Escaping the "poverty trap": Q&A with new Lang economics faculty Dr. Xiaowen Lei's | Gordon S. Lang School of Business and Economics

Escaping the "poverty trap": Q&A with new Lang economics faculty Dr. Xiaowen Lei's

Posted on Tuesday, July 6th, 2021

Dr. Xiaowen Lei
Dr. Xiaowen Lei

New Lang economics professor Dr. Xiaowen Lei's research explores understanding how uncertainty impacts our economy. In this Q&A article, Dr. Lei answers how she plans to use her expertise as a professor and researcher at Lang. 

Dr. Xiaowen Lei was born in Shanghai, China. After obtaining her bachelor of economics degree from Shanghai Jiao Tong University, she moved to Vancouver, Canada to pursue graduate study in macroeconomics. She obtained her master's and a Ph.D. degree in economics from Simon Fraser University. Since her graduation in 2018, Dr. Lei has held positions at the Bank of Canada as a visiting scholar and more recently a Postdoctoral Prize Research Fellow in Economics at the University of Oxford. Her research specialization is in macroeconomics, with a focus on understanding the role of uncertainty in macroeconomic policies, as well as the interaction of belief heterogeneity and wealth distribution. Her work has been published in top field journals such as the Journal of monetary economics, Journal of economic theory, and macroeconomic dynamics. 

Tell us about the focus of your research. 

"My research field is macroeconomics, with a specialization in understanding the interaction between belief differences and wealth distribution. Most existing work in wealth distribution assumes rational expectation, with the idea that the expectations of households and firms are statistically consistent with the actual data generating process. This assumption turns out to be at odds with many of the real-world observations. My work departs from rational expectation and studies the feedback mechanism between expectation formation and economic fundamentals, and how that ultimately translates into households' economic decisions and shapes wealth distribution. Apart from this mainstream of research, I am also interested in examining how optimal macroeconomic policies respond to uncertainty. I have published articles on the optimal timing decisions of monetary policies and exchange rate policies. Recently, I have also developed an interest in exploring the dynamics of inflation expectations."

Who can benefit most from your research? 

"My research benefits both the general public as well as policymakers. First, by understanding how beliefs can negatively impact wealth accumulation, poor households could better educate themselves to get out of the poverty trap. Second, policymakers could employ tools to combat high levels of inequality by understanding the underlying friction from irrational beliefs. For example, in a recent working paper, I have discovered that cohorts that have experienced major stock market crashes are more pessimistic about future stock market returns. They tend to invest less in risky portfolios and accumulate wealth at a slower pace compared with cohorts that have not experienced such disasters. Policymakers can therefore learn from this by imposing mandatory pension funds designed to improve wealth accumulation of the scarred generation by helping them to invest in stocks when those cohorts fear to do so by themselves."

What research publication are you most proud of? and what did the article explore? 

"I have enjoyed writing all my papers. If I have to name only one, it would be my paper “information and inequality” that was recently published in the Journal of Economic Theory. In that paper, I examine the implication of information acquisition on financial wealth inequality. I show that information on asset returns is more valuable to wealthy households because they have more wealth to be invested. As a result, wealthy households demand more information and become more confident about their own beliefs about asset returns. This encourages them to invest a higher share of their wealth in higher-yielding risky assets. This mechanism leads to higher wealth concentration in the financial market."

How do you plan on contributing to Lang's mission of using business as a force for good? 

"Macroeconomics offers deep insights into how the aggregate economy reacts to changes in the external environment, such as changes in monetary policy, fiscal policy, productivity, etc. This could greatly improve the way businesses make decisions. For example, they can make more efficient input-output decisions, firm entry and exit decisions, investment decisions, etc. Bettering the understanding of the macroeconomy can thus improve the efficiency of the individual business, and then the whole macroeconomy. My goal is to bring that line of understanding into the teaching and research at Lang."

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