Li Li

Department of Economics
University of Toronto
150 St. George Street
Toronto, ON M5S 3G7
Canada

Phone:
Fax: (416) 978-6713

Email: lli.li@utoronto.ca
Web: http://individual.utoronto.ca/li_li/


Citizenship Canadian
Languages English, Chinese (Mandarin)
Research Interests

Macroeconomics and Monetary Economics
International Macroeconomics and Finance
International Economics
Macroeconomic Aspects of International Finance
Computational Economics

Teaching Interests

International Monetary Economics; Macroeconomic Theory and Policy;
Computational Methods; Money, Banking, and Financial Markets

Education
2007-
PhD, Economics, University of Toronto (expected completion in 2014)
Dissertation: Sovereign Default, Self-Control and Policy Implications
Committee: Shouyong Shi (supervisor), Jordi Mondria, Burhanettin Kuruscu
2007
MA, Economics, University of Guelph (2006-2007)
2006
M1 Program, Economics, University of Windsor (2005-2006)
2004
BA, Business Administration, Zhongnan University of Economics and Law (2000-2004)
Awards

Dorothy J. Powell Graduate Scholarship In International Economics 2013
Edward B. Kernaghan Fellowship 2013
Doctoral Completion Award, 2012-2013
SGS Conference Grant, 2012
Lawrence and Tracy Smith Bursary, 2011-2012
Department of Economics Student Award, 2012
University of Toronto Graduate Fellowship, 2007-2010
Economics Alumni Masters Scholarship for the Highest Cumulative Average MA Program, 2007

Research Papers

“Sovereign Defaults and Interest Rate Spread in the Presence of a Self-Control Problem” (job market paper)
“Welfare Implications of Consumption Tax for Sovereign Default”
“Increasing Borrowing Limit in the Presence of Self-Control Problem: Policy Implications for the U.S”

Professional Experience
Textbook Revision for : Business (7th Canadian Edition) R.W. Griffin, R.J. Ebert, F.A. Starke & M.D. Lang
2007-2013 Teaching Assistant, University of Toronto
  • Advanced Economic Theory – Macro
  • Intermediate Macroeconomic Theory
  • Topics in Money, Banking, and Finance
  • Money, Banking and Financial Markets
  • International Monetary Economics
  • Intermediate Microeconomics Theory
  • Development Policy
  • Quantitative Methods in Economics
  • Industrial Organization
  • Introduction to Management
2010-2013 Research Assistant, University of Toronto
  • Professor Burhanettin Kuruscu, Macroeconomics, Political Economy
  • Professor Shouyong Shi, Macroeconomics, Monetary Theory
  • Professor Jordi Mondria, International Finance
  • Professor Christian Breunig, Political Science
  • Professor Philip Oreopoulos, Labour Economics, Applied Econometrics
  • Professor Lu Han, Real Estate Economics
2006-2007 Research Assistant, University of Guelph
  • Professor David Prescott, Econometrics
Conferences and Seminar Presentations
2013 International Conference on Computing in Economics and Finance, Vancouver
2013 Georgetown Center for Economic Research Biennial conference, Washington, DC
2013 Midwest Macroeconomics Meeting, Urbana-Champaign
2012 Rimini Conference in Economics and Finance, Toronto
2012 Canadian Economics Association, Calgary
2011 Canadian Economics Association, Ottawa
2012 PhD Workshop in Economics, Guelph
Computer Skills
C++, Fortran, Matlab, Stata, Gauss, S-Plus, R
References
Professor Shouyong Shi
Department of Economics
University of Toronto
150 St. George Street
Toronto, ON M5S 3G7

phone: 416-978-4978
email: shouyong@chass.utoronto.ca
Professor Burhanettin Kuruscu
Department of Economics
University of Toronto
150 St. George Street
Toronto, ON M5S 3G7

phone: 416-978-8343
email: burhan.kuruscu@utoronto.ca

Professor Jordi Mondria
Department of Economics
University of Toronto
150 St. George Street
Toronto, ON M5S 3G7

phone: 416-978-1494
email: jordi.mondria@utoronto.ca

Dissertation Abstract

Conventional sovereign default models, with stochastic aggregate output as the only factor driving endogenous defaults, leave some main features of the Argentine economy unexplained: a large sovereign debt with respect to GDP (31%), and a large interest rate spread on average (10%) with high volatility. These models' predictive power is especially poor during economic booms. To capture these features, I introduce self-control preferences (Gul and Pesendorfer, 2001, 2004, 2005) into the standard setup. The sovereign suffers from the temptation to consume the entire wealth and save nothing for the future due to a lack of self-control, and thereby has an incentive to incur a higher level of debt than normal: the temptation is reduced by the larger repayment if the sovereign stays in the non-default regime. The larger repayment, however, comes at the cost of a higher probability of default. As a consequence, the international loan market charges a higher interest rate in compensation for the default risk. This richer model captures the main unexplained trends and successfully matches Argentine sovereign default history. In the presence of the self-control problem, consumption tax has a non-trivial welfare effect and can reduce sovereign default risk. In response to the concern (Barro, 1999) about observational equivalence between a lack of self-control and the presence of a low discount factor, I show that the latter cannot generate the observed interest rate spreads. To surmount the computational difficulties that arise from the introduction of self-control preferences, I develop an algorithm that builds on the genetic algorithm (Holland, 1975) and the tripartite method. Combined with the technique of state space segmentation to properly handle non-local approximations of the value function, I show that the new algorithm is significantly more precise, and at the same time more efficient, than the standard algorithms.



Sovereign default is prevalent in emerging markets. With excessive impatience, savings subsidies can be welfare improving by reducing over-consumption (Krusell, Kuruscu and Smith, 2009). This paper shows that a consumption tax scheme which is equivalent to savings subsidy can be welfare deteriorating when the capital market is imperfect, because of the existence of a feedback mechanism. For Argentina, the overall effect is slightly negative. The feedback mechanism is as follows: with consumption tax, the decreased likelihood of default leads to a decrease of interest rate at equilibrium, which induces over-consumption. It would offset part of the welfare gain obtained from imposing the consumption tax. Furthermore, the decrease in the level of sovereign loans would increase next period’s temptation. I quantitatively show that when the degree of self-control problem exceeds a certain level, the feedback mechanism dominates. The policy recommendation would be a consumption subsidy.



The U.S. has been increasing its borrowing limits over the last three decades. In a standard model, welfare improves if borrowing limit has been increased when a binding credit constraint is relaxed. This conclusion can be reversed if the decision maker has a self-control problem. To make this argument, I compare two cases where the decision maker has her credit constraint binding versus non-binding. I show that welfare decreases as the credit constraint is relaxed in the non-binding case. For the binding case, there are two effects. The increase in temptation to spend causes a decrease in welfare that offsets the welfare gain from relaxing a binding credit constraint. The overall effect can only be positive if the constraint relaxation is small, the cost of resisting the temptation is very small and if the decision maker’s discount factor is low relative to the market. This research has a number of policy implications: it implies that when shaping the credit market reforms, the knowledge of the agent’s time preference, self-control cost to resisting available resources across population and market equilibrium interest rate are crucial for determining the direction of the welfare changes resulting from expansionary credit policy or tightening credit policy.