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Author:Wen, Yi 

Working Paper
Optimal money demand in a heterogeneous-agent cash-in-advance economy

Heterogeneity matters. This point is illustrated in a heterogeneous-agent, cash-in-advance economy where money serves both as a medium of exchange and as a store of value (as in Lucas, 1980). It is shown that heterogeneity can lead to dramatically different implications of monetary policies from those under the representative-agent assumption, including (i) the velocity of money is not constant but highly volatile, as in the data; (ii) lump-sum transitory money injections have expansionary effects on aggregate output despite flexible prices; and (iii) the welfare cost of anticipated inflation ...
Working Papers , Paper 2010-014

Journal Article
Reducing the U.S. deficit by recycling capital inflows

The United States can simply recycle the financial capital inflows from China and re-export them back to China in the form of FDI. In so doing, the United States gains a substantially larger rate of return from FDI than China does from owning U.S. government bonds.
Economic Synopses

Working Paper
Labor hoarding and inventories

Labor hoarding is a widely believed empirical behavior of firms and a prominent explanation for procyclical labor productivity. Conventional wisdom attributes labor hoarding to labor adjustment costs. This paper argues that the conventional wisdom is inadequate for understanding labor hoarding because it ignores the role of inventories. Since idle labor can be used to produce inventories, why do firms hoard labor when inventory is an option? Using a dynamic rational expectations model of profit-maximizing firms facing demand uncertainty, this paper studies the dynamic interactions between ...
Working Papers , Paper 2005-040

Journal Article
Looking for the Positives In Negative Interest Rates

Negative interest rates may seem ludicrous since why would an individual buy a government bond with a negative yield, but this is what a central bank would like you to think. The central bank?s goal is to incentivize agents to shift investments away from government bonds to something more productive economically, thus stimulating the economy.
The Regional Economist , Volume 25 , Issue 4

Journal Article
Understanding the Roots of the U.S. Trade Deficit

The rise of the U.S. dollar as an international reserve currency and a shift in comparative advantage in manufacturing are key economic changes driving the large U.S. trade deficit.
The Regional Economist , Volume 26 , Issue 3

Working Paper
Solving linear difference systems with lagged expectations by a method of undetermined coefficients

This paper proposes a solution method to solve linear difference models with lagged expectations. Variables with lagged expectations expand the model's state space greatly when N is large; and getting the system into a canonical form solvable by the traditional methods involves substantial manual work (e.g., arranging the state vector and the associated coefficient matrices to accommodate variables with lagged expectations), which is prone to human errors. Our method avoids the need of expanding the state space of the system and shifts the burden of analysis from the individual ...
Working Papers , Paper 2006-003

Working Paper
Are Unconditional Lump-sum Transfers a Good Idea?

The role of unconditional lump-sum transfers in improving social welfare in heterogenous agent models has not been thoroughly understood in the literature. We adopt an analytically tractable Aiyagari-type model to study the distinctive role of unconditional lump-sum transfers in reducing consumption inequality due to ex-post uninsurable income risk. Our results show that in the presence of ex-post heterogeneity and in the absence of wealth inequality, unconditional lump-sum transfers are not a desirable tool for reducing consumption inequality—the Ramsey planner opts to rely solely on ...
Working Papers , Paper 2021-002

Journal Article
Oil price shocks and inflation risk

Oil price shocks appear to have only transitory effects on headline inflation and virtually no impact on measures of underlying trend inflation.
Economic Synopses

Working Paper
Measuring interest rates as determined by thrift and productivity

This paper investigates the behavior of short-term real and nominal rates of interest by combining consumption-based and production-based models into a single general equilibrium framework. Based on the theoretical nonlinear relationships that link interest rates to both the marginal rates of substitution and transformation in a monetary production economy, we develop an estimation and simulation procedure to generate historical time series of interest rates. We find that the predictions of interest rates based on a general equilibrium theory are partially consistent with US data.
Working Papers , Paper 2005-037

Working Paper
Capital, finance, and trade collapse

This paper proposes a model of international trade with capital accumulation and financial intermediation. This is achieved by embedding the Melitz (2003) model into an incomplete-markets neoclassical framework with an endogenous credit market. The model preserves the analytical tractability of the original Melitz model despite non-trivial distribution of firms? net worth and capital stocks. We use the model to examine the differential effects of financial and non-financial shocks on aggregate output and international trade flows. The model predicts that trade volume declines far more sharply ...
Working Papers , Paper 2012-003


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