My new website: www.zongbohuang.com
Ph.D. candidate at Princeton University
Research focus in Corporate Finance, Banking, and Financial Economics
Department of Economics and
Bendheim Center for Finance
Princeton, NJ 08544, USAzongboh@princeton.edu
Managing Bank Run Risk: The Perils of Discretion (Job Market Paper)
Abstract: This article studies the role of banks' discretion in managing panics in a dynamic model of credit line run. In downturns banks tighten liquidity by cutting credit lines. Anticipating this, borrowers run to draw down credit lines in the first place, which imposes further pressure on banks. Thus liquidity rationing and credit line runs form a feedback loop that amplifies bank distress. I fit the model to the U.S. commercial bank data and find that the feedback effects contribute to more than a half of the liquidity contraction in downturns. From a normative perspective, a commitment tax on bank cutting credit lines is effective in mitigating runs.
Aggregate Effects of Collateral Constraints
with Sylvain Catherine, Thomas Chaney, David Sraer, and David Thesmar
Abstract: We structurally estimate a dynamic model with heterogeneous firms and collateral constraints. Embedding this model in a general equilibrium framework allows us to quantify the impact of financing frictions on aggregate output and welfare. The structural estimation is based on the causal effect of collateral shocks on firm level corporate investment in the United States. The estimates imply that lifting financing frictions would increase welfare by 9.4% and aggregate output by 11%. Half of this aggregate output gain is due to an increase in the aggregate stock of capital, one quarter is due to a larger aggregate labor supply, while the remaining quarter is due to a higher aggregate productivity from a better allocation of inputs across heterogeneous firms.
Dynamic Optimal Taxation with Endogenous Skill Premia
with Jason Ravit and Michael Sockin
Abstract: We embed imperfect substitutability across skill levels into a dynamic Mirrlees model and uncover a novel intertemporal wage compression channel in optimal labor taxation that can rationalize redistributive programs such as the Earned Income Tax Credit. In contrast to the wage compression channel found in static models, this dynamic channel lowers the optimal tax rate at the bottom because it allows the planner to reduce the cost of providing insurance to unskilled workers while deterring skilled agents from misreporting. The optimal labor tax is progressive in the short-run and our channel is quantitatively significant in comparison to other channels highlighted in the literature.
Haircuts and Credit Risk over the Cycle (in progress; old version available upon request)
slides (ESWC 2015)
Abstract: Rapid tightening of haircuts exacerbated deleveraging pressures during the 07-09 crisis. I develop a dynamic general equilibrium model with heterogeneous beliefs and collateral constraints to explore the cyclicality of haircuts and default risks jointly. On one hand, haircuts of the defaultable debt are countercyclical as a result of scarce collaterals and financial pledgeability. On the other hand, default risks accumulate in the background until materialize when a crisis erupts.