Mr Chao He

Mr Chao He

PhD Candidate in Economics

Department of Economics

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Research interests
International Finance (primary)
Macroeconomics, Macro-Finance (secondary)

Job market paper
When Being Thrifty is Risky: A Paradox of Precaution in International Saving

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In partial equilibrium, a small open economy that accumulates savings during good times can mitigate consumption falls during bad times. This paper shows that, in general equilibrium, the opposite may be true if the amount of savings is large enough. More savings require more borrowing and higher leverage in the rest of the world, making it more prone to a financial crisis. Crises in the rest of the world then feed back to the saving economies and destabilize them. If the saving economies are collectively large but individually small, national policy makers will not internalize the general equilibrium effect. Thus, in equilibrium, there will be excessive global imbalances and excessive volatility for the savers themselves. Quantitatively, simulations suggest that policy makers in the saving economies should switch from encouraging saving to discouraging saving when their size grows large enough, which might happen by the late 2010s.

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Additional papers

Ageing with Automation: A Quantitative Model, with Roberto Piazza
Work in Progress

Abstract: The paper develops a flexible but parsimonious model that combines demographic transitions, as in Gertler (1999), with endogenous automation. Following Acemoglu and Restrepo (2016), automation is modelled as the active replacement of labor with capital at the task level in response to changes in the wage-interest rate ratio from ageing, leading to endogenous variation in the labor share of output. We use our framework to study quantitatively the macroeconomic effects of different shocks that change the equilibrium wage-interest rate ratio: greater longevity, lower immigration, lower social security transfer rates, and higher mandatory retirement age. We find that allowing automation to react endogenously to these shocks generates quantitatively relevant effects compared to the standard baseline where firms cannot respond through the automation margin.

Rebalancing China's Economy with Consumption-driven Growth
Work in Progress

Abstract: The paper argues that stimulating consumption demand, either through domestic consumption subsidy or through policies that encourage the export of consumption goods, accelerates the convergence to steady state in a two-sector neo-classical growth economy with financial frictions. The consumption goods sector, which is dominated by small private firms, has to rely on retained earnings to buy capital goods to grow. But the capital goods sector, which is likely to be state-owned and collateral rich, can borrow. The equilibrium features excessive growth in the capital sector. A subsidy to consumption raises the relative price of consumption goods to capital goods. As a result, the consumption goods sector can accumulate capital at a faster pace. The policy enhances growth and improves welfare.


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Department of Economics,
London School of Economics and Political Science,
Houghton Street, London WC2A 2AE