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Faculty Papers Accepted for Publication

2021-03-22Set

Three papers by IAR faculty, Associate Researcher Mei Zhu, Assistant Professor Shengliang Ou, and Assistant Professor Tongbin Zhang, were accepted for publication by top field journals Theoretical Economics, Journal of Monetary Economics, and the tier-2 journal, Journal of Economic Dynamics and Control, respectively. Another paper by Assistant Professor Qian Li was officially published on the tier-2 journal, Journal of Economic Dynamics and Control


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Associate Professor Mei Zhu’s paper “Statistical Sunspots”, coauthored with Professor William Branch from UC Irvine and Professor Bruce McGough from the University of Oregon, was accepted for publication by Theoretical Economics


Abstract
This paper shows that belief-driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast-model misspecification can break the link between indeterminacy and sunspots by establishing the existence of “statistical sunspots” in models that have a unique rational expectations equilibrium. To form expectations, agents regress on a set of observables that can include serially correlated non-fundamental factors (e.g. sunspots, judgment, expectations shocks, etc.). In equilibrium, agents attribute, in a self-fulfilling way, some of the serial correlation observed in data to extrinsic noise, i.e. statistical sunspots. This leads to sunspot equilibria in models with a unique rational expectations equilibrium. Unlike many rational sunspots, these equilibria are found to be generically stable under learning. Applications are developed in the context of a New Keynesian and an asset-pricing model.



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Mei Zhu

Ph.D. of Peking University, currently holds the post of Associate Researcher at the Institute for Advanced Research, SUFE. Her areas of interest include macroeconomics and financial mathematics. Her papers have been published on leading journals in economics including Journal of Economic Theory, Journal of Economic Dynamics and Control, etc. 


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Assistant Professor Shengliang Ou’s paper “Information Frictions, Monetary Policy, and the Paradox of Price Flexibility”, coauthored with Assistant Professor Donghai Zhang from the University of Bonn, Germany, and Assistant Professor Renbin Zhang from Shandong University, was accepted for publication by Journal of Monetary Economics


Abstract
The introduction of digital price tags and e-commerce facilitates the implementation of price adjustments and thereby diminishes the degree of nominal rigidity in an economy. Is this phenomenon welfare-improving? We address this question using a multi-sector New Keynesian model with information frictions and dispersed beliefs. Increased price flexibility may decrease welfare through the dispersed belief channel and the amplified spillover effects. Dispersed beliefs create a novel channel through which the welfare cost of inflation in a sector increases with price flexibility, altering the optimal inflation index stabilization policy. A monetary policy that stabilizes the optimal inflation index mitigates this paradox.



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Shengliang Ou

Ph.D. of Universitat Pompeu Fabra, is an Assistant Professor at IAR. His research areas are macroeconomics and monetary economics. 


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Assistant Professor Tongbin Zhang’s single-authored paper “Stock Prices and the Risk-free Rate: An Internal Rationality Approach” was accepted for publication by Journal of Economic Dynamics and Control


Abstract
The co-movement of stock prices and the risk-free rate in the United States is weak in terms of the correlation and variance decomposition. It is essential for investors and policymakers to understand such co-movement, especially when several well-known asset pricing models imply a much stronger relationship than the one empirically observed. To explain this inconsistency, this paper presents a model with internally rational agents who optimally update their subjective beliefs about stock prices. Compared with the risk-free rate, agents' subjective beliefs are essential for generating stock market volatility. Quantitatively, our model can jointly produce basic asset market facts and the weak co-movement.



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Tongbin Zhang

Ph.D. of Universitat Autonoma de Barcelona, is an Assistant Professor at IAR. His research areas include macroeconomics and financial economics. He has taken part in research work of NSFC Emergency Projects. 


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Assistant Professor Qian Li’s paper “A Quantitative Evaluation of Universal Basic Income”, coauthored with Professor Juan Carlos Conesa from Stony Brook University and Assistant Professor Bo Li from Peking University, was officially published by Journal of Economic Dynamics and Control


Abstract
We provide a quantitative evaluation of the impact of Universal Basic Income (UBI) on macroeconomic aggregates, inequality and welfare, exploring different levels of UBI generosity, paired with different strategies to finance it. We find that different levels of UBI can generate welfare improvements in the long-run, and that more generous UBI requires financing through consumption taxes. While welfare improvements are possible for individuals entering the steady state, the analysis of the transitional dynamics suggest generalized welfare losses for existing individuals, casting doubt on the desirability of such reforms. These losses are increasing in the level of generosity of UBI.



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Qian Li

Ph.D. of Stony Brook University, is an Assistant Professor at IAR. Her research areas are macroeconomics, public finance, and computational economics. Her research covers various fields including tax theory, health economy, human capital, real estate, economic cycle, etc. Her papers have been published by international journals including Journal of Economic Dynamics and Control, Economic Letters, and B.E. Journal of Macroeconomics.