https://macropaperwarehouse.com/authors/zheng-liu/Zheng LiuHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/the-crowding-in-effects-of-local-government-debt-in-china/https://macropaperwarehouse.com/papers/the-crowding-in-effects-of-local-government-debt-in-china/<p><strong>Research Question</strong></p> <p>This paper asks how changes in the <em>composition</em> (not the size) of Chinese local government debt influence bank risk-taking, credit allocation between privately owned enterprises (POEs) and state-owned enterprises (SOEs), and local total factor productivity. The focus is a 2015 debt-to-bond swap program in which local governments were required to convert outstanding implicit debt — primarily bank loans to local government financing vehicles (LGFVs) and LGFV-issued corporate bonds — into explicitly guaranteed local government bonds.</p>https://macropaperwarehouse.com/papers/turbulent-business-cycles/https://macropaperwarehouse.com/papers/turbulent-business-cycles/<p>Firm-level evidence shows that recessions are characterized not just by aggregate downturns but by a sharp rise in turbulence—a reshuffling of firms&rsquo; productivity rankings in which high-productivity firms are less likely to maintain their relative standing. This paper documents four stylized facts about the macroeconomic and cross-sectional effects of turbulence (measured as one minus the Spearman rank correlation of firm-level TFP between adjacent years in Compustat data): turbulence is countercyclical; increases in turbulence reallocate labor and capital from high- to low-productivity firms; turbulence is negatively correlated with aggregate manufacturing TFP and the aggregate stock market; and an increase in turbulence is associated with persistent declines in real GDP, consumption, investment, and employment. To explain the mechanism, the authors build a real business cycle model with heterogeneous firms and financial frictions: when turbulence rises, high-productivity firms&rsquo; expected equity values fall because their productivity is less likely to persist, which tightens their borrowing constraints relative to low-productivity firms, inducing reallocation that reduces aggregate TFP. Crucially, turbulence differs from uncertainty shocks because it changes both the conditional mean and variance of the firm productivity distribution, enabling it to generate synchronized recessions with declining aggregate activity.</p>