1. Topic: Credit Crunches, Heterogeneity and the Labor Wedge

2. Lecturer: Zhang Lini, Associate Professor of School of Finance, CUFE. She obtained the degree of Doctor of Economics from the Ohio State University in 2014. She obtained the Bachelor of Economics and Mathematics degree and Master of Finance in School of Economics and Management, Wuhan University. Her research area includes macroeconomics, macro-finance, real estate economics and Chinese economy. Her research outcomes were preached in international academic meeting for many times and she takes part in the anonymous review of international journal.

3. Time: December, 30th, 2015(Wednesday), 12:30-13:30

4. Place: Main Building Room 913

5. Host: Huang Zhigang, Associate Professor of School of Finance, CUFE.

Abstract: Can we use the labor wedge to analyze the sources and channels of business cycle fluctuations when individual heterogeneity is considered? I answer this question in a quantitative general equilibrium model with heterogeneous individuals that face discrete occupational choices to be entrepreneurs or workers every period. The financial markets are incomplete in that heterogeneous entrepreneurs' capital inputs are subject to collateral borrowing constraints. I find that a credit crunch and a negative productivity shock can both generate severe real economic recessions, but their channels for recessions are through different reallocation in capital and labor in the economy. Accordingly, output, labor and investment have larger declines in credit crunches. Moreover, the movements of the labor wedge are significantly larger in the credit crunch than in the negative productivity shock. Hence the labor wedge could be a valid instrument for identifying the primitive shocks driving the business cycles even if heterogeneity is considered.