Research

The Macro Impact of the Debt-Inflation Channel on Investment

Published in Job Market Paper, 1900

This paper evaluates the macro impact of the debt-inflation (Fisher) channel of investment, whereby unexpected inflation erodes the real value of nominal debt and thus stimulates firm-level investment. Consistent with theory, I document that more indebted firms increase investment more relative to others following unexpected increase in inflation. To quantify the macro effect of this channel, I develop a general equilibrium model with heterogeneous firms, financial frictions and nominal debt contracts. I show that a 1% unexpected inflation raises aggregate investment by 0.8%. By applying the observed post-COVID inflation surprises, this firm-side Fisher channel is quantitatively important enough to explain about 70% investment surge. This finding highlights a significant transmission mechanism for investment, in contrast to previous studies that found a more modest role for the Fisher channel on household consumption.

Download Slides

Labor Share over Recessions

Published in , 1900

This paper examines labor share dynamics following economic recessions using quarterly firm-level data from Compustat (1996-2022). I construct a novel dataset combining Compustat financial data with BLS industry-level wages and employ a comprehensive decomposition framework. I document that aggregate labor share exhibits sharp, permanent drops after each recession, driven by two mechanisms: (1) accelerated declines in the unweighted average labor share among surviving firms during and after recessions, and (2) persistent negative contributions from firm reallocation, particularly through “Rising Star” firms that gain market share while reducing labor share. Regression analysis confirms that conditional on time trends, the unweighted mean shows significant post-recession discontinuities of approximately 1.5 percentage points across three major downturns. Counterfactual exercises suggest these recession-period adjustments account for part of the aggregate decline. These findings contribute to understanding the role of business cycle dynamics in labor share evolution.