Financial Reforms and Consumption Smoothing

Assistant Professor at Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University. She earned her PhD of Economics from University of Colorado-Boulder, her research interests include macroeconomics and international finance. 

We study how financial reforms or financial liberalization affect the extent of consumption smooth-ing in a dynamic stochastic general equilibrium model. The empirical literature highlights that financial reforms and development improve consumption smoothing in industrialized economies, but not in emerging economies. Our model emphasizes consumer credit and home production. In accord with the empirical literature, our model predicts that equity market reforms ameliorate consumption smoothing. Our model also predicts that reforms that relax interest and credit controls may deteriorate consumption smoothing in emerging economies where a large share of the population is credit constrained and where home production is particularly important.