Dissertation

• Title: Essays on International Macroeconomic Aspects of Saving, Housing, and Labor Supply

• Advisor: Mark A. Aguiar

Curriculum Vitae [PDF]

Publication

Explaining the Evolution of the U.S. Housing Market (with Hye Mi You, Macroeconomic Dynamics, forthcoming) [PDF]

Over the past few decades, both the relative price of housing structures and housing services consumption relative to nondurables increased significantly in the U.S. This paper explores demand-side factors such as an increase in idiosyncratic earnings risks and changes in housing institutions as potential explanations for the phenomenon. We build a general equilibrium incomplete markets model of housing and compare two steady states which correspond to the 1967 and 2000 U.S. economies. Our model can generate the simultaneous increase in the relative price of houses and housing services consumption relative to nondurables. We find that the increased earnings risks are crucial in replicating this pattern.

Working Papers

Growth and Global Imbalances: The Role of Learning-by-Exporting (revise and resubmit at International Economic Review) [PDF] 

Rapidly growing developing economies have exported heavily and run current account surpluses. This paper explores whether learning-by-exporting helps explain this macroeconomic behavior of developing countries. It builds up a two-country general equilibrium growth model in which a developing economy bene…fits from learning-by-exporting as it trades with a developed economy. In the benchmark model, the policies are restricted to non-trade related ones by the World Trade Organization (WTO). The optimal policy for the developing country is then to tax non-traded goods consumption and subsidize savings to increase exports. This policy generates the simultaneous fast growth and current account surpluses observed in the data. However, if there were no WTO restrictions, the developing country would manipulate its terms of trade rather than its current account. This policy improves the welfare of both developing and developed countries, highlighting that terms of trade manipulation can be a "win-win" in the presence of learning-by-exporting.

Wage Volatility and Changing Patterns of Labor Supply (with Jay H. Hong and Hye Mi You, revised and resubmitted at International Economic Review) [PDF]

Over the past few decades, the skilled-unskilled hours differential for US men increased when the skill premium rose sharply, which contrasts with previous studies suggesting dominant income effects. We explore increases in wage volatility to resolve this discrepancy. Using the PSID, we document that skilled men experienced much larger increases in wage volatility than unskilled men. Feeding in these wage processes, our general equilibrium incomplete markets model successfully replicates the increased hours differential. We find that hours adjustment is important for self-insurance in the short run, whereas precautionary savings play the dominant role in the long run.

Why Do Returns to Experience Differ across Countries? (with Hye Mi You) [Slides available upon request]

This paper attempts to explain why experience-wage profiles are flatter in low-income countries than in high-income countries. Considering that the divergence in cross-country returns to experience is most prominent for the first decade after labor market entry, we focus on different patterns of wage growth during early career across countries. Using panel datasets of the U.S. and Indonesia, we document that in a low-income country, job changes are less common and the probability of a job change declines with years of experience more slowly than in a high-income country. We also show that wage growth is positively associated with job changes during early career, but less significantly in a low-income country. This paper builds a search-matching framework in which on-the-job human capital accumulation depends on match quality and agents learn about their match quality as they accumulate experience. With country-specific job heterogeneity, we can potentially explain different patterns of job mobility and wage growth during early career, and therefore flatter experience-wage profiles in a low income country relative to a high-income country.

Rising Earnings Risk and Wealth Distribution with Housing (with Hye Mi You and Lini Zhang) [Slides available upon request]

This paper studies changing wealth compositions in response to rising earnings risk, with a focus on the role of institutional changes in the housing market. Using the data from the Survey of Consumer Finances (SCF), we document that both housing inequality and aggregate homeownership rate changed little in the U.S. between 1983 and 1995. However, we find that both homeownership rate and housing to wealth ratio increased significantly among poor households for the same period. To explain these changes, we build a general equilibrium incomplete-markets model, where households subject to idiosyncratic earnings risk make portfolio choice between housing and financial assets. As earnings risk rises, households tend to substitute illiquid housing for liquid financial assets. However, institutional changes in the housing market such as declines in down-payment requirements and transaction costs make housing assets more attractive, particularly to poor households. This may result in increases in homeownership rate and housing to wealth ratios of poor households. If housing prices are stable, these institutional changes in the housing market may mitigate the negative welfare impact on poor households of rising earnings risk. However, a sudden collapse in housing prices may make poor households even worse off with these changes in favor of housing assets.