Research

Abstract: 

We construct a monetary model in which entrepreneurs facing uncertainty in input costs and returns of projects may finance investment internally and with bank credit. Entrepreneurs using money as a down payment and bonds as collateral can reduce the default probability. Working through these key channels, lower nominal policy rates and open market sales can reduce the real lending rate. The central bank’s private asset purchases improve availability of credit and compress risk spreads. Our model identifies the risk-reducing channel of private asset purchases—the policy functions as if the government had supplied more bonds, and the increased collateralizable bonds are allocated more to corporate borrowings with a higher lending risk. Risk-retention requirements associated with asset purchases are essential to welfare. As uncertainty with respect to input costs and investment returns intensifies, the central bank should lower the optimal risk-retention rate to encourage lending and reduce business failures.

Abstract: 

I develop a three-sector structural transformation model with organizational capital and argue that premature trade liberalization damages the manufacturing sector and deters long-run growth. Premature liberalization causes massive manufacturing firm withdrawal and organizational capital depletion, magnifying the cost of premature reform. Calibrating the model to 77 low-income countries, I find that more than 80 \% would have been better off delaying World Trade Organization (WTO) accession, with an average optimal delay of 20 years. Quantitatively, organizational capital accumulation is the most decisive factor for liberalization timing. The results highlight that liberalizing “too soon” undermines industrialization and that the right reform at the wrong time can be as damaging as no reform at all.

Abstract: 

In this paper, I construct a two-country model to reexamine the effect of foreign exchange interventions from a home country when all international trade is flexibly priced in foreign country's currency. The result has two significant policy implications when home country depreciates its own currency against the foreign currency through foreign exchange interventions. Firstly, there is a decrease in prices and an increase in quantities for exports from both countries when interventions are anticipated, which implies intervention is not harmful to exporters in foreign country. Secondly, there is a wealth redistribution from the domestic sector in home country to the rest of the world, making it the only sector hurt by foreign exchange interventions. In the calibration exercise, I find the domestic price increase by 0.34% and the wealth of domestic sector in Taiwan reduces by 0.2143% of real GDP if the central bank in Taiwan increases US reserves purchase by 1% and finances the purchase by seigniorage.

Abstract: 

This paper examines the role of state-owned businesses in financing monetary policy and their implications for inflation and welfare. Building on a typical cash-in-advance model, I analyze different government revenue sources—lump-sum taxes, state-owned business profits, labor taxes, and output taxes—to study their impact on monetary policy effectiveness. I find that the government should implement the Friedman Rule if the lump-sum tax is available. However, when the lump-sum tax is unavailable, output tax should be the second option to finance deflation. Interestingly, when the government can only rely on state-owned business profits, labor taxes, or output taxes, the first-best allocation becomes unattainable, and deflation is generally undesirable. Finally, among these alternatives, output taxation minimizes distortions in a positive inflation regime. The findings highlight the importance of considering fiscal constraints when formulating monetary policy, as the method of government financing significantly affects economic efficiency and welfare.