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Journal Article
Reducing the U.S. deficit by recycling capital inflows
Wen, Yi (2012)
The United States can simply recycle the financial capital inflows from China and re-export them back to China in the form of FDI. In so doing, the United States gains a substantially larger rate of return from FDI than China does from owning U.S. government bonds.
Economic Synopses

Working Paper
Liquidity demand and welfare in a heterogeneous-agent economy
Wen, Yi (2010)
This paper provides an analytically tractable general-equilibrium model of money demand with micro-foundations. The model is based on the incomplete-market model of Bewley (1980) where money serves as a store of value and provides liquidity to smooth consumption. The model is applied to study the effects of monetary policies. It is shown that heterogeneous liquidity demand can lead to sluggish movements in aggregate prices and positive responses from aggregate output to transitory money injections. However, permanent money growth can be extremely costly: With log utility function and an ...
Working Papers , Paper 2010-009

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty
Wen, Yi; Chien, YiLi (2021-12-29)
We use an analytically tractable, heterogeneous-agent incomplete-markets model to show that the Ramsey planner’s decision to finance stochastic public expenditures implies a departure from tax smoothing and an endogeneous mean-reverting force to support positive debt growth despite the government’s precautionary saving motives. Specifically, the government’s attempt to balance the competing incentives between its own precautionary saving (tax smoothing) and households’ precautionary saving (individual consumption smoothing)—even at the cost of extra tax distortion—implies an ...
Working Papers , Paper 2019-038

Not All Bursting Market Bubbles Have the Same Recessionary Effect
Wen, Yi; Arbogast, Iris (2021-02-15)
The popped IT bubble ushered in an eight-month recession in 2001. The burst housing bubble resulted in the Great Recession (2007-09). Why the difference?
On the Economy

Working Paper
Time-Inconsistent Optimal Quantity of Debt
Wen, Yi; Chien, YiLi (2020-10-29)
A key feature of the infinite-horizon heterogeneous-agents incomplete-markets (Inf-HAIM) framework is that the equilibrium interest rate of public debt lies below the time discount rate (regardless of capital). This happens because of a positive liquidity premium on asset returns due to imperfect risk sharing. This fundamental property of standard Inf-HAIM models, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent---because the planner has a dominate incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk ...
Working Papers , Paper 2020-037

Working Paper
Foreign trade and equilibrium indeterminacy
Wen, Yi; Aguiar-Conraria, Luis (2005)
We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making self-fulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. Calibration exercise shows that the required increasing returns to scale can be reduced by as much as 64% based on estimated share of foreign inputs in production for ...
Working Papers , Paper 2005-041

Journal Article
The Changing Relationship between Trade and America’s Gold Reserves
Wen, Yi; Reinbold, Brian (2020-05-04)
For much of U.S. history, gold reserves and trade flows were closely linked. That changed with the end of the gold standard.
The Regional Economist , Volume 28 , Issue 1

Working Paper
The great housing boom of China
Chen, Kaiji; Wen, Yi (2015-11-01)
China's housing prices have been growing nearly twice as fast as national income in the past decade despite (1) a phenomenal rate of return to capital and (2) an alarmingly high vacancy rate. This paper interprets such a prolonged paradoxical housing boom as a rational bubble that emerges naturally from China's large-scale economic transition, featuring an exceptionally high rate of return to capital driven by massive resource reallocation. Because such primarily resource-reallocation-driven high capital returns are not sustainable in the long run, expectations of high future demand for ...
FRB Atlanta CQER Working Paper , Paper 2015-3

Working Paper
Understanding the puzzling effects of technology shocks
Wen, Yi; Wang, Pengfei (2007)
The research led by Gali (AER 1999) and Basu et al. (AER 2006) raises two important questions regarding the validity of the RBC theory: (i) How important are technology shocks in explaining the business cycle? (ii) Do impulse responses to technology shocks found in the data reject the assumption of flexible prices? This paper argues that the conditional impulse responses of the U.S. economy to technology shocks are not grounds to reject the notion that technology shocks are the main driving force of the business cycle and the assumption of flexible prices, in contrary to the conclusions ...
Working Papers , Paper 2007-018

Working Paper
Escaping the Middle-Income Trap: A Cross-Country Analysis on the Patterns of Industrial Upgrading
Wen, Yi; Wang, Lili (2018-01-16)
With rapid industrial upgrading along the global value chain of manufactured goods, China has transformed, within one generation, from an impoverished agrarian society to a middle-income nation as well as the largest manufacturing powerhouse in the world. This article identifies the pattern of China?s industrial upgrading and compares it with those of other successfully industrialized economies and the failed ones. We find that (i) China (since 1978) followed essentially the same path of industrial upgrading as that of Japan and the ?Asian Tigers.? These economies succeeded in catching up ...
Working Papers , Paper 2018-1

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