Publications:
Working Papers:
Abstract: This paper studies the equilibrium allocation of research resources across sectors with heterogenous knowledge spillovers and its impact on aggregate growth. We develop an endogenous growth model in which heterogenous inter-sectoral knowledge linkages affect multi-sector firm’s innovations, sectoral entry and exit, and hence, the distribution of R&D investment across sectors at the aggregate. In the presence of barriers to diversity, a general pattern of sequential sectoral entry arises, which helps to explain many empirical regularities regarding firm’s patenting location in the technology space, firm dynamics and cross-sector differences in R&D intensities and patenting. Using U.S. patent citation data, we construct sectoral knowledge input-output matrix, and estimate and simulate our model to evaluate the effects of sectoral key factors on innovation activities and growth. Most importantly, We show that barriers to diversity may significantly reduces technological progress, in particular, disproportionally reducing innovations in sectors with most knowledge spillovers.
Abstract: We provide two independent sources of evidence that consumers’ perceptions of inflation are systematically biased toward the inflation rates of the most-frequently purchased items. Surveys of inflation perceptions and expectations show that consumers over-perceive economy-wide inflation during periods when frequently-purchased nondurable goods are inflating faster than durables. Separately, in a controlled laboratory experiment, subjects’ estimates of aggregate inflation is clearly biased toward the inflation rates of the most-frequently purchased goods. Taken together, these results suggest that the frequency bias is a fundamental feature of consumers’ inflation perceptions that can distort optimal life-cycle decisions.
Abstract: Labor markets in emerging economies are characterized by large fluctuations in wages and subdued fluctuations in employment. A real business cycle model of a small open economy that embeds a Mortensen-Pissarides type of search-matching frictions can account for these regularities. Moreover, search-matching frictions help amplify the countercyclical interest rate shocks leading to a greater response of consumption and current account to those shocks. This inherent propagation mechanism goes a long way in accounting for higher consumption variability relative to output and countercyclical current account that characterize emerging market business cycles.
Abstract: Exchange rates display excessive volatility and are disconnected from macroeconomic fundamentals. This paper introduces a two-country general equilibrium model in which nonfundamental uncertainty (“sunspot”) in part drives stochastic fluctuations in the exchange rate in a class of rational expectation equilibria. The model assumes a minimum combination of financial frictions – incomplete asset markets and a proportional transaction cost associated with trading foreign currency denominated bonds (in the form of the “Tobin tax”). The model allows an arbitrary amount of volatility and breaks the tight link between the nominal exchange rate and fundamentals. Moreover, the model generates negative Backus-Smith correlation between relative consumption and the real exchange rate, because relative prices, act as a source of shocks as opposed to shockabsorbers, directly affecting the value of relative output and generating a large wealth effect on relative consumption. Using a random walk as an example of sunspot shocks, the real effects of the exchange rate on output and consumption are shown to be small in the presence of nontradable goods and distribution services.
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