"The Emergence of Renminbi as an International Invoicing Currency and The Spillover," published on Journal of Applied Business and Economics 20(3), 2018 (Paper)(Slides)
China has been aggressively promote Renminbi(RMB), or Chinese Yuan, to be the next international currency since 2005. As RMB gradually emerged as an invoicing currency, will China’s effort be paid off? How does it affect the current vehicle currency country, US, and the rest of the world? The goal of the paper is to quantify the above externalities. It’s hard to estimate the spillover effect of RMB internationalization empirically because of the endogeneity of the regime change. So we adopt a dynamic trading post framework developed by Rey [2001] and Devereux and Shi [2013], that exchange rates, prices, consumption, and trade flows are endogenously determined. Hence we can solve the endogeneity by simulating the international goods and foreign exchange market. We found positive externality on import and export price when RMB becomes an invoicing currency in international trade. But the externality on the real side of the economy, such as, export, import and real exchange rate, is significant only if RMB rises as an international reserve currency. The spillover effect is also sensitive to the relative output of China, which means the timing of RMB internationalization matters.
“Do Mortgage Recourse Limitations Matter?” conference proceeding, with Erwan Quintin (Paper) (Slides)
We study the effect of recourse laws on home owners' default behavior. In forty one US states, creditors have recourse rights against the deficiency loss, which occurs when a property in foreclosure is sold for less than the loan amount that the original mortgage secured. Some economists suggest that US mortgages are generally “no recourse” loans since deficiency judgments have rarely been used by creditors. Some theoretical work studies the effect of deficiency judgments on default and finds that recourse deters default. The majority of empirical works are cross-sectional studies which describe aggregate features of markets with different recourse law statues. Although micro-foundations are gradually built up in theoretical papers, these empirical works are still concentrating on reduced-form instead of structural estimation. In order to capture the ex-ante heterogeneity, we build up a micro-level dataset from two databases: a loan-level foreclosure database and a land-lien database which records judicial case files and the affiliated financial assets. Our results show that, fearing creditors' recourse right, debtors tend to use deed in lieu handing over the foreclosed property to creditors friendly, or claim bankruptcy to avoid a deficiency judgment.
"Intermediaries and Directed Search," 10/2017, workshop paper, with Julien Benoit (Paper) (Slides)
This paper develops a dynamic general equilibrium model to study the essentiality of intermediaries in the matching process, such as, how the employment agencies affect the worker-job matching process. The model embeds relevant matching frictions, such as lack of coordination, along with explicit search costs for firms when recruiting and inexplicit search costs for workers. The directed search framework that we propose allows for assessing the importance, qualitatively and quantitatively, of search and recruitment costs on the equilibrium market allocation. In particular, we investigate how the endogenous emergence of intermediaries affect the Beveridge Curve. In the equilibrium, the intermediary can ease the congestion of high- paid jobs and increase the turnover of low-paid jobs. Comparing the market allocation with the Government Intermediary/Social Planner allocation, we evaluate the efficiency property of the labor market with private and public intermediaries.The paper sheds some light on the allocative value of intermediaries and identifies potential policy implications as to whether or not intermediaries improve efficiency, and how can labor market policy promote or discourage their emergence.
"Money, Liquidity And Collateralized Capital"(previous title "Funding Liquidity and Market Liquidity," conference proceeding, submitted, Temple University Working Paper Series (Paper) (Slides)
This paper studies the effect of inflation on capital accumulation, fund flows and market liquidity. Following the literature of money and credit that specifies the market friction, such as Kiyotaki and Moore (1997) and Kiyotaki and Wright (1989), I present a money search model where capital serves as production input and collateral to guarantee loans. In a monetary equilibrium, capital accumulation and liquidity depend on the rate of inflation, search frictions, and the relative abundance of capital to money. Results are shown both qualitatively and quantitatively. The numerical experiment shows that the response to monetary shocks depends on the risk aversion of households, production technology, and the bargaining mechanism.
"Default and Prepayment Risks in Bank Lending," 10/2014 (Paper) (Slides)
Bank lending with pre-specified terms of loan usually bear two types of risks: early termination risk and default risk. In a long-term loan, if the borrower defaults before maturity, the lender would lose the rest of amortized payments. Both prepayment and default would lead to early termination, then the lender would lose interest payments for the rest of the loan period. To internalize these two types of risks, this paper develops a sequential search model with optimal stopping time based on Jovanovic(1979). Banks match with borrowers and issue individual-specific long-term loans based on the expectations of the true matching quality. As the age of the loan increases, banks and borrowers learn more about the true matching quality, which creates modification or refinance opportunities if the quality of the loan is high. The borrower may default if loan turns out to be a mismatch. This paper proposes two endogenous stopping zones for prepayment and default accordingly. The borderlines dividing continuation and stopping zones depend on the random process of the matching quality and pre-specified terms of loan as well. The model result shows that the loan contract in favor of lower default risks encourages early payments. In order to reduce the turnover cost of lending, banks have to consider the tradeoff between reducing default loss and early termination cost. With easy credit and abundant lending opportunities, turnover cost is not essential that banks could lend out more aggressively to increase the profit margin.
Project Under Construction
"How does economics class change the future political landscape?" ongoing project
An ongoing experimental project in Macroeconomics and Economics Education. I design survey questions related to the Macroeconomy and various economic policies, and collect answers from a freshman class and upper level undergraduate class. Students from the upper class, with more college level economic education, appear to be more liberal and genuinely worried about inequality and economic freedom.
"The externality of public policy on mortgage payments of American families" ongoing project
Research single family mortgage database and geographical public policy study, processing large scale data
A Special Data Project