#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...

#2007-018B "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...

#2006-032C "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

#2006-015A "Imperfect Competition and Sunspots"
by Pengfei Wang, and Yi Wen
March 2006

This paper shows that imperfect competition can be a rich source of sunspots equilibria and coordination failures. This is demonstrated in a dynamic general equilibrium model that has no major distortions except imperfect competition. In the absence of fundamental shocks, the model has a unique certainty (fundamental) equilibrium. More...

#2006-003C "Solving Linear Difference Systems with Lagged Expectations by a Method of Undetermined Coefficients"
by Pengfei Wang, and Yi Wen
January 2006
Revised May 2006

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. More...

#2005-076D "Inflation Dynamics: A Cross-Country Investigation"
by Pengfei Wang, and Yi Wen
December 2005
Revised July 2006

We document that "persistent and lagged" inflation (with respect to output) is a world-wide phenomenon in that these short-run inflation dynamics are highly synchronized across countries. In particular, the average cross-country correlation of inflation is significantly and systematically stronger than that of output, while the cross-country correlation of money growth is essentially zero. More...

PUBLISHED: Journal of Monetary Economics, October 2007, 54(7), pp. 2004-31

#2005-051A "Another Look at Sticky Prices and Output Persistence"
by Pengfei Wang, and Yi Wen
June 2005

Price rigidity is the key mechanism for propagating business cycles in traditional Keynesian theory. Yet the New Keynesian literature has failed to show that sticky prices by themselves can effectively propagate business cycles in general equilibrium. We show that price rigidity in fact can (by itself) give rise to a strong propagation mechanism of the business cycle in standard New Keynesian models, provided that investment is also subject to a cash-in-advance constraint. More...

PUBLISHED: Journal of Economic Dynamics and Control, December 2006, 30(12), pp. 2533-52