Research

Productive demand and sectoral capacity utilization, joint with Mario Silva. Accepted at Economic Modelling (2025). Supplemental Appendix. Slides.
The Solow residual, often used to measure technological progress, also reflects fluctuations in input utilization and related factors. We develop a multisector model decomposing capacity utilization into shopping-effort and variable capital intensity components, attributing sectoral Solow residual variation to utilization, technology, and input share mismeasurement. Using Bayesian estimation with capacity utilization data from nondurable and durable goods sectors, we identify key parameters governing goods market frictions. We find that search demand shocks explain most forecast error variance in the Solow residual, output, and utilization. Together with matching frictions, these shocks are essential for replicating observed sectoral dynamics, including volatility, correlations, and autocorrelations of utilization rates. Impulse response analysis reveals that demand shocks uniquely generate three-way comovement among utilization rates and the Solow residual.

Sunk vacancy costs, endogenous product variety, and labor market frictions
We develop a unified model of endogenous business formation and exit and study its implications for unemployment and vacancy dynamics. Heterogeneous, monopolistically competitive producers use labor and face exit risk from product obsolescence and idiosyncratic productivity shocks. The creation of both businesses and vacancies require sunk costs, making them partially predetermined: if a product line survives, unfilled vacancies are reposted. We estimate the model via Bayesian simulated method of moments using aggregate technology, product destruction, and match separation shocks. When a firm exits, it immediately eliminates jobs and posted vacancies and reduces product variety, so vacancy persistence closely tracks product-line longevity. In contrast, match separation shocks destroy only filled jobs and leave product lines intact, implying that only destruction shocks generate a Beveridge-curve comovement. The loss of variety also dampens job creation and employment via an aggregate demand externality. Adverse technology shocks prune product lines below a profitability cutoff,amplifying labor-market effects. Quantitatively, the model matches the volatility, autocorrelation, and cross-correlation of unemployment, vacancies, business formation, employment-to-unemployment transitions, and establishment exit, with technology and destruction shocks playing the predominant roles.

Trade intermediation
Exporters must decide which markets to sell to and how to deliver their products there. Alongside the conventional option of direct export, this model introduces an additional indirect export channel: intermediation. Intermediation is modeled as a Pissarides (2000) matching market which is then embedded within a standard intra-industry model of trade a la Melitz (2003). Firms' choice of which export channel to use will depend on the variety being sold, the destination, and ease of finding a trade intermediary. Firms endogenously select into export channels such that high productivity firms export directly, moderate productivity firms export through intermediaries, and low productivity firms do not export at all. The model is able to generate several stylized facts that have been observed in empirical studies and offers tractable analytic explanations.

An integrated theory of intermediation and payments
This paper develops an integrated theory of intermediation and payments in wholesale and retail goods markets. The model synthesizes the search-theoretic approach to intermedation with the New Monetarist approach to payments. I consider two margins of intermediation, inventory and entry, within pure credit and pure currency markets. In a pure credit economy, the equilibrium is generically inefficient due to an inventory holdup problem and search externalities. Improving the bargaining position of intermediaries increases consumption and entry. In a pure currency economy, there is a two-sided holdup problem associated with middlemens' inventory choice and consumers' portfolio choice. This results in multiple steady state equilibria and a non-monotone response of consumption and entry to fundamentals. There exists a threshold nominal interest rate below which monetary policy is ineffective.

A note on liquidity and unemployment
This note is intended to provide additional insight to the link between goods and labor markets in a New Monetarist model of liquidity as presented in Rocheteau and Nosal 2017 (RN). The framework integrates a model of money and credit into a Mortensen-Pissarides labor market to study the elationship between the availability of credit, firm entry, and unemployment. First, I show that even with a uniquely determined monetary equilibrium, there exists a non-monotone relationship between credit and unemployment dependent on the value of money. Second, I show that Nash bargaining reverses the response of unemployment to credit observed by RN. Specifically, more access to credit can decrease unemployment at the high equilibrium under Nash, whereas there is an increase in unemployment under proportional bargaining. The modeler's choice of bargaining protocol is not innocuous.

Middlemen and exchange rates
Building on search theoretic models of intermediation, this paper shows how brokers and dealers in foreign exchange markets can impact the degree of exchange rate passthrough in open economies. The model shows purchasing power parity obtains as a result of consumers currency portfolio choices and random matching of consumers and sellers in a goods market. In the absence of forex brokers, the degree of exchange rate passthrough depends on the production technology of sellers. In particular, so long as the technology exhibits convex costs, relative PPP fails and exchange rate passthrough is incomplete. In the presence of forex dealers, there exists incomplete exchange rate passthrough and failure of relative PPP, even if passthrough is compete

TFP spillovers along the belt and road
This research examines the impact of Chinese import penetration on the total factor productivity (TFP) of Belt and Road countries. We utilize two different approaches to measure TFP: the conventional Cobb-Douglas production function and a non-parametric Data Envelopment Analysis (DEA) with a Malmquist index to dissect TFP growth into technical change (the process of shifting outward an economy's technology frontier through disruptive innovation) and efficiency change (he process of moving closer to an existing technology frontier through maximizing with a given set of inputs). A two-stage least squares (2SLS) estimator with fixed effects is applied to a panel dataset of 66 BRI member states for the years 2002 until 2019. The production function approach shows a positive effect of import penetration on the TFP of BRI countries for consumer goods, but no effect on capital and intermediate goods. On the other hand, when using a non-parametric Malmquist-style measure of TFP, a negative overall effect on TFP growth is found. The decomposition of productivity growth into EC and TC shows that this effect is driven by a large negative impact on innovation change (TC), which is partly attenuated by a positive effect on efficiency change (EC). This suggests that Chinese imports, albeit helping countries to move closer to their existing technology frontier, negatively affect the innovativeness of BRI countries, and with it, the overall factor productivity as a whole.

SOEs, POEs, and interest rate passthrough
This project is motivated by two ideas: (i) State owned enterprises (SOEs) in China have much easier access to bank credit than privately owned enterprises (POEs), so that POEs must rely more on internal liquidity to finance capital expenditures, and (ii) passthrough from short term nominal interest rates to real interest rates is greater when firms have better access to external liquidity. This project includes these two different types of ownership structures in a search and bargaining model of firm credit that has both internal liquidity (retained earnings) and external liquidity (bank credit) to examine how the ownership structure of China's economy affects the ability of monetary policy to affect real interest rates.

The Impact of Fuel Switching on EUA Prices
We estimate how daily carbon emission allowance (EUA) prices are affected by fuel switching costs and aggregate demand. Given that the data in the energy market is notoriously non-normal, we employ both OLS and quantile regression to measure the impact of switching prices over the entire distribution of EUA prices. We find that switching price has strong explanatory power, and moreover, varies significantly over the distribution of EUAs. Switching price has a significantly higher impact on EUAs that OLS regression predicts along the middle distribution of EUA prices. We also find significant positive impacts on EUA prices from aggregate demand measured by the Euro Stockxx50.

Investigating the Crowding Out Effect of Mainlaind Chinese Tourists on other International Tourists
We measure the crowding out effect of mainland Chinese tourists on tourists of other nationalities on six tourist recipient locations: Macau, Japan, Korea, Singapore, Malaysia, and Taiwan. We show that a 1 percent increase in Chinese tourist arrivals results in a 0.182 percent decrease in arrivals from other nationalities. We then examine the impact of tourist arrivals on the local price level of tourist goods and show that a 1 percent increase in Chinese tourists leading to an average 0.097 percent increase in the local price index.