Publication
"Worker Flows and Wage Dynamics: the Case for Korea" with H. Bahng, D. Lee, and H. Lim, Applied Economics Letters (2025)
<Abstract>
We utilize the Korean Labor and Income Panel Study(KLIPS) data to study the effect of worker flows on wage dynamics in Korea. Empirical analysis shows that, while the overall slack in the Korean labor market has been limited, wage growth has slowed during the sample period from 2002 to 2017 and, most importantly, worker flows to regular jobs have significantly decreased over this period. Moreover, in addition to this change in worker flows, it suggests that the widening wage gap between regular and non-regular jobs and the rapid increase in the share of elderly workers are closely related to the observed slowdown of wage growth in the labor market.
"Asset Liquidity and Monetary Policy", Annals of Economics and Finance (2025)
<Abstract>
We construct a monetary search model and implement empirical tests with Korean financial market data to examine the effect of the opportunity cost of holding money on liquidity premia. Theoretical prediction from the model suggests that nominal interest rates, which represent the money holding cost, have a positive effect on liquidity premia. Consistent with this theory, the empirical tests present that short-term interest rates have a significantly positive effect on liquidity premia of 91-day monetary stabilization bonds and three-year government bonds during the period from 2011 to 2019. Consequently, liquid assets play a role as substitutes for money in providing liquidity services and thus that the higher opportunity cost of holding money leads to an increase in demand for liquid assets, and in their prices.
"Determinants of long-term institutional investors' investment in South Korea: Insights from a LASSO regression" with K. Jeon and J. Lee, Applied Economics Letters (2024)
<Abstract>
This study examines the determinants of the decisions of long-term institutional investors on government bond investments in South Korea by performing a machine learning analysis, specifically, LASSO regressions. The analysis is based on a comprehensive set of financial and real variables spanning from 2004 to 2021. We consider 35 explanatory variables that are expected to influence the number of government bonds purchased by long-term institutional investors. Our analysis reveals that government bond investments of insurance companies and pension funds are driven by distinct factors. In the case of insurance companies, the purchase of government bonds with maturities exceeding five years is observed to be influenced by a wide range of factors, encompassing both domestic (e.g., core inflation) and global (e.g., US T-bill yield) influences. Conversely, much less significant determinants were found for investments of pension funds, implying that Korean pension funds have a pre-established and inflexible approach.
"Trump vs. the GOP: Political Determinants of COVID-19 Vaccine Hesitancy" with Y. Jung, Political Behavior (2023)
<Abstract>
This study examines the relationship between Trumpism and COVID-19 vaccination in the US. We find that counties with greater Trump support show lower COVID-19 vaccination rates. However, this relationship is beyond the effects of Republican partisanship. The distinctive effects of Trumpism are further validated through falsification and placebo exercises. To address potential endogeneity, we suggest an instrumental variable (IV) strategy based on online search behavior before the rise of Trump. The IV estimates confirm the negative link between Trump support and COVID-19 vaccination, which is conditional on the partisan divide or conservative orientation. As a mechanism, we provide evidence that distrust in science increased to a greater degree in counties that voted for Trump in 2016 more than they did for Romney in 2012. Moreover, we do not find comparable results in places with an increase in Republican partisanship or conservatism. These results substantiate that the Trump effect on COVID-19 responses is not attributable to the general political climate.
"Central Bank Digital Currency, Tax Evasion and Inflation Tax", with O. Kwon, and J. Park, Economic Inquiry (2022), 1-23, Selected to feature in Wiley’s Research Headlines, Available from: https://doi.org/10.1111/ecin.13091
<Abstract>
Can introducing Central Bank Digital Currency (CBDC) improve social welfare? We construct a dual currency model to study whether introducing CBDC with a record-keeping technology can reduce tax evasion incentives in cash transactions, and further achieve a better allocation than in a cash-only economy. Tax evasion does not occur in an economy only with an inflation tax. However, in an economy with a positive sales tax, there arises an inefficiency associated with tax evasion in cash transactions. Introducing CBDC with positive interest can reduce this inefficiency and thus improve welfare by discouraging tax evasion, and rewarding tax payments. We present that this beneficial effect of CBDC depends on central bank independence.
"Money, Bitcoin and Monetary Policy", with Kee-Youn Kang, Journal of Money, Credit, and Banking (2022)
As of 31 January, 15 February and 5 March 2019, it is listed on SSRN's Top Ten download list for: Microeconomics: Search; Learning; Information Costs & Specific Knowledge; Expectation & Speculation eJournal and Monetary Economics: Central Banks - Policies & Impacts eJournal.
<Abstract>
We develop a search theoretic model where money and Bitcoin can be used as a medium of exchanges, and study the conditions necessary for the coexistence of the two currencies. Quantitative analysis shows that Bitcoin can meaningfully compete with money only when inflation is sufficiently high, and that welfare in an economy with both money and Bitcoin is lower than that in a money-only economy due to the inefficient mining process of Bitcoins. The welfare gap between the two economies expands as inflation rises. An increase in transaction fees for Bitcoins can increase welfare by reducing inefficient Bitcoin transactions.
"A Model of Endogenous Direct and Indirect Asset Liquidity'', with A. Geromichalos, K. Jung, and D. Carlos, European Economic Review (2021), 132, 103627.
<Abstract>
Economists often say that certain types of assets, e.g., Treasury bonds, are very ‘liquid’. Do they mean that these assets are likely to serve as media of exchange or collateral (a definition of liquidity often employed in monetary theory), or that they can be easily sold in a secondary market, if needed (a definition of liquidity closer to the one adopted in finance)? We develop a model where these two notions of asset liquidity coexist, and their relative importance is determined endogenously in general equilibrium: how likely agents are to visit a secondary market in order to sell assets for money depends on whether sellers of goods/services accept these assets as means of payment. But, also, the incentive of sellers to invest in a technology that allows them to recognize and accept assets as means of payment depends on the existence (and efficiency) of a secondary market where buyers could liquidate assets for cash. The interaction between these two channels offers new insights regarding the determination of asset prices and the ability of assets to facilitate transactions and improve welfare.
"Money, Asset Prices and the Liquidity Premium", Journal of Money, Credit, and Banking (2020), 52: 1435-1466.
<Abstract>
This paper examines the effect of monetary policy on the market value of the liquidity services that financial assets provide, known as the liquidity premium. Money supply and nominal interest rates have positive effects on the liquidity premium, but asset supply has a negative effect. This implies that liquid financial assets are substantive substitutes for money, and that the opportunity cost of holding money plays a key role in explaining variation in the liquidity premium and thus in asset prices. The higher cost of holding money due to higher money growth rates leads to a higher liquidity premium. My empirical analysis with U.S. Treasury data over the period from 1956 to 2007 confirms the theoretical predictions. The theory also suggests that the liquidity properties of assets can cause negative nominal yields in equilibrium when the cost of holding money is low and liquid assets are scarce. I present empirical findings in the U.S. and Switzerland to support this prediction.
"A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle", with Kuk Mo Jung (BibTex), Journal of Money, Credit, and Banking (2020), 52: 1397-1433. (Forward Premium Data)
<Abstract>
A new monetary theory is set out to resolve the “Uncovered Interest Parity (UIP)” Puzzle. It explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle. A key concept in our model is that nominal bonds carry liquidity premia due to their medium of exchange role as either collateral or means of payment. In this framework, no-arbitrage ensures a positive comovement of real return on money and nominal bonds. Thus, when inflation in one country becomes relatively lower, i.e., real return on this currency is relatively higher, its nominal bonds should also yield higher real return. We show that their nominal returns can also become higher under the economic environment where collateral pledgeability and/or liquidity of nominal bonds and/or collateralized credit based transactions are relatively bigger. Since a currency with lower inflation is expected to appreciate, the high interest currency does indeed appreciate in this case, i.e., the UIP puzzle is no longer an anomaly in our model. Our liquidity based theory can in fact help understanding many empirical observations that risk based explanations find difficult to reconcile with.
"Over-the-Counter Trade and the Value of Assets as Collateral", with Athanasios Geromichalos, Jiwon Lee, and Keita Oikawa, Economic Theory (2016), Volume 62, Issue 3, Pages 443-475. (BibTex)
<Abstract>
We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually beneficial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Garleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset’s property to serve as collateral affects its equilibrium price, and how the asset price and the economy’s welfare are affected by the degree of liquidity in the secondary asset market.
Working Papers
"Central Bank Digital Currency, Privacy, and Welfare", under review
<Abstract>
We construct a monetary search model in which multiple currencies—cash, bank deposits, and Central Bank Digital Currency (CBDC)—compete as a medium of exchange and as a provider of privacy. Each currency offers its users different types of services, depending on the matching probability with sellers who offer the desired goods and the level of transaction privacy protection. Our analysis shows that CBDC substitutes more for cash than for bank deposits. Additionally, CBDC enables the economy to achieve higher welfare, and slightly positive nominal interest rates could lead to higher welfare than the Friedman rule. Lastly, there exists an optimal level of transaction privacy protection in the design of CBDC, at which cash users with a high preference for transaction privacy opt to use CBDC instead of cash in transactions. However, a CBDC with excessively high levels of privacy protection could be suboptimal, crowding out bank deposits and thus decreasing trade volume and financial intermediation.
"Public Demand and Financial Implications of Retail CBDC: A Randomized Survey Experiment" with O. Kwon and D. Kim
"Prospects of the Role of Cash and Policy Implications for Currency Policy" (In Korean)
Work in Progress
"Central Bank Digital Currency and Digital Payments"
"Shadow Rates and Unconventional Monetary Policy", with H. Suh
"Asymmetric Information in the OTC Market", with K. Kang
"Impact and Channels of the Bank of Korea Policies", with H. Han
Others
"New Monetary Aggregates: Methods which reflect Asset Management Structure of Financial Institutions" (in Korean), with H. Son, appeared in "Awarded papers from the Bank of Korea Research Competition 2007"