Job Market Paper
 "The Effect of Credit Crunch on Output Price Dynamics: The Corporate Inventory and Liquidity Management Channel" 

Abstract: I study how companies facing a credit market shock price their products. I build a unique micro-level data set that combines scanner-level prices and quantities with producer information, including the producer's banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers' failure as a quasi-experiment to find that firms facing a negative credit supply shock decrease their output prices approximately 15% relative to their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and generate extra cash flow from the product market. I provide strong empirical support for this hypothesis: (i) firms facing a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) the effect is stronger for firms and sectors with high initial inventory or small initial cash holdings. To discuss the aggregate implications of these findings, I integrate the micro-level study into a business cycle model by explicitly allowing two identical groups of producers facing different degrees of credit supply shock. The model predicts that a negative credit supply shock leads to a large temporary drop in aggregate inflation--due to the aggressive liquidation of inventory--followed by an increase in inflation as companies eventually run out of inventory. This prediction on inflation and inventory dynamics is fully consistent with what is observed during the 2007-09 recession.

Working Papers
Abstract: Existing empirical evidence on price-cost markup cyclicality is mixed. This paper proposes a new method to estimate markups that neither assumes a CES production function nor makes commonly used assumptions on labor input. I apply this method to estimate time-varying, industry-specific markups and assess their cyclicality. I find that markups are procyclical unconditionally, procyclical conditional on demand shock and product exiting, and countercyclical conditional on financial shock and price rigidity. These results suggest that much of the cyclicality in markups arises from input complementarity, rather than nominal rigidity, and the economy behaves as if it has increasing returns to scale.

Abstract: We study the business cycle with a Translog production function. We empirically identify a complementarity between labor and energy that leads to a procyclical returns to scale, which is not compatible with a tightly parametrized production function commonly used in the literature (Cobb-Douglas and CES). To reflect this empirical analysis, we propose a flexible Translog production function that not only features the complementarity-induced procyclical returns to scale but also is consistent with the balanced growth path. A simple calibrated business cycle model with the proposed production function generates strikingly data-consistent dynamics with respect to a demand shock without relying on the nominal rigidities or countercyclical markups. Simultaneously, our model produces a strong amplification effect compared to the model without complementarity. We then incorporate our production function into the benchmark medium-scale New Keynesian model (Smets and Wouters 2007) and redo the business cycle accounting exercise. We find that input complementarity leads to a dramatic decrease in the role of the ``suspicious shocks" compared to the ``structural shocks."

Work in Progress
 "Rising Global Corporate Saving: Drivers and Macroeconomic Implications" (with Hiroko Oura)
 "Propagation of the Housing Market Shocks through the Production Networks" (with Jungsik Hyun)