#2008-045A "Inventories, Liquidity, and the Macroeconomy"
by Yi Wen
December 2008

It is widely believed in the literature that inventory fluctuations are destabilizing to the economy. This paper re-assesses this view by developing an analytically-tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. More...

#2008-044A "Dynamics of Externalities: A Second-Order Perspective"
by Yi Wen, and Huabin Wu
November 2008

We show that increasing returns to scale (due to production externalities) may induce a strong degree of asymmetric income effects and nonlinear dynamics that are not fully appreciated by linear approximation methods. More...

#2008-014B "Excessive Demand and Boom-Bust Cycles"
by Patrick A. Pintus, and Yi Wen
June 2008
Revised June 2008

It has long been argued in the history of economic thought that boom-bust business cycles may be driven by over-investment (Tugan-Baranovsky, 1894; and Wicksell, 1906). But how is it possible to sustain over-investment without excessive savings? More...

#2008-008A "Input and Output Inventory Dynamics"
by Yi Wen
March 2008

This paper develops an analytically tractable general equilibrium model of inventory dynamics. Inventories are introduced into a standard RBC model through a precautionary stockout-avoidance motive. More...

#2007-033A "Incomplete Information and Self-fulfilling Prophecies"
by Pengfei Wang, and Yi Wen
August 2007

This paper shows that incomplete information can be a rich source of sunspots equilibria. This is demonstrated in a standard dynamic general equilibrium model of monopolistic competition à la Dixit-Stiglitz. More...

#2007-029B "Global Indeterminacy in Locally Determinate RBC Models"
by Tarek Coury, and Yi Wen
August 2007
Revised February 2008

We investigate the global dynamics of Real Business Cycle (RBC) models with production externalities. We confirm that purely local analysis does not tell the full story. More...

FORTHCOMING: International Journal of Economic Theory

#2007-018B "A Defense of RBC: Understanding the Puzzling Effects of Technology Shocks"
by Pengfei Wang, and Yi Wen
April 2007
Revised June 2007

The research led by Gali (AER 1999) and Basu et al. (AER 2006) raises two important questions regarding the validity of the RBC theory: (i) How important are technology shocks in explaining the business cycle? (ii) Do impulse responses to technology shocks found in the data reject the assumption of flexible prices? More...

#2006-060B "A Note on Oil Dependence and Economic Instability"
by Luís Aguiar-Conraria, and Yi Wen
November 2006
Revised September 2007

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self- fulfilling expectations easier to occur. More...

FORTHCOMING: Macroeconomic Dynamics

#2006-032C "Endogenous Volatility, Endogenous Growth, and Large Welfare Gains from Stabilization Policies"
by Pengfei Wang, and Yi Wen
May 2006
Revised October 2008

This paper constructs an endogenous growth model to explain the stylized fact that the growth rate of GDP is negatively related to its standard deviation. More...

#2006-017C "Imperfect Competition and Indeterminacy of Aggregate Output"
by Pengfei Wang, and Yi Wen
March 2006
Revised March 2007

This paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard DSGE model with imperfect competition. More...

FORTHCOMING: Journal of Economic Theory