under unanticipated productivity shocks and frictions on the credit market with a bank providing credit lines to which the firms are registered and monitored. We develop a finite-stage model and a generalized dynamic capital structure framework in which the firms choose to adjust their capital structure (default) and the bank decides whether to enforce liquidation or not. We show that there exists a Markov Perfect Equilibrium with strategic default and non-liquidation given that the shock is finite-period and that allowing for strategic default is Pareto-improving. However, there also exists a considerable level of credit rationing, in which case firms are ineffectively liquidated upon default. This is due to several sources of credit market frictions identified, including search frictions on the decentralized credit market, frictions on the term structure of the credit line, and the heterogeneous perceptions of the shock's duration from both parties. Inaccurate estimations of the shock duration will lead to risk and benefit transfers between the firms and the bank. We then use a proprietary transaction-level dataset to test related implications.
"The Impact of Bank market power in developing countries", with Si Chen
"The Gradual Reform of Real Estate Industry in China", with Xu Wang
Contact
Phone: (+010) 62765680
Email: yiqingxiao@nsd.pku.edu.cn
Address: Langrun Garden, Peking University, 5th Yiheyuan Road, Haidian District, Beijing, China