Yang Liu
Interests: Asset Pricing, Macroeconomics, International Finance







Job Market Paper

Government Debt and Risk Premia

I document that government debt is related to risk premia in various asset markets: (i) the debt-to-GDP ratio positively predicts excess stock returns with out-of-sample R squared up to 30% at a five-year horizon, outperforming many popular predictors; (ii) the debt-to-GDP ratio is positively correlated with credit risk premia in both corporate bond excess returns and yield spreads; (iii) higher debt-to-GDP ratio is associated with lower real risk-free rates, (iv) higher debt-to-GDP ratio corresponds to lower average expected returns on government debt; (v) debt-to-GDP ratio positively comoves with fiscal policy uncertainty. I rationalize these empirical findings in a general equilibrium model featuring recursive preferences, endogenous growth, distortionary taxation, and time-varying fiscal uncertainty. In the model, the tax risk premium is sizable and its time variation is driven by fiscal uncertainty. Furthermore, the model generates an endogenous relationship between the debt-to-GDP ratio and fiscal uncertainty. Fiscal uncertainty increases debt valuation through lower government discount rate. This mechanism is reinforced as higher debt conversely raises uncertainty in future fiscal consolidations.


Volatility Risk Pass-Through

(With Ricardo Colacito, Mariano M. Croce and Ivan Shaliastovich)
We produce novel empirical evidence on the relevance of output volatility (vol) shocks for both currency and international quantity dynamics. Focusing on G-17 countries, we document several facts: (1) consumption and output vols are imperfectly correlated within countries; (2) across countries, consumption vol is more correlated than output vol; (3) the pass-through of relative output vol shocks onto relative consumption vol is moderate, especially if the uncertainty shocks originate from small countries; and (4) consumption differentials vol and exchange rate vol are disconnected, in contrast to the perfect correlation implied by a model of perfect risk-sharing with time-additive preferences. We rationalize these findings in a frictionless model with multiple goods and recursive preferences featuring a novel-and-rich risk-sharing of vol shocks.

Volatility, Intermediaries and Exchange Rates

(With Xiang Fang)
This paper studies how financial market volatility drives exchange rates through the risk management practice of financial intermediaries. We build a model in which the major participants in the international financial market are levered intermediaries subject to Value-at-Risk constraints. Higher portfolio volatility translates into tighter funding conditions and increased marginal value of wealth. Thus, foreign currency is expected to appreciate. Our model can resolve the Backus-Smith puzzle, the forward premium puzzle, and the exchange rate volatility puzzle quantitatively. Our empirical tests verify two implications of the model that measures of both financial market volatility and funding condition have predictive power on exchange rates.

On the Asymmetry of Global Spillovers: Emerging Markets vs. Advanced Economies

(With Rabah Arezki)
This paper examines growth spillovers between emerging markets (EMs) and advanced economies (AEs). Our empirical results based on a two-bloc set-up and covering the period 1991 to 2015 are twofold. First, we show that the size of the spillovers running from EMs to AEs is about one fifth of that running from AEs to EMs. Second, results point to spillovers from EMs to AEs having increased over the second half of the sample period. We present suggestive evidence that the (evolving) structure of interdependencies play an important role in explaining the existence of “asymmetrical spillovers” between these similar sized blocs.

Teaching Experience

FNCE 934, Empirical Methods in Asset Pricing (Ph.D.), Fall 2014
Teaching Assistant to Professor Ivan Shaliastovich
ECON 104, Introduction to Econometrics (Undergraduate), Spring 2014
Teaching Assistant to Professor Frank Schorfheide
ECON 104, Introduction to Econometrics (Undergraduate), Fall 2013, Fall 2012
Teaching Assistant to Professor Francis X. Diebold
ECON 104, Introduction to Econometrics (Undergraduate), Spring 2013
Teaching Assistant to Professor Xu Cheng


Research Appointments:
Federal Reserve Bank of Philadelphia, Research Associate, September 2014-present
International Monetary Fund, Research Department, Visiting Scholar, August 2015
International Monetary Fund, Research Department, Fund Internship Program, June to August 2014

Econometric Society North America Summer Meeting, Philly Fed, EconCon, Penn Econ, Wharton

Referee for:
Journal of Monetary Economics

Honors and Fellowships:
University Fellowship, University of Pennsylvania, 2011


Professor Amir Yaron

Professor Enrique G. Mendoza

Professor Frank Schorfheide

Professor Ivan Shaliastovich


I am on the job market and will be available for interviews at the 2017 ASSA meetings in Chicago.