Research

Job Market Paper

"Sectoral Comovement during the Great Recession"

I document three new stylized facts about sectoral comovement in the United States during the Great Recession and set up a multisector general equilibrium model to explain them. The first fact is that, unlike any other recession after World War II, the output correlations between two sectors increased significantly during the Great Recession and reverted to the previous level afterward. Second, this increased comovement is positively correlated with the number of the input-output linkages between two sectors, reflecting the extensive degree of interconnectedness. Third, trade credit supply, as measured by the ratio of account receivables to the total value of sales, collapsed during the Great Recession. Moreover, two sectors that experienced such a trade credit contraction had their correlation increasing much more, on average, than two that did not. I then develop a multisector model with the endogenous supply of trade credit to explain these facts. The model shows that equilibrium trade credit reflects both the intermediate supplier's and client's bank lending conditions, and thus has asymmetric effects on sectoral outputs. If only the supplier (client) is financially constrained due to a bank lending shock, trade credit decreases (increases), partially offsetting the effect of the shock on the supplier's (client's) outputs. However, if both of them are financially constrained, trade credit flows toward the more constrained one, which further tightens financial constraint on the other. This mechanism propagates and amplifies a bank lending shock and causes sectoral outputs to fall together, thereby explaining the increased comovement observed during the Great Recession. Simulations suggest that, during a financial recession, the decline in trade credit amplifies the initial shocks by about 20 percent on real GDP.

Publications:

“The Great Recession: Divide between Integrated and Less Integrated Countries,” (with Guillermo Hausmann-Guil and Eric van Wincoop) IMF Economics Review, Vol. 64, No. 1, 2016.

No robust relationship has been found between the decline in growth of countries during the Great Recession and their level of trade or financial integration. We confirm the absence of such a monotonic relationship, but document instead a strong discontinuous relationship. Countries whose level of economic integration (trade and finance) was above a certain cutoff saw a much larger drop in growth than less integrated countries, a finding that is robust to a wide variety of controls. The paper argues that standard models based on transmission of exogenous shocks across countries cannot explain these facts. Instead it explains the evidence in the context of a multicountry model with business cycle panics that are endogenously coordinated across countries.

“Jobs Before College Completion and Career Building of Young Workers Through Job Switching,” (with Toshihiko Mukoyama) Macroeconomics Dynamics, forthcoming.

We analyze job switching and wage growth of young workers, separately considering the jobs experienced by workers before and after college completion. These two groups of jobs consist of very different occupational compositions. Workers with many jobs before college completion and with little or no job experiences before college completion have similar subsequent wage paths. These facts can be interpreted that jobs before college completion contribute less to career building compared to the ones after college completion. If we disregard all jobs before college completion, the number of jobs that are experienced by workers before age 35 are about three jobs fewer than the total number of jobs.

Working in Progress:

“Balanced Growth in Multisector Models,” (with Eric Young).

“Trade Credit Motives to Export: Evidence from Chinese Manufacturing Firms ,” (with Jining Zhong).