PUBLICATIONS & PAPERS
Rural-led Exchange Rate Appreciation in China (with G. Menzies, P. Dixon, X. Peng and M. Rimmer) [PDF], China Economic Review (2016), 39, 15–30
The departure of a factor in excess supply in a non-traded rural sector leads to a Rural-led Exchange Rate Real Appreciation (RERA), in a dual economy setup. The RERA highlights for the first time a potential link between intra-national factor movements and real exchange rates. In China, where there is excess labor employed in the production of (largely) nontraded rural goods, we attribute around one third of the recent appreciation of the real exchange rate – defined as the relative price of nontradables – to a RERA effect.
Liquidity, Monetary Policy and Unemployment (with Mei Dong) [2016 version] [JMP Version] R & R, International Economic Review
We develop a model of money and bonds to address effects of monetary policy on output and unemployment. In the baseline model, money and short-term government bonds coexist to facilitate goods trading. We analyze effects of conventional monetary policy when the central bank conducts open market operations by adjusting the relative supply of money and bonds. Conventional monetary policy is effective only when the short-term interest rate is positive. We then introduce long-term government bonds to examine effects of unconventional monetary policy. We find it is natural to resort to unconventional monetary policy when the short-term interest rate hits the zero lower bound. As in the baseline model, unconventional monetary policy has a redistribution effect, but its effect on unemployment is ambiguous.
Open Market Operations (with Guillaume Rocheteau and Randall Wright) [PDF] R & R, Journal of Monetary Economics
Standard monetary models are extended to incorporate, in addition to currency, liquid government bonds. We then study the impact of policy, including open market operations, under various specifications for market structure and for the liquidity of money and bonds -- i.e., about their acceptability or pledgeability as media of exchange or as collateral. Theory delivers sharp predictions for the effects of policy, and generates novel phenomena, like the possibility of negative nominal interest rates, endogenous market segmentation, endogenous price sluggishness, and liquidity traps. We also explain differences in asset liquidity (acceptability and pledgeability) using information theory.
WORK IN PROGRESS
1. Firms' Financial v.s. Real Investment: Liquidity and Capital Reallocation (A draft is coming soon)
2. Frictional Capital Reallocation (With Randall Wright and Yu Zhu), A draft is available upon request
3. Digital Currency and International Portfolio Choices (With Adrian Lee)
4. Digital Currency, Financial Intermediation and Monetary Policy
5. Taxi Industry In The Sharing-Economy Era: A Search Approach