Nan Li Assistant Professor Department of Economics Ohio State University Mailing Address: 403 Arps Hall
1945 N. High Street Phone: (614) 292 4198 Email: nanli at mail.econ.ohio-state.edu
CV:Teaching: International Trade and Open Macroeconomics, ECON 861 (Graduate) Research Papers:
Abstract: This paper shows that labor markets of emerging economies are characterized by large fluctuations in wages while employment fluctuations are subdued. We find that a real business cycle model of a small open economy that embeds a Mortensen-Pissarides type of search-matching frictions can account for these aforementioned regularities. Moreover, the joint interaction of countercyclical interest rates and search-matching frictions can go a long way in accounting for higher consumption variability relative to output and countercyclical current account observed in emerging markets. Extending this baseline model to incorporate procyclical variations in the technical efficiency at which matches are generated, the model can match the unemployment variability observed in the data
Abstract: This paper documents that, at the aggregate level, (i) real wages are positively correlated with
output and, on average, lag output by about one quarter in emerging markets, while there are no systematic patterns in developed economies, (ii) real wage volatility (relative to output volatility) is about twice as high in emerging markets compared with developed economies, and (iii) real wage volatility, as a ratio of output volatility, decreases with the level of financial development across countries. I then present a small open economy model with risk sharing between workers and employers to explore the role of countercyclical interest rates in emerging markets. Only employers have access to financial markets in the model, but they need to borrow working capital to pay for labor costs before production is carried out. The idea is that countercyclical interest rates and less developed financial markets in emerging markets make it less optimal for employers to provide workers with relatively stable wages, leading to more volatile and procyclical wages. This is further demonstrated by calibrating the model using data from Mexico and Canada.
Abstract: This paper provides a two-country general equilibrium model that addresses the excessive volatility in exchange rates and “exchange rate disconnect” phenomenon. Currencies are modeled as assets. Nominal exchange rate and the reciprocal of it, as asset prices, are shown to follow quasi-martingale processes under incomplete asset markets. In particular, I assume that there is a positive transaction cost (or “Tobin’s tax”) when trading foreign currency denominated bonds. This transaction cost gives rise to an equilibrium in which the nominal exchange rate is partially determined by a non-fundamental stochastic process, whose volatility increases Tobin’s tax. In addition, by introducing nontradable goods or distribution costs in my model, I show that the international relative price movement does not completely offset the nominal exchange rate fluctuation. This leaves the real exchange rate volatile as well. Simulating the equilibrium shows that real effects of the exchange rate on output and consumption are small. The two sources of uncertainty in this model include money supply shock and non-fundamental uncertainty (e.g. market sentiment, animal spirit).
Work in Progress:
Linkslast updated: Jan, 2010
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