Zefeng Chen
Job Market Candidate

Stanford University
Department of Economics
579 Serra Mall
Stanford, CA 94305

Curriculum Vitae

International Finance, Macroeconomics,

Expected Graduation Date:
June, 2021

Thesis Committee:
Adrien Auclert (Co-Primary):

Hanno Lustig (Co-Primary):

Luigi Bocola:

Zhengyang Jiang:


Global Safe Asset and the US exorbitant Privilege (Job Market Paper)
The US is the only large net borrower country in the world earning a positive net investment income, a phenomenon often referred as the "exorbitant privilege". To rationalize it, I propose a new theory about the role of US in the international financial system being a service provider, in contrast to the conventional view of an insurance provider, which falsely predicts the US exorbitant privilege would vanish during the financial crisis. I build a two-country model with financial friction to explain the dynamics of the US external balance sheet and exchange rate. In the model, world financial intermediaries demand US safe assets for their convenience value, but US intermediaries do not demand foreign safe assets. Under an aggregate symmetric financial shock, ROW buys more safe assets from the US despite a rise in convenience yield, the dollar appreciates, and the US takes advantage by buying more equities from ROW at a low price. I show my mechanism can quantitatively match the data, while a real shock triggering risk-sharing dynamic cannot.

Bank Balance Sheets and External Shocks: The Role of FXI, MPMs and CFMs) External Link to paper
This paper extends a DSGE model of Gertler and Karadi (2011) to highlight the channels of how the global financial cycle affects small open economies through the banking sector, and studies how foreign exchange intervention (FXI) and other policies are effective in responding to external financing shocks. The model incorporates key characteristics of Emerging Asian economies where banks are the dominant source of financing investment and bank balance sheets include large gross FX assets and liabilities. Global financial shocks affect net external liabilities of banks and the exchange rate leading to changes in credit supply and investment (financial friction). For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, sterilized FXI, often deployed by Asian economies, can help cushion the economy. On the other hand, FXI can be costly responding to real shocks when the exchange rate serves as a shock absorber. We also discuss the effectiveness of CFMs, MPMs and coordination with monetary policy.

Financial sophistication and portfolio choice: Asset allocation over the life-cycle, and the impact of macroeconomic outcomes (With Timothy Mok)
Empirical evidence suggests that households acquire a deeper appreciation of risk as they age; they hold more diversified portfolios of risky assets and face less volatile returns on wealth as they get older. Motivated by this evidence, we augment an otherwise standard life-cycle model of portfolio choice to allow for the accumulation of such financial sophistication. Our model is able to account for the observed flat age profile of the conditional risky share, a fact which has hitherto confounded existing models; it also generates realistic age profiles for risky asset market participation rates, financial wealth and wages. Moreover, it also implies that households who have experienced more benign macroeconomic outcomes are more willing to take financial risks.