Department of Economics, University of Chicago

Bin Li

Research

Papers:

· “Evaluating Structural VAR Models in Monetary Economies” 

          (Job Market Paper)                                               Econ Dept., Univ. of Chicago, 2007

 

Abstract: This paper uses Monte Carlo simulation to evaluate alternative identification strategies in VAR estimation of monetary models, and to assess the accuracy of measuring money instability as a cause of the output fluctuations. I construct theoretical monetary economies using general equilibrium models with cash-in-advance constraints, which also include technology shocks, labor supply shocks, and monetary shocks. Particularly, two economies are characterized: one is fully identified and satisfies the long-run restriction; another is not fully identified and the portion of temporary technology shocks is mixed with demand shocks when applying the long-run restriction. Based on each theoretical model, artificial economies are then generated through Monte Carlo simulations, which allow me to investigate the reliability of structural VAR estimation under various identifying restrictions. Applying short-run, medium-run, and long-run restrictions on the simulated data, I check for the bias between the average VAR estimates and the true theoretical claim. The findings show that short-run and medium-run restrictions tend to work more robustly under model uncertainty, particularly because the bias for measuring the effects of monetary shocks using long-run restriction could increase substantially when the underlying economy includes unidentified temporary shocks. This experiment supports the claim that monetary shocks contribute no more than one third of the cyclical variance of post-war U.S. output, and suggests that their contribution could in fact be substantially less.

 

· “Deregulation and Unemployment : A Cross-Market Channel”

 Econ Dept., Univ. of Chicago, 2006

 

Abstract: This paper explores the effects of deregulation in product and labor markets, and particularly the interactions between these two markets, on relieving unemployment. Introducing product market entry costs and labor market firing costs into a Mortensen-Pissarides matching model, the theory reveals how product market reforms may have positive spillover effects on labor market institutions under various wage settings. It thus uncovers additional policy channels that government may consider to improve the labor market outcome besides direct labor market reforms, e.g. through deregulation in the product market. Empirical studies using an original industry-level panel dataset across 24 OECD countries confirm and quantify our theoretical findings.

 

· “Asset Trading with Heterogeneous Beliefs”

                                             Working Paper, Dept. of Economics,  Univ. of Chicago, 2006

 

Abstract: This paper analyzes the effects of heterogeneous beliefs on the asset pricing and trading volume. In the existing literature, the trading volume is either explained by heterogeneous risk aversion rates or asymmetric information sets. This paper proposes an alternative theory. In an endowment economy with heterogeneous beliefs, agents have the common information filtration, but with different measures embedded. A Pareto optimum problem with Negishi weights is solved. After decentralizing the economy, the competitive equilibrium reveals how the trading volume and asset pricing kernel are affected by the heterogeneity in beliefs. The asset prices and trading volume are shown to be related with the dispersion of the diversified beliefs of uncertainty.

 

· “Labor Market Institutions and Employment in France”

                                                                 with Jianping Zhou, European Dept, IMF, 2005

 

Abstract: This paper analyzes potential effects of recent reform proposals on unemployment in France, with a view to assessing the effectiveness of the CNE in promoting job creation and reducing the structural unemployment rate. It uses a search-matching model with hiring and firing restrictions to identify the channels through which changes in employment protection legislation (EPL) affect hiring and firing decisions and aggregate labor market variables such as unemployment. This approach recognizes the frictions and imperfect information that exist in labor markets. With its focus on the job creation and destruction decisions of the firm as well as the job search behavior of the worker, it provides a useful framework for studying impacts of labor market policies.