(2017), "Amplification and Asymmetric Effects without Collateral Constraints", American Economic Journal: Macroeconomics, vol. 9, No. 3, pp.222-266.
The seminal contribution by Kiyotaki and Moore (1997) has spurred a vast literature on the importance of collateral constraints in propagating and amplifying shocks to the economy. However, most papers in the literature using collateral constraints assume non-state-contingent debt, i.e., markets are incomplete. To assess the relative importance of collateral constraints versus market incompleteness, we study a calibrated incomplete markets model and solve it with and without collateral constraints. We find that market incompleteness by itself plays a quantitatively significant role in the amplified and asymmetric responses of the economy, including land price and output, to exogenous shocks.
(2011), "Optimal Monetary Policy in China", China and World Economy, vol. 19, No. 1, pp.83-105.
Using the structural vector autoregression model, we estimate the current responses of monetary policy to contemporaneous shocks from macroeconomic variables. Our findings indicate that the People’s Bank of China responded to inflation and output changes, but did not react to asset price fluctuations during the period from January 1997 to March 2010. The optimal monetary responses to exogenous shocks are also examined. It is revealed that using asset prices to formulate monetary policy would not help to improve monetary authorities’ performance in lowering the volatilities of output growth and inflation while keeping output growth and inflation in their safety zones. The effectiveness of monetary policy and fiscal policy in reacting to external shocks is also discussed.