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Author:Chien, YiLi 

Working Paper
Time-Inconsistent Optimal Quantity of Debt

A key property of the Aiyagari-type heterogeneous-agent models is that the equilibrium interest rate of public debt lies below the time discount rate. This fundamental property, however, implies that the Ramsey planner’s fiscal policy may be time-inconsistent because the forward-looking planner would have a dominant incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk. But such a full self-insurance allocation may be paradoxical because, to achieve it, the optimal labor tax rate may approach 100% and aggregate consumption may approach ...
Working Papers , Paper 2020-037

Journal Article
PMI and GDP: Do They Correlate for the United States? For China?

The PMI seems to be a good, although not perfect, indicator of a country?s current economic condition.
Economic Synopses , Issue 6 , Pages 1-2

Working Paper
Implications of heterogeneity in preferences, beliefs and asset trading technologies for the macroeconomy

This paper analyzes and computes the equilibria of economies with large numbers of heterogeneous agents who have different asset trading technologies, preferences, and beliefs. We illustrate the value of our method by using it to evaluate the implications of these heterogeneities through several quantitative exercises.
Working Papers , Paper 2014-14

Journal Article
The Rising Federal Funds Rate in the Current Low Long-Term Interest Rate Environment

The low long-term yield is likely a result of high foreign demand for Treasuries rather than a near-zero federal funds rate.
Economic Synopses , Issue 10 , Pages 1-2

Working Paper
Should Capital Be Taxed?

We design an infinite-horizon heterogeneous-agents and incomplete-markets model to demonstrate analytically that in the absence of any redistributional effects of government policies, optimal capital tax is zero despite capital overaccumulation under precautionary savings and borrowing constraints. Our result indicates that public debt is a better tool than capital taxation to restore aggregate productive efficiency.
Working Papers , Paper 2020-033

Working Paper
Optimal Fiscal Policies under Market Failures

The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital is over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in dealing with the ...
Working Papers , Paper 2020-002

Journal Article
Household Participation in Stock Market Varies Widely by State

The investment decision matters for the welfare of households. Good financial decision-making could help households hedge against their income risks and achieve a better life. Although it is not necessarily the case that stock market participants are more financially sophisticated than nonparticipants, understanding the participation decisions made by households is important to both academic researchers and policymakers. An example is the shortage of retirement savings in the United States. If households cannot make the right investment decisions and, thereby, jeopardize their return on ...
The Regional Economist , Volume 25 , Issue 3

Working Paper
The Ramsey Steady State Conundrum in Heterogeneous-Agent Economies

In infinite horizon, heterogeneous-agent and incomplete-market models, the existence of an interior Ramsey steady state is often assumed instead of proven. This paper demonstrates the critical importance of proving the existence of the Ramsey steady state when conducting theoretical or numerical analysis on optimal fiscal policies. We use an analytically tractable heterogeneous-agent model to make our point by showing that the conditions for the existence of an interior Ramsey steady state are quite sensitive to structural parameter values. In particular, we show that researchers may draw ...
Working Papers

Journal Article
Optimal Ramsey Capital Taxation with Endogenous Government Spending

The authors study optimal capital income taxation in heterogeneous agent economies featuring endogenous government spending. Similar to Aiyagari (1995), they find that the long-run optimal capital tax rate should not be zero as long as the competitive equilibrium risk-free interest rate differs from the subjective time discount rate. The authors first argue that this result holds in a wide range of economic environments and is not limited to only the standard incomplete market model with heterogeneous agents. As an example, a decentralized economy with limited commitment is considered. ...
Review , Volume 98 , Issue 4 , Pages 311-327

Working Paper
Convergence to Rational Expectations in Learning Models: A Note of Caution

This paper illustrates a challenge in analyzing the learning algorithms resulting in second-order difference equations. We show in a simple monetary model that the learning dynamics do not converge to the rational expectations monetary steady state. We then show that to guarantee convergence, the gain parameter used in the learning rule has to be restricted based on economic fundamentals in the monetary model.
Working Papers , Paper 2020-027

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