Research
Google Scholar Page
PUBLICATIONS
1. Idle Liquidity, CBDC and Banking (with Mei Dong), [SSRN LINK] [SLIDES], European Economic Review, Accepted. Media coverage: FT Chinese Link [Guanghua version: click HERE]
We build models with an interest-bearing central bank digital currency (CBDC) to investigate whether the interest-bearing CBDC can lead to financial disintermediation. In the benchmark model with only CBDC, entrepreneurs can deposit their idle CBDC and banks can hold CBDC to satisfy the reserve requirement. CBDC and bank deposits become complements. A higher CBDC interest rate always promotes investment and may or may not reduce bank lending, because the higher return on CBDC encourages entrepreneurs to accumulate more CBDC and deposit more. More deposits could in turn lead to more bank lending. The interest rate on reserves and the reserve requirement ratio can be effective policy tools that affect bank lending and investment. We consider extensions where cash and interest-bearing CBDC can coexist. The coexistence may require the central bank to adjust the CBDC interest rate or the interest rate on reserves. Our results suggest that the relationship between CBDC and bank deposits are crucial for understanding the effects of CBDC on banking and the macroeconomy.
2. A Theory of Carbon Currency (with Q. Liu and Z. Chen), Fundamental Research [ScienceDirect Link] (2022), 2 (3), 375-383
We propose a new international monetary system based on carbon currency (the carbon standard) to tackle two pressing externalities in today's global economic and political context: the dangerous and irreversible effects caused by unconstrained green-house gas emissions and the cost to the rest of the world as a result of the U.S. dollar being the dominated global currency and the U.S. Federal Reserve increasingly implementing monetary policies not aligned with the global common interest.
3. Frictional Capital Reallocation with Ex Post Heterogeneity (with Randall Wright and Yu Zhu) [PDF], Review of Economic Dynamics[ScienceDirect Link] (2020), 37, Supplement 1, S227-S253
We investigate models where firms trade capital in frictional secondary markets. Our previous work assumed ex ante heterogeneity: similar firms have different capital stocks. Here we study ex post heterogeneity: firms with similar capital realize different productivity shocks, which is more natural, and requires fewer arbitrary restrictions. It is also extremely tractable. For random or directed search, and bargaining or posting, results are provided on existence, uniqueness, efficiency and monetary/fiscal policy -- e.g., higher nominal rates can lower or raise investment, and can be desirable, despite hindering reallocation. The model captures salient stylized facts -- e.g., misallocation appears countercyclical while capital's reallocation and price are procyclical. We discuss how productivity dispersion is an imperfect measure of inefficiency or frictions. We also discuss connections to models of frictional markets for financial assets.
4. Liquidity, Monetary Policy and Unemployment (with Mei Dong)[2018 version], International Economic Review[Wiley Link](2019), 60, 1005-1025
We discover a consumption channel of monetary policy in a model with money and government bonds. When the central bank withdraws government bonds (short-term or long-term) through open market operations, it lowers returns on bonds. The lower return has a direct negative impact on consumption by households that hold bonds, and an indirect negative impact on consumption by households that hold money. As a result, firms earn less profits from production, which leads to higher unemployment. The existence of such a consumption channel can help us understand the effects of unconventional monetary policy.
5. Open Market Operations (with Guillaume Rocheteau and Randall Wright) [PDF], Journal of Monetary Economics[ScienceDirect Link] (2018), 98, 114-128
Standard monetary models are extended to incorporate, in addition to currency, liquid government bonds. We then study the impact of policy, including open market operations, under various specifications for market structure and for the liquidity of money and bonds -- i.e., about their acceptability or pledgeability as media of exchange or as collateral. Theory delivers sharp predictions for the effects of policy, and generates novel phenomena, like the possibility of negative nominal interest rates, endogenous market segmentation, endogenous price sluggishness, and liquidity traps. We also explain differences in asset liquidity (acceptability and pledgeability) using information theory.
6. Frictional Capital Reallocation I: Ex Ante Heterogeneity (With Randall Wright and Yu Zhu) [PDF] [ScienceDirect Link], Journal of Economic Dynamics and Control (2018), 89, 100-116.
We study dynamic general equilibrium models where capital is traded in frictional markets featuring liquidity considerations. Gains from trade arise here from ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market, while others acquire it in the secondary market. We consider specifications with random search and bargaining, as well as those with directed search and posting, and provide strong results for both on existence, uniqueness, efficiency and comparative statics. Monetary and fiscal policy are discussed in detail. Among other advantages, the framework is sufficiently tractable to analyze policy using simple diagrams.
7. Rural-led Exchange Rate Appreciation in China (with G. Menzies, P. Dixon, X. Peng and M. Rimmer) [PDF], China Economic Review (2016), 39, 15–30
The departure of a factor in excess supply in a non-traded rural sector leads to a Rural-led Exchange Rate Real Appreciation (RERA), in a dual economy setup. The RERA highlights for the first time a potential link between intra-national factor movements and real exchange rates. In China, where there is excess labor employed in the production of (largely) nontraded rural goods, we attribute around one third of the recent appreciation of the real exchange rate – defined as the relative price of nontradables – to a RERA effect.
CHINESE PAPERS (中文论文)
1. 刘晓蕾,马长宙,董博文和肖筱林 (2024),“利率走廊下的央行数字货币研究” ,《管理世界》2024年第3期 [PDF]
2. 肖筱林 (2024),“央行数字货币发行对商业银行的影响研究”,《经济学(季刊)》2024年第2期 [PDF]
3. 肖筱林, 王汉生 (2023), “大数据分析在宏观金融领域的文献综述——基于中央银行的视角”,《经济管理学刊》2023年第3期[PDF]
4. 肖筱林 (2023),“发达经济体货币政策演变述评:2008-2022”,《经济管理学刊》2023年第1期 [PDF]
WORKING PAPERS
1. Central Bank Digital Currency and Privacy, a draft available upon request
Presentations: 2022 Summary Workshop on Money, Banking, Payments and Finance (August, 2022, U.S.A); UC-Irvine Brownbag Seminar, July 2022; AMES China, June 2022; GSM Seminar, Peking University, April 2022; UW-Madison Mini Money Meetings, April 2021; UC-Irvine Brownbag Seminar, Jan. 2021
Abstract: We build models with cash and CBDC to study various privacy designs of CBDC and individuals' portfolio choices and a social planner's choice when considering cost and benefit of sharing data/privacy through CBDC. We consider various information structures of CBDC under various market structures such as random matching and directed matching, to study three topics regarding CBDC and privacy, i.e., consumer privacy, sellers' tax compliance and the informal economy. The main insight is that there are important tradeoffs to consider for consumers, firms and policy makers under various information structures of CBDC privacy designs.
2. Should CBDC Eliminate Anonymity? (With G. Jin and T. Zhu), a draft available upon request
Seminars: CUHK-SZ (April 2023), GSM-PKU* (May 2023), HK Baptist Uni. (June 2023)
Abstract: Paper currency maintains anonymity of transactions, which faciliates tax evasion in the informal economy. We show that it may not be desirable to design CBDC to eliminate anoymity for the anti-tax-evasion purpose. In the absence of a competing anoymity-keeping currency, CBDC (that is designed to eliminate anoymity) can eliminate tax evasion and, as a consequence, eliminate the informal economy.However, the social benefit from eliminating tax evasion can be outweigthed by eliminating the informal economy. In the presence of a competing anoymity-keeping currency, CBDC not only fails in eliminating tax evasion but has a purchasing power lower than paper currency.
SELECTED WORK-IN-PROGRESS
1. CBDC and Inside Money (With F. Mattesini)
2. CBDC and Smart Contract (With E. Li and F. Liang)
3. Venture Capital and Government Policy (with L. Liu, R. Wright and Y. Zhu)
RESEARCH GRANT
2021-2024, "The Impact of Introducing CBDC on Wholesale and Retail Finance in China", NSFC Grant (NO. 72073006), PI
PUBLICATIONS
1. Idle Liquidity, CBDC and Banking (with Mei Dong), [SSRN LINK] [SLIDES], European Economic Review, Accepted. Media coverage: FT Chinese Link [Guanghua version: click HERE]
We build models with an interest-bearing central bank digital currency (CBDC) to investigate whether the interest-bearing CBDC can lead to financial disintermediation. In the benchmark model with only CBDC, entrepreneurs can deposit their idle CBDC and banks can hold CBDC to satisfy the reserve requirement. CBDC and bank deposits become complements. A higher CBDC interest rate always promotes investment and may or may not reduce bank lending, because the higher return on CBDC encourages entrepreneurs to accumulate more CBDC and deposit more. More deposits could in turn lead to more bank lending. The interest rate on reserves and the reserve requirement ratio can be effective policy tools that affect bank lending and investment. We consider extensions where cash and interest-bearing CBDC can coexist. The coexistence may require the central bank to adjust the CBDC interest rate or the interest rate on reserves. Our results suggest that the relationship between CBDC and bank deposits are crucial for understanding the effects of CBDC on banking and the macroeconomy.
2. A Theory of Carbon Currency (with Q. Liu and Z. Chen), Fundamental Research [ScienceDirect Link] (2022), 2 (3), 375-383
We propose a new international monetary system based on carbon currency (the carbon standard) to tackle two pressing externalities in today's global economic and political context: the dangerous and irreversible effects caused by unconstrained green-house gas emissions and the cost to the rest of the world as a result of the U.S. dollar being the dominated global currency and the U.S. Federal Reserve increasingly implementing monetary policies not aligned with the global common interest.
3. Frictional Capital Reallocation with Ex Post Heterogeneity (with Randall Wright and Yu Zhu) [PDF], Review of Economic Dynamics[ScienceDirect Link] (2020), 37, Supplement 1, S227-S253
We investigate models where firms trade capital in frictional secondary markets. Our previous work assumed ex ante heterogeneity: similar firms have different capital stocks. Here we study ex post heterogeneity: firms with similar capital realize different productivity shocks, which is more natural, and requires fewer arbitrary restrictions. It is also extremely tractable. For random or directed search, and bargaining or posting, results are provided on existence, uniqueness, efficiency and monetary/fiscal policy -- e.g., higher nominal rates can lower or raise investment, and can be desirable, despite hindering reallocation. The model captures salient stylized facts -- e.g., misallocation appears countercyclical while capital's reallocation and price are procyclical. We discuss how productivity dispersion is an imperfect measure of inefficiency or frictions. We also discuss connections to models of frictional markets for financial assets.
4. Liquidity, Monetary Policy and Unemployment (with Mei Dong)[2018 version], International Economic Review[Wiley Link](2019), 60, 1005-1025
We discover a consumption channel of monetary policy in a model with money and government bonds. When the central bank withdraws government bonds (short-term or long-term) through open market operations, it lowers returns on bonds. The lower return has a direct negative impact on consumption by households that hold bonds, and an indirect negative impact on consumption by households that hold money. As a result, firms earn less profits from production, which leads to higher unemployment. The existence of such a consumption channel can help us understand the effects of unconventional monetary policy.
5. Open Market Operations (with Guillaume Rocheteau and Randall Wright) [PDF], Journal of Monetary Economics[ScienceDirect Link] (2018), 98, 114-128
Standard monetary models are extended to incorporate, in addition to currency, liquid government bonds. We then study the impact of policy, including open market operations, under various specifications for market structure and for the liquidity of money and bonds -- i.e., about their acceptability or pledgeability as media of exchange or as collateral. Theory delivers sharp predictions for the effects of policy, and generates novel phenomena, like the possibility of negative nominal interest rates, endogenous market segmentation, endogenous price sluggishness, and liquidity traps. We also explain differences in asset liquidity (acceptability and pledgeability) using information theory.
6. Frictional Capital Reallocation I: Ex Ante Heterogeneity (With Randall Wright and Yu Zhu) [PDF] [ScienceDirect Link], Journal of Economic Dynamics and Control (2018), 89, 100-116.
We study dynamic general equilibrium models where capital is traded in frictional markets featuring liquidity considerations. Gains from trade arise here from ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market, while others acquire it in the secondary market. We consider specifications with random search and bargaining, as well as those with directed search and posting, and provide strong results for both on existence, uniqueness, efficiency and comparative statics. Monetary and fiscal policy are discussed in detail. Among other advantages, the framework is sufficiently tractable to analyze policy using simple diagrams.
7. Rural-led Exchange Rate Appreciation in China (with G. Menzies, P. Dixon, X. Peng and M. Rimmer) [PDF], China Economic Review (2016), 39, 15–30
The departure of a factor in excess supply in a non-traded rural sector leads to a Rural-led Exchange Rate Real Appreciation (RERA), in a dual economy setup. The RERA highlights for the first time a potential link between intra-national factor movements and real exchange rates. In China, where there is excess labor employed in the production of (largely) nontraded rural goods, we attribute around one third of the recent appreciation of the real exchange rate – defined as the relative price of nontradables – to a RERA effect.
CHINESE PAPERS (中文论文)
1. 刘晓蕾,马长宙,董博文和肖筱林 (2024),“利率走廊下的央行数字货币研究” ,《管理世界》2024年第3期 [PDF]
2. 肖筱林 (2024),“央行数字货币发行对商业银行的影响研究”,《经济学(季刊)》2024年第2期 [PDF]
3. 肖筱林, 王汉生 (2023), “大数据分析在宏观金融领域的文献综述——基于中央银行的视角”,《经济管理学刊》2023年第3期[PDF]
4. 肖筱林 (2023),“发达经济体货币政策演变述评:2008-2022”,《经济管理学刊》2023年第1期 [PDF]
WORKING PAPERS
1. Central Bank Digital Currency and Privacy, a draft available upon request
Presentations: 2022 Summary Workshop on Money, Banking, Payments and Finance (August, 2022, U.S.A); UC-Irvine Brownbag Seminar, July 2022; AMES China, June 2022; GSM Seminar, Peking University, April 2022; UW-Madison Mini Money Meetings, April 2021; UC-Irvine Brownbag Seminar, Jan. 2021
Abstract: We build models with cash and CBDC to study various privacy designs of CBDC and individuals' portfolio choices and a social planner's choice when considering cost and benefit of sharing data/privacy through CBDC. We consider various information structures of CBDC under various market structures such as random matching and directed matching, to study three topics regarding CBDC and privacy, i.e., consumer privacy, sellers' tax compliance and the informal economy. The main insight is that there are important tradeoffs to consider for consumers, firms and policy makers under various information structures of CBDC privacy designs.
2. Should CBDC Eliminate Anonymity? (With G. Jin and T. Zhu), a draft available upon request
Seminars: CUHK-SZ (April 2023), GSM-PKU* (May 2023), HK Baptist Uni. (June 2023)
Abstract: Paper currency maintains anonymity of transactions, which faciliates tax evasion in the informal economy. We show that it may not be desirable to design CBDC to eliminate anoymity for the anti-tax-evasion purpose. In the absence of a competing anoymity-keeping currency, CBDC (that is designed to eliminate anoymity) can eliminate tax evasion and, as a consequence, eliminate the informal economy.However, the social benefit from eliminating tax evasion can be outweigthed by eliminating the informal economy. In the presence of a competing anoymity-keeping currency, CBDC not only fails in eliminating tax evasion but has a purchasing power lower than paper currency.
SELECTED WORK-IN-PROGRESS
1. CBDC and Inside Money (With F. Mattesini)
2. CBDC and Smart Contract (With E. Li and F. Liang)
3. Venture Capital and Government Policy (with L. Liu, R. Wright and Y. Zhu)
RESEARCH GRANT
2021-2024, "The Impact of Introducing CBDC on Wholesale and Retail Finance in China", NSFC Grant (NO. 72073006), PI