New (2020/12): "The Spirit of Capitalism and Consumption Inequality" (with Yulei Luo, and Heng-fu Zou)  
                            (Online Appendix)
  • Based on the evidence in a long line of sociological and economic literature, we argue that Max Weber's (1904-05, German; 1958) theory on "spirit of capitalism" (SOC) can be modeled via a direct preference for wealth.
  • We provide a general framework to examine the effects of the SOC on consumption inequality, equilibrium interest rate, and equity premium.
  • We derive analytical solutions and quantitatively show that a small degree of the spirit of capitalism can help explain consumption inequality, equilibrium interest rate, and equity premium simultaneously.
Revised (2021/02): "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism" (with Qichun He, Yulei Luo, and Heng-fu Zou)  
                            (Online Appendix)
  • According to Schumpeter (1934), entrepreneurs are driven to innovate not only for the fruits of success but also for success itself. This description of entrepreneurship echoes Weber's (1904-05, German; 1958 ) description of the  "spirit of capitalism," which states that people enjoy the accumulation of wealth irrespective of its effect on smoothing consumption.
  • Different from the existing literature, we show that money is not superneutral in the long run and it could promote economic growth when the spirit of capitalism is strong. We provide supportive empirical evidence for this finding. 
  • Furthermore, we show the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate. 
Revised (2021/04): "Unemployment Insurance during a Pandemic​" (with Lei Fang and Zoe Xie)   Bloomberg Report  
  • The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of UI benefits, triggering concerns about its substantial impact on unemployment. However, these policies may also reduce infection and save lives.
  • ​We combine a labor market search-matching model with the SIR-type infection dynamics to study the UI effects on unemployment, health and welfare.
  • We find the CARES UI policies raise unemploymentuiandhealth-sep11_short.pdf by an average of 3.8 percentage points over April to December 2020, but also reduce cumulative death by 4.9%. We find quantitatively important interaction effects among the components.
  • An extension incorporating temporary layoff suggests slightly smaller effects, with impact on unemployment and death reduction being 3.2 pts and 4% respectively. 
Revised (2020/09): "On the Perverse Effect of Capital Account Liberalization: the Role of Labor Market Rigidity" (with Qingyuan Du and Shangjin Wei)     
                                   (supersedes "Labor Market Institutions and the Effects of Financial Openness")
  • We propose a new explanation for why developing countries may fail to benefit from financial globalization, based on labor market institutions.
  • In our model, a combination of a rigid labor market and a low economy-wide productivity generates a low domestic interest rate in financial autarky.
  • With financial openness, there is a net capital outflow and a worsening of domestic unemployment rate. In comparison, financial opening in a developing country with labor market flexibility produces improved employment. 
  • We show such predictions are broadly consistent with the patterns in the data.

  Research Papers
                               
  1. Ignorance, Pervasive Uncertainty, and Household Finance, with Yulei Luo and Haijun Wang, forthcoming, Journal of Economic Theory  Online Appendix
  2. Forecasting  US Economic Growth in Downturns Using Cross-Country Data, with Yifei Lyu and Shu-Kuei X. Yang,  forthcoming, Economics Letters
  3. Ambiguity, Low Risk-Free Rates, and Consumption Inequality, with Yulei Luo and Eric R.Young, Economic Journal, 130 (632), 2649-2679, 2020
  4. Rational Inattention and the Dynamics of Consumption and Wealth in General Equilibrium, ​​with Yulei Luo, Gaowang Wang, Eric R.Young,   Journal of Economic Theory, 2017, 172, 55-87
  5. Elastic Attention, Risk Sharing, and International Comovements, with Wei Li and Yulei Luo,  Journal of Economic Dynamics and Control, 79, 1-20 (Lead Article), 2017
  6. Slow Information Diffusion and the Inertial Behavior of Durable Consumption, with Yulei Luo and Eric R. Young, Journal of European Economic Association, 13(5), 805-840, 2015
  7. Model Uncertainty and Intertemporal Tax Smoothing, with Yulei Luo and Eric R. Young, Journal of Economic Dynamics and Control, 45, 289-314, 2014
  8. Robust Control, Informational Frictions, and International Consumption Correlations, with Yulei Luo and Eric R. Young, European Economic Review, 67, 1-27 (Lead Article), 2014
  9. Model Uncertainty, State Uncertainty, and State-space Models, with Yulei Luo and Eric R. Young, State-Space Models: Applications in Finance and Economics, Wu, Shu and Yong Zeng (eds.),  2013, Springer Press
  10. Robustness, Information-Processing Constraints, and the Current Account in Small Open Economies, with Yulei Luo and Eric R. Young,  Journal of International Economics, 2012, 88(1), 104-120​
  11. Labor Market Institutions and the Effects of Financial Openness, with Qingyuan Du and Shang-Jin Wei, Federal Reserve Bank of Kansas City Working Paper 19-11  under review
  12. Forecasting Foreign Economic Growth Using Cross-Country Data with Craig S. Hakkio, Federal Reserve Bank of Kansas City Working Paper 18-14
  13. Growth and Welfare Gains from Financial Integration under Model Uncertainty, with Yulei Luo and Eric R. Young, Federal Reserve Bank of Kansas City Working Paper 18-12
  14.  Human Capital Dynamics and the U.S. Labor Market, with Lei Fang, Federal Reserve Bank of Kansas City Working Paper 13-10
  15.  Wealth Distribution with State-Dependent Risk Aversion, with Rong-wei Chu and Bei Zhang, Federal Reserve Bank of Kansas City Working Paper 13-09
  16.  Training or Search? Some Evidence and an Equilibrium Model,  Federal Reserve Bank of Kansas City Working Paper 10-03   
  17. Unemployment Insurance during a Pandemic, with Lei Fang and Zoe Xie, Federal Reserve Bank of Kansas City Working Paper 20-07 under review
  18. Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism, with Qichun He, Yulei Luo, and Heng-fu Zou, Federal Reserve Bank of Kansas City Working Paper 20-16 under review
  19. Robust Production and Inventory Behavior, with Yulei Luo, Xiaowen Wang and Eric R. Young  (new draft coming soon)
  20. Spirit of Capitalism and Consumption Inequality, with Yulei Luo and Heng-fu Zou                                                                 
​