Essays in Macroeconomic Policy

This dissertation consists of three chapters that cover topics on macroeconomic policies. Chapter 1 - Markups, Labor Share, and Wage Dispersion. Increasing market power has an impact on labor market behavior. This paper argues that the decline in the aggregate wage after 1980 comes from both increasing aggregate product markup and decreasing aggregate labor markdown. Most of the decline is driven by the sharp decline in lower wage percentiles, which also contributes to the increasing wage dispersion. Further, both firms’ monopoly and monopsony power play important roles in explaining the decline in the aggregate labor share. I build a heterogeneous firm model that features endogenous variable markup and wage dispersion, which shows that firms’ market power in both product and labor markets are equally important in explaining the decline in the labor share. The most important channel of the decline in the aggregate wage is the decline in the wage at the lower percentiles and the increase in wage dispersion through firm monopsony power. Chapter 2 - Do Direct-administered municipalities work? Evidence from Chongqing municipality in China (with Jiakai Zhang). It has been widely observed that China has experienced a high growth rate. The central government has tried to implement several policies to promote local economic development after the 1978 economic reform. This paper draws upon a quasi-experiment in China’s regional administrative hierarchy to investigate the effect of a city-upgrading policy. This policy upgrades prefecture-level cities to municipalities with the same administrative level as the provinces. Chongqing is the only city recently designated as the municipality in 1997. Due to a small number of treated and control units, this paper adopts the synthetic control method. We find that the city-upgrading policy increased Chongqing’s GDP by more than 40% on average in the following four years after 1996. Additionally, we also find the positive spillover effects of the municipalities on economic growth using the spatial panel model. Finally, we examine the direct and spillover effects of the municipalities on various aspects, including foreign direct investment, urbanization, local government revenue, and total factor productivity. Chapter 3 - On the Effectiveness of Capital Controls: A Synthetic Control Method Approach (with Richard J Nugent III). We evaluate financial stability and capital flows management objectives of capital controls in the context of four capital control events: removing or imposing controls on capital inflows and removing or imposing controls on capital outflows. Using the synthetic control method, we solve the endogeneity problem between the decision the use capital controls and the outcomes of interest. We find new evidence that capital controls are not consistently effective in reaching financial stability outcomes but are consistent in reaching capital flows management outcomes. We compare our results to estimates using difference-in-difference and carry out placebo analysis. Finally, we use synthetic difference-in-difference to correct for the parallel trend bias and show that the results still hold

A Dichotomy Result for Cyclic-Order Traversing Games

Traversing game is a two-person game played on a connected undirected simple graph with a source node and a destination node. A pebble is placed on the source node initially and then moves autonomously according to some rules. Alice is the player who wants to set up rules for each node to determine where to forward the pebble while the pebble reaches the node, so that the pebble can reach the destination node. Bob is the second player who tries to deter Alice\u27s effort by removing edges. Given access to Alice\u27s rules, Bob can remove as many edges as he likes, while retaining the source and destination nodes connected. Under the guide of Alice\u27s rules, if the pebble arrives at the destination node, then we say Alice wins the traversing game; otherwise the pebble enters an endless loop without passing through the destination node, then Bob wins. We assume that Alice and Bob both play optimally. We study the problem: When will Alice have a winning strategy? This actually models a routing recovery problem in Software Defined Networking in which some links may be broken. In this paper, we prove a dichotomy result for certain traversing games, called cyclic-order traversing games. We also give a linear-time algorithm to find the corresponding winning strategy, if one exists

Exploring the underlying mechanisms of obesity and diabetes and the potential of Traditional Chinese Medicine: an overview of the literature

Obesity and diabetes are closely related metabolic disorders that have become major public health concerns worldwide. Over the past few decades, numerous studies have explored the underlying mechanisms of these disorders and identified various risk factors, including genetics, lifestyle, and dietary habits. Traditional Chinese Medicine (TCM) has been increasingly recognized for its potential to manage obesity and diabetes. Weight loss is difficult to sustain, and several diabetic therapies, such as sulfonylureas, thiazolidinediones, and insulin, might make it harder to lose weight. While lifestyle changes should be the primary approach for people interested in lowering weight, drugs are also worth investigating. Since some of the newer glucose-lowering medications that cause weight loss, such as glucagon-like peptide-1 receptor agonists (GLP-1 RAs) and sodium-glucose cotransporter 2 inhibitors (SGLT2i), are additionally utilized or are under consideration for use as anti-obesity drugs, the frontier between glucose-lowering medication and weight loss drugs appears to be shifting. This review provides an overview of the literature on the underlying mechanisms of obesity and diabetes and the prospect of TCM in their management. We discuss the various TCM interventions, including acupuncture, herbal medicine, and dietary therapy, and their effects on metabolic health. We also highlight the potential of TCM in regulating gut microbiota, reducing inflammation, and improving insulin sensitivity. The findings suggest that TCM may provide a promising approach to preventing and managing obesity and diabetes. However, further well-designed studies are needed to confirm the efficacy and safety of TCM interventions and to elucidate their underlying mechanisms of action