Shaofeng Xu, Bank of Canada - March 26, 2018

March 26, 2018

Shaofeng Xu, Bank of Canada, will present a seminar at 4:00 PM in Arts 807

Seminar Title:  "The Role of Corporate Saving over the Business Cycle: Shock Absorber or Amplifier?"

Abstract: We document countercyclical corporate saving behavior. We then develop a quantitative general equilibrium model to explain the pattern and study its implications for business cycles. In the model, a persistent negative productivity shock signals low future productivity. In the presence of financial frictions, firms divert resources from capital to cash in order to preserve financial flexibility. Lower capital investment translates into lower collateral value and income in future, which further strengthens firms' precautionary saving motive and shifts resources away from capital. Corporate saving, therefore, propagates aggregate shocks, in contrast to the common view of its role in absorbing adverse shocks as a liquidity cushion. In particular, corporate saving increases the decline in aggregate output by 20.8 percent during recessions and raises aggregate output volatility by 15 percent.

This seminar is part of the Department of Economics Seminar Series. Everyone is welcome.