Research
Working Papers
Productive demand, sectoral comovement, and total capacity utilization, joint with Marshall Urias, Slides
(Presented at Hong Kong Junior Macro Reading Group, May 2024, Australia Money and Macro Workshop, March 2023; Hong Kong Junior Macro Reading Group, August 2022)
We investigate business cycle fluctuations in a three-sector model where demand shocks influence the Solow residual and estimate it using Bayesian techniques. Our novel identification strategy uses capacity utilization data from both nondurable and durable goods sectors to identify key parameters of goods market frictions. In our simplified setting, incorporating capacity utilization data reveals that goods market frictions and demand shocks play a more significant role than indicated by an estimation which only uses conventional macroeconomic variables. In our general setting, shocks to shopping effort account for the majority of the forecast error variance in output, the Solow residual, and utilization. Furthermore, search demand shocks and sector-specific wage markup shocks prove essential for inducing positive comovement of utilization data and fitting sectoral data overall.
Liquidity, Unemployment, and the Stock Market, joint with William Branch. Slides.
Interest-rate spreads and the unemployment rate vary negatively with stock prices. Liquidity plays a role in a Mortensen-Pissarides economy with a twist: households self-insure against preference shocks by accumulating equity claims. Higher stock market valuations relax liquidity constraints, creating an aggregate demand channel that strengthens firms' hiring incentives. Quantitatively, a negative shock to stocks decreases the liquidity value of equity and increases unemployment. A ``perfect storm'' of an increase in risk and a drop in the velocity of publicly-provided assets produces a self-fulfilling crash to an equilibrium with high unemployment and low stock prices. Fragile economies rely on privately-issued assets.
(Presented at the 2017 Midwest Macroeconomics Conference, Baton Rouge; 2017 Society for Computational Economics Conference, New York)
Unemployment and Labor Productivity Comovement: the Role of Firm Exit, joint with Miroslav Gabrovski, Slides
The Diamond-Mortensen-Pissarides model implies a nearly perfect correlation between labor productivity and unemployment/vacancies, yet the relationship in the data is mild. We show that incorporating sunk entry costs and vacancy creation in an otherwise standard setup can reconcile the discrepancy. Sunk costs cause vacancies to be a positively valued, predetermined variable. If the destruction shock is infrequent, then most vacancies were created in the past, and hence the number of vacancies in the market correlate more closely with past than current labor productivity. Provided the destruction shock is calibrated to match either micro-level evidence on product destruction and firm exit rates or commonly used values in the growth literature, the model reproduces the empirically observed mild correlation between productivity and unemployment without breaking the strong negative co-movement between unemployment and vacancies.
Published
Unsecured Credit, Product Variety, and Unemployment Dynamics, Macroeconomic Dynamics , Online Appendix
(Presented at the 2016 Midwest Macro Workshop; 2016 West Coast Search and Matching Workshop, San Francisco Federal Reserve; 2016 Western Economics Association International, Portland)
Corporate Finance, Monetary Policy, and Aggregate Demand Journal of Economic Dynamics and Control, Slides
(Presented at the 2019 Western Economics Association International, San Francisco; the 2018 Society of Economics Dynamics Conference, Xiamen; Ashoka University)
New Monetarism with Endogenous Product Variety and Monopolistic Competition, Journal of Economic Dynamics and Control
(Presented at the 2015 Spring Midwest Macro Workshop, St. Louis; 2015 Search, Money, Liquidity, and Finance Workshop for PhD Students, UC Irvine)
Decentralizing Constrained-Efficient Allocations in the Lagos-Wright Pure Currency Economy, joint with Ayushi Bajaj, Guillaume Rocheteau, and Tai-Wei Hu, Journal of Economic Theory
Work in Progress
Sunk vacancy costs, endogenous product variety, and labor market frictions. Slides
The economy features significant market power and formation and exit of businesses and product lines. We study the interaction between labor market frictions and endogenous product variety in a real business cycle model. The first novel feature is bidirectional feedback: increased employment provides additional resources for product line expansion, while greater product variety enhances households' consumption diversification capabilities, thereby boosting job creation and employment. Labor market variables demonstrate heightened persistence due to both the gradual adjustment of product lines and vacancy creation, with the latter stemming from sunk entry costs and congestion effects.
Furthermore, since the elimination of a product line simultaneously terminates associated vacancies, vacancy persistence closely correlates with product line longevity. This creates a crucial distinction between separation rate and product destruction rate shocks. While separation rate shocks trigger vacancy reposting, destruction shocks deplete firm vacancies entirely, resulting in only the latter generating a Beveridge curve.
Liquidity, Unemployment, and Fiscal Policy, joint with Oliko Vardishvili.