Job Market Paper

with Ryan Kim [Online Appendix]

    • Abstract : This paper studies how regional shocks spill over across U.S. local markets through intra-firm market networks and explores how such spillovers reshape household welfare across regions. We link data on barcode-region-level prices and quantities with producer-level information to exploit variation in firms' initial exposure to differential drops in local house prices in the 2007-09 recession. We show that a firm's local sales decrease in response to not only direct negative local demand shock but also indirect negative local demand shocks originating in its other markets. Intra-firm cross-market spillover effects arise mainly from product creation and destruction, whereas direct local shock operates through the sales of continuing products. Spillover effects occur because (i) firms replace products that have higher value---sales per product, unit price, and organic sales share---with lower-value ones in response to negative demand shocks, and (ii) such product replacements are synchronized across many markets within each firm. Counterfactual analysis using an estimated multi-region model with endogenous quality adjustments by firms shows that the intra-firm spillover effect serves as a redistributive mechanism across local markets and mitigates the quality-adjusted regional consumption inequality by 8 to 29 percent.

Research Papers

with Ryan Kim

    • Abstract : We study the business cycle with a Translog production function. We empirically identify a complementarity between labor and energy that leads to procyclical returns to scale, which is not compatible with the tightly parameterized production function commonly used in the literature (Cobb-Douglas and CES). We therefore propose a flexible Translog production function that not only features complementarity-induced procyclical returns to scale but is also consistent with a balanced growth path. A simple calibrated business cycle model with the proposed production function generates strikingly data-consistent dynamics following demand shock without relying on either nominal rigidities or countercyclical markups. First, the model features procyclical real wage, investment, and capital with respect to demand-side shock. Second, it produces a stronger amplification effect with respect to both supply-side and demand-side shocks than the model without complementarity. Third, our model calibrated with micro-consistent Frisch elasticity generates sizable labor fluctuation comparable to that generated by conventional neoclassical model with macro-consistent Frisch elasticity. Finally, under certain parametrization, our model features indeterminancy.
  • "Propagation of Housing Market Disruptions during the Great Recession: Supply Chain Network Channel,"

with Ryan Kim

    • Abstract : This paper investigates a role of supply chain network in transmitting housing market disruptions during the Great Recession. We build up a unique micro-level data that combines local housing market condition, firms' sales in each local market, and firm-level supply chain network information. Exploiting firm-specific demand shock stemming from cross-market variation in house price changes and an initial difference in firms' local sales, we find that such shock not only affects downstream firms but also transmits to their suppliers. The estimated supplier-level elasticity is quantitatively large, reflecting larger role of downstream firms with higher elasticity in the network structure. To quantify such propagation at the aggregate level, we build up a parsimonious network model calibrated to match the micro-level data. Our counterfactual analysis shows that approximately 18% of the observed drop in the aggregate output can be attributed to the propagating role of the supply chain network.
  • "Import Competition and Firms' Internal Networks: An Establishment-level Analysis," [Preliminary]

with Ziho Park

    • Abstract : Using a dataset of US establishments with their firm affiliation, we find that an establishment owned by a multi-sector parent company is more likely to reduce employment if the parent is more exposed to the import competition from China (``China shock''). This finding holds (i) conditional on the establishment's direct exposure to the China shock and (ii) by measuring the parent-level exposure by only considering parent-owned establishments with different industry codes (at the SIC 4-digit level). Also, this result holds for both manufacturing and non-manufacturing establishments. This implies that establishment-level employment is strongly affected by import competition in other sectors linked through within-firm sectoral networks created by multi-sector parent companies. Finally, we show that general equilibrium adjustments within sectors do not neutralize our finding---at the sectoral aggregate level, we show that sector-level employment is sensitive to the Chinese import competition in other sectors linked through within-firm sectoral networks. This is a novel propagation channel of China shocks across sectors.

Selected Works in Progress

  • "The Distributional Effects of Regional Shocks during the Great Recession: A General Equilibrium Analysis"
  • "Capital Controls and Time-varying Margin Requirement," [Preliminary draft available]

with Owen Nie and Gustavo Pereira

    • Abstract : In this paper, we study the implications of time-varying margin requirement in the context of a small open economy with a collateral constraint and pecuniary externality. The margin requirement in international lending may be time-varying for two reasons. First, the foreign lender may choose the margin requirement to maximize her profit from lending. Specifically, the choice of the margin requirement may strategically respond to capital controls imposed on the domestic economy. Secondly, the foreign lender may not have full information about collateral values and hence form expectations about these values, driving time-variation in the observed margin requirement. The strategic choice of the margin requirement changes both the overall level of borrowings by the domestic economy and the intertemporal choices of borrowings. The frequency of financial crisis decreases when asymmetric information causes the margin requirement to change over time. This happens because of the mean reverting nature of shocks to endowments: in forming expectations of collateral values, the foreign lender renders the tightness of the collateral constraint less volatile and helps smooth negative shocks. These findings suggest that a time-varying margin requirements in international lending could be important for the design of capital controls.

Pre-Doctoral Publications

with Jung Yi Hong, Jae Won Lee, and Yeji Sung