Publications

• Constructing Divisa Monetary Aggregates for Singapore, Journal of Risk and Financial Management, 2021, 14(8), 370 (with William A. Barnett)

https://doi.org/10.3390/jrfm14080370

Works in Progress

• Monetary Policy in a Small Open Economy with Multiple Monetary Assets (with William A. Barnett)

Click here for a working-paper version

Abstract: This paper revisits the issue of money measurement in the context of a New Keynesian framework with sticky prices and monopolistic competition, where money matters. We adopt the framework for a small open economy with home bias in consumption from Faia and Monacelli (2008) and follow Belongia and Ireland (2014) in their closed economy New Keynesian model by adding commercial banks in the financial sector. We construct various measures of money supply, including the traditional simple-sum and the Divisia index, originated by Barnett (1980). Through simulation of equilibrium dynamics with various shocks and variation of parameters, we find that the Divisia index tracks the movement of money most closely to the aggregation theoretic benchmark, followed by the monetary base, while simple sum often fails to match the correct trend. In a classical model with perfect competition and perfect markets with no rigidities, the tracking advantage of Divisia is derivable, as in Barnett (1980).  But in the New Keynesian model, the aggregation theoretic proof is compromised and best investigated empirically. We further analyze the impact of openness on the volatility of macroeconomic variables. We find that as the small economy becomes more open, domestic inflation and nominal interest rates are more volatile, while terms of trade and exchange rates become more stable. In this regard, the Divisia index and the monetary base, without payment of interest on reserves, follow the correct trend, while the simple-sum, again, does not.

• Divisia Monetary Aggregates and Monetary Policy in Singapore (with Abhishek Chakraborty)

Abstract: Recent microfounded dynamic stochastic general equilibrium (DSGE) models focus on interest rate and often ignore aggregate quantity of money as an instrument of monetary policy. In the case of small open economies such as Singapore, the effective exchange rate is managed to achieve goals for price stability and output growth. To examine the relevance of different tools of monetary policy in explaining real economy activity in Singapore, we apply the Hamilton based filter to extract the cyclical component of each time series and compute the cyclical correlation of different tools of monetary policy (including interest rate, money supply and exchange rate) with output and inflation. We also test the marginal information content of these variables in predicting output and inflation. For money supply, we compare the behaviors of different measures including the official simple sum reported by the Monetary Authority of Singapore, the Divisia measures and recent credit-card-augmented Divisia monetary aggregates in predicting inflation and output. We find that money shows a stronger relation with macroeconomic variables than both interest rate and exchange rate. Among different money measures, credit-card-augmented Divisa is the most informative in predicting output and inflation.

• Distributional Welfare Effect of Inflation under Endogenous Search Model (with Eungsik Kim)

Click here to watch a three-minute-video

Abstract: This paper addresses the classic issue of measuring the welfare cost of inflation. We extend the New Monetarist framework originated by Largo and Wright (2005) with a price dispersion mechanism similar to Wang (2016) but with the addition of heterogeneous productivity among agents. This productivity is the source of heterogeneous search cost among buyers, and it affects search intensity. Our model suggests that buyers of different productivity choose a different search intensity according to their opportunity cost of search. The low productivity group is inclined to search harder, and as a consequence, there is a positive externality towards the high productivity group since they also benefit from sellers’ price dispersion. Overall, inflation has a distributional welfare effect on heterogeneous agents.

• Trade War in a Two-Country-DSGE Model 

Abstract: This paper examines trade wars in a two-region DSGE model based on a real business cycle framework. In the game, the world consists of two countries, Home and Foreign, which produce different final goods and are linked through trade and an international financial market. Productivity is exogenous and asymmetric in both countries. Governments impose tariffs on imported goods. In a two-player game setting, both governments simultaneously choose tariffs to maximize social welfare. We want to test the hypothesis that trade wars occur due to a catching up effect, as productivity and technology in a smaller economy catches up with that of a larger economy, trade wars become more severe.

Undergraduate Research Advising (@LU)

• Inflation’s Uneven Burden: A Review of Its Impact on Lower-Income Households 

• Examine the Structure and Performance of the US Financial Market 

• Examine the Business Cycles and Monetary Policy in the US