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Xuewen Liu, Assistant Professor of Finance, The Hong Kong University of Science and Technology: Financial Markets, the Real Economy, and Self-fulfilling Uncertainties

Time:2017-03-15 Print

Topic: Financial Markets, the Real Economy, and Self-fulfilling Uncertainties

Speaker: Xuewen Liu, Assistant Professor of Finance, Business School, The Hong Kong University of Science and Technology

Date: March 15th (Wednesday)

Time: 10:00-11:30am

Location: Building 4, Room 101

Language: English

Abstract:

Uncertainty in both financial markets and the real economy rises sharply during recessions. We develop a model of informational interdependence between financial markets and the real economy, linking uncertainty to information production (acquisition) and aggregate economic activities to explain this intriguing empirical fact. We argue that there exists mutual learning between financial markets and the real economy. Their joint information productions determine both the real production efficiency in the real sector and the price efficiency in the financial sector. The mutual learning makes information production in the financial sector and that in the real sector a strategic complementarity. A self-fulfilling surge in financial uncertainty and real uncertainty can naturally arise when both sectors produce little information in anticipation of the other sector to do so. At the same time, aggregate output falls as the real production efficiency deteriorates. Our model has other implications on aggregate economic activities.

About the speaker:

Xuewen Liu is currently an Assistant Professor of Finance at Hong Kong University of Science and Technology. He obtained his Ph.D. degree at London School of Economics. His research areas are in Financial Economics, Macroeconomics, Growth and Development, and Chinese Economy. Professor Xuewen Liu has published academics papers in top journals in finance and economics, such as Journal of Financial Economics, Review of Financial Studies, Journal of Economic Theory, and Management Science.


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>Tsinghua National Institute of Financial Research