My primary research interest is in macroeconomics, especially in business cycles.
Research
"Excess Capacity and Demand Driven Business Cycles", job market paper, 2020
I build a macroeconomic model that features chronic excess capacity. Firms hold capacity to compete for buyers who are not fully attentive to prices and thus search for capacity in a somewhat undirected way. If one firm expands its capacity while other firms do not, it “steals” profitable demand from others. This capacity competition externality can cause an over-investment in capacity. I show that with the existence of chronic excess capacity, capital resources can be slack and consumption demand shocks can generate realistic business cycles. If consumption demand increases, more capacity will be utilized, heating up the capacity competition: firms invest with haste until the capacity utilization rate falls back to normal. If consumption demand decreases, more capacity will be left idle, cooling down the capacity competition: firms dis-invest with haste until the capacity utilization rate goes back to normal.
"Difficulties of Demand Driving Business Cycles in Efficient Utilization Models", working paper, 2020
I show that in models with efficient utilization of capital or capacity, there is no capacity competition externality. None of these models could feature chronic excess capacity nor capital resource slackness. Thus, the response of output to demand shocks is limited and it is difficult to obtain demand driven business cycles in these models.
"Capacity Competition Externality and Chronic Excess Capacity", working paper, 2020
I study what kind of goods market structure features the capacity competition externality that can cause chronic excess capacity. The following assumptions are identified. First, if a firm expands its capacity while other firms do not, it can “steal” demand from others. Second, firms can charge a sufficiently high price to make a positive net profit. These two assumptions imply a negative capacity competition externality and are sufficient to cause long-term capacity underutilization at the firm-level. Third, if the invested capital has no positive externality that can potentially offset the negative externality, the capacity competition externality will be dominant and the economy will exhibit chronic excess capacity. I present several different ways to micro-found this kind of goods market structure, demonstrating the generality of the results.
“Understanding Sunspot Equilibria”, work in progress, 2020
Understanding sunspot equilibria is important for us to understand to what extent a fixed nominal interest rate would cause macroeconomic instability. Macroeconomists usually accept stable sunspot paths as rational expectation equilibria (REE). There are two concerns about this practice. First, explosive sunspot paths may also be REE because we may not have a relevant transversality condition to rule them out (e.g., Cochrane, 2011). Second, many economists argue that a reasonable equilibrium should be learnable (e.g., Christiano et al., 2018), but sunspot equilibria are not guaranteed to be learnable. In a simple Keynesian beauty contest model based on Moulin (1986), I show that both explosive and stable sunspot paths are rational expectation equilibria but all sunspot equilibria, regardless of their stability, are not learnable under adaptive learning. The only learnable equilibrium turns out to be the one without any sunspot shocks.