State-Dependent Fed's Signaling Effect and Stabilization Pollicy [pdf]
Abstract: When a central bank's policy decisions reveal its view of the economy, private agents revise their beliefs about fundamentals, and these revisions can partly offset the intended effect of policy. This paper studies if the signaling effect exists, if so, when it becomes strong and what it implies for the policy implementation. Using high-frequency surprises in interest rate futures and stock prices around FOMC announcements from 1994 to 2018, I show that the association between monetary policy surprises and expectation surprises becomes positive during certain periods, which is sufficient for the existence of signaling effect. And these episodes concentrate in recoveries following downturns implying potential state-dependence of signaling effect. I build a New Keynesian model with imperfect information and state-dependent parameters to re-generate the state-dependence of signaling effect. When the signaling and belief propagation become stronger, they can overturn the impact response of inflation to opposite direction against standard effect of monetary policy. Counterfactuals further show that a weaker response to expected inflation amplifies the expectation channel, which calls for more strict communication of the central bank's hawkish stance toward inflation during recoveries from downturns.
Cyclical Credit Limit and the Effect of Monetary Policy Shocks
Abstract: I investigate the impact of endogenously time-varying credit card limit as a novel channel for the effect of monetary policy to household consumption and welfare in HANK model with bank sector. As a preliminary empirical evidence, by using New York FED Consumer Credit Panel data, the result of local projection shows that there exists cyclical movement of credit card limit to monetary policy shocks. I find that the credit card limit does not change significantly after the monetary policy easing, while it decreases after the monetary policy tightening. To reflect this phenomenon and to show some important welfare and aggregate fluctuation implications of monetary policy shocks, I build a model with bank sector setting credit card limit (or broadly, borrowing limit) of households with the incentive to manage exposure to risk of default. With this analysis, I expect I can render some salient insight about the role of cyclical credit limit and optimal monetary policy in the economy.
Differential Returns to Graduate Educations Along the Business Cycles
Abstract: This paper examines the differential effects of pursuing advanced degrees right after graduating college in recessions, compared to working directly with only college degree. Utilizing National Survey of College Graduates (NSCG) data set, I find that even after controlling for negative aggregate fluctuations of recessions and other important relevant variables, completing master’s degree after graduating college in recession increases the salary level compared to that of master’s degree during normal times. This can be because of avoidance of unfavorable labor market during recessions and utilizing lower opportunity cost during economics downturns to improve productivity. Moreover, I also find that this result remains after controlling for working experience interaction terms. As an ancillary analyses, the overall job satisfaction and job matching with field of study are not affected by the interaction of recession and master’s degree, while master’s degree alone has a positive effect on them. These results can render some salient implications for the labor market and education policy, especially related to business cycle and advanced degree beyond college education.
Growth Dynamics of Firms during Recessions: Evidence from U.S. Listed Firms (M.A. Thesis)
Abstract: I report that certain predetermined promising firms grow larger than other firms especially during recession periods. Between two measurements of growth, absolute changes in market shares of revenue and employment, only for revenue, the unique positive role of recession on growth of expected high-growth firms over other firms is found. After further channel analysis is conducted, I also find that the aspects of superior performances of expected high-growth firms during recessions compared to other firms and routine times actually come from expected high-growth firms which have larger increments in their spending of valuable resources on investments during recession times. These results impart some supportive evidence for Schumpeter’s creative destruction argument and opportunity cost hypothesis.