People dislike volatile consumption in business cycles. Understanding how to stabilize consumption is a well-established question but still a puzzle. To understand this puzzle, we can learn how unskilled and skilled households adapt to business cycle shocks from observing their resource allocations of money and time on market work and non-market activities, since we take Becker(1965)'s wisdom assuming the consumption made of money and time. Designing a 2×2×2 difference-in-difference framework, we tease out the interaction between skills and recessions in affecting the time trends of the above allocations. We highlight the importance of non-market sectors as consumption stabilizers as we find that while skilled households reduce working-related money and time in recessions thereby reducing consumption, they substitute time for money on non-market activities thereby maintaining consumption. Without being plagued by recessions, the patterns can reverse but the consumption stabilizers still work. Further, we find that time-use and expenditure inequality between the skilled and unskilled over time and geographical locations is pro-cyclically and counter-cyclically explained by market-related and non-market-related reasons, respectively. Importantly, our three-stage estimators confirm changing demographics, as driving forces for the difference-in-difference effects.  

We realize that as globalization goes wider and deeper, the relative sector-level TFP shocks compared to country-level TFP shocks become less important. But in recent years, the trends of deglobalization have caught our eyes and the relative importance of sector-level shocks bounces. We revisit the question asking if trade openness increases income volatility by deploying a dynamic multi-country and multi-sector production network model. In the model, labor skills are Fréchet distributed by their comparative advantages. Workers decide on their labor supply in a contract based on their skill sets one period before the wage determination. Output is produced by bundling dynamic labor, capital and materials and the input-output linkages represent that the sources of materials and destinations of output can cross countries and sectors. Our data contains 27 countries and 28 sectors from 1970 to 2020. Our results support the idea that trade openness increases income volatility due to country-level and sector-level shocks. Country-level shocks contribute to the positive relationship since the worldwide input-output data reveals that cross-country shocks cannot be fully insured by sourcing the inputs from the lowest-cost suppliers. Sector-level shocks contribute to the positive relationship due to specialization. Policy barriers decline in globalization and rise in deglobalization. In both periods, the countries that have larger relative responses to country-level shocks are reluctant to bear income volatility while the countries that have larger relative responses to sector-level shocks are susceptible to bear income volatility.

Presentation: JIE '24 summer school (poster).

This article highlights the significance of information quality and returns in resolving the conflict between information spreading and acquisition to explain the impact of information acquisition on welfare. In a market with complete information, welfare is negatively affected by information-purchasing behaviors that are subject to market risk adjustments. Welfare also depends on the evaluation of the signals and welfare gains satisfy two conditions: i) an increase in the "signal informativeness" that measures the changes in informativeness due to the signals after controlling price informativeness; ii) the sum of the relative information quality and information returns is bounded. The aggregate and individual welfare effects are stylized in response to each risk fundamental. With asymmetric information, welfare cuts are caused, but as the information acquisition less intensifies, the milder welfare-reducing effect attributes to a steeper welfare-rising information evaluation effect and a flatter welfare-reducing information purchasing effect, and the overall welfare can be Pareto-improved. The welfare patterns are consistent with the data.

Presentation: EEA-ESEM '23, AMES '23, CFAM '22, China Economics Graduate Student Conference(CEGSC) '22 awarded as the First-class Paper.

Investigating the recent U.S. time use and expenditure data and enabling households to produce consumption through allocating their resources - money & time -  among nonmarket activities, we find that the labor wedge is substantially reduced due primarily to the factors: home production, skill composition, skill premium and skill-based money & time inputs. These seemingly non-distortionary factors explain the labor wedge and its cyclicality and volatility, individually and jointly, almost by affecting the labor wedge's distortionary component, akin to "tax reliefs". Given that the model predicts welfare losses caused by any labor wedges, skill heterogeneity improves and stabilizes welfare during both recessions and booms, as households can flexibly adjust for consumption production inputs in response to various shocks. Implementing a procyclical fiscal policy tailored to each skill category within each nonmarket sector can maximize welfare.

Presentation: EALE '23.

Funds can update the Bayesian learning process using myopic expertise or anchoring experiences and form their more informative cognition on market signals. When the cognition is shared, agents always follow the more informative cognition. Compared to no information sharing and as the quality of shared cognition improves, market efficiency and liquidity can be improved while financing costs are raised. Funds with high-quality cognition follow two information-sharing rules: (i) sharing without threats; (ii) not sharing with ex-ante profitable threats. Trusting these threats is ex-post costly if adjustment costs are high while it is profitable if adjustment costs are low.