Working Papers

This paper analyzes the optimal tone of central bank forward guidance when the state of the economy is realized stochastically. Assuming that monetary policy is exogenously given, I investigate the optimal management of the private sector's expected inflation through the tone of forward guidance to maximize social welfare. The analysis is based on the Bayesian persuasion model (Kamenica and Gentzkow 2011). I assume that the central bank has private information to forecast the state of the economy, but the forecast is probabilistic. Additionally, I assume that a monetary policy plan is exogenously imposed in a dovish or hawkish way and that the central bank is pre-committed to a forward guidance policy plan. In this environment, the optimal forward guidance is threefold. First, given a dovish monetary policy and an environment in which forecasting a future weak economy would be unlikely, communication should be overly pessimistic. Second, under a dovish monetary policy and an environment in which forecasting of a future weak economy would be highly likely, communication should be truthful. Third, if a hawkish monetary policy is imposed, the central bank should be uninformative when it communicates its economic forecast.

I show existence of a stationary Bayesian Markov equilibrium in Bayesian stochastic games with periodic revelation. I consider a class of dynamic Bayesian games in which players can have asymmetric information about the state of the world, which is captured by players' types. Types evolve stochastically according to a first-order Markov process over time. Actions are monitored perfectly, and the types are revealed with actions (periodic revelation). In this environment, I show that there exists a stationary Bayesian Markov equilibrium in which a player's strategy maps the same tuple of the previous type profile, the previous action profile, and the player's current type to the same current mixed action. Type revelation ensures that the dimension of the support of a player's beliefs has an upper bound so that equilibrium analysis is computationally tractable. I offer a dynamic duopoly example that analyzes equilibrium pricing and R&D investment strategies of two pharmaceutical companies when their consumer base consists of asymmetric information that is revealed with a delay and when there is an innovation race between them to colonize the other's consumer base.

Work In Progress

  • “The Athey, Atkeson, and Kehoe Model with Periodic Revelation of Private Information” (joint with Narayana Kocherlakota)

(Presented during the Midwest Macro Meetings at Michigan State University, East Lansing, Michigan in November 2019)

  • “Optimal Central Bank Communication in a Basic New Keynesian Model with Risk Premium”

(Presented at the A. Stockman Memorial Conference at the University of Rochester, Rochester, New York in October 2019)

Journal Publications

(Media coverage (in Korean): Economy Insight , September 1, 2011. Print and Online.)

This paper examines the changes in relative wages of top 10 college graduates to the other college graduates among the age group of 26-28 years using the Korean Labor and Income Panel Study (KLIPS). From 1999 to 2008, the wage differential between top 10 college graduates and the other college graduates increased in South Korea. This wage differential seems to persist along with their age. Within industry wage differential among college graduates also rose but in the late 2000s, it became smaller than the wage differential within firm size and industry. Increase in elite college wage premium has led to recent changes in college wage premium.