CV: 

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Courses: 

  International Trade and Open Macroeconomics, ECON 861 (Graduate)
  International Finance, ECON 666 (Undergraduate)

Research:

Abstract: This paper shows that labor markets of emerging economies are characterized by more pronounced wage fluctuations and relatively subdued employment fluctuations compared to developed economies. By embedding a Mortensen-Pissarides type of search-matching frictions to a real business cycle model of a small open economy, we show that joint interaction of countercyclical interest rates and
search-matching frictions can go a long way in accounting for higher consumption variability relative to output, countercyclical current account, and highly variable wage fluctuations. Extending this baseline model to incorporate procyclical variations in the technical efficiency at which matches are generated can explain high 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 model of contractual arrangements between workers and employers in a small open economy that helps explain this contrast. Only employers have access to financial and capital 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. More specifically, the total wage bill is procyclical when the financial cost of hiring labor is countercyclical. The intertemporal substitution effect of countercyclical interest rates on labor input offsets the direct effect of productivity movements, resulting in less responsive employment. Therefore, the wage is exposed to more volatility and displays more procyclicality. 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). 

  • "Expectation Driven Firm Dynamics and Business Cycles" with Mohammad Saif Mehkari. Preliminary Draft                                                                                                                Abstract: This paper presents a model incorporating endogenous firm entry (or product creation) that successfully translates positive news about the future into current expansions, and accounts for the positive comovements in output, consumption, investment and employment. The key elements are a time-variant sunk entry cost and variable capital utilization. In response to the expectation of future positive technology shocks, firms correctly predict the competition level will increase; they in turn reduce markup, which raises entry cost, and this consequently causes firms to choose to enter early. Along with firm entry, more intensive capital utilization stimulates new investment and employment, while expanding the production frontier; this facilitates a rise in both consumption and investment (even with a separable utility function). The model also successfully generates increases in stock prices (firm values), and positive comovements in response to a range of different shocks -- preference shocks, exit shocks, and cost shocks.
  • "Quality and Export: A Signaling Perspective" with Simon Fan and Yifan Hu. [in progress]
  • "The Altruism of Nations: Measuring Social Capital in the Internet" with Sotiris Georganas. [in progress]
  • "Price Stickiness in China" with Simon Fan and Xiangdong Wei [in progress]
  • "Total Factor Productivity Growth in the Developing Countries: A Suggested Interpretation" with Peter Henry. [in progress]

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