CV: 

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Courses: 

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

Research:

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). 
  • "Precautionary Saving and Cyclical Behavior of Employment and Real Wages in Emerging Markets" with Emine Boz and Bora Durdu. [in progress]
  • "Total Factor Productivity Growth in the Developing Countries: A Suggested Interpretation" with Peter Henry. [in progress]
  • "Stock Markets Before External Debt Crises" [in progress]

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