Working Papers

  • Housing Rent, Inelastic Housing Supply and International Business Cycles
    (R&R at the Review of Economic Studies)
    [Draft & Appendix]
    UCLA Ziman Center Working Paper 2024 & Rosalinde and Arthur Gilbert Research Grant 2023-2024
    Abstract Despite its distinctive features—such as large expenditure shares and inelastic supply—housing service has received scant attention in the international macroeconomics literature. To fill this gap, I examine the role of housing in international business cycles for eurozone countries. I show that housing rents exhibit larger variations than the prices of tradables and other nontradables, both in cross-country and time series. In addition, among all prices, housing rent stands out as the dominant contributor to both the Balassa-Samuelson effect and the negative Backus-Smith correlation. By simulating eurozone economies using a two-country model with a realistically calibrated housing sector, I show that the cross-country distribution of sectoral productivities, inelastic housing supply, and its interaction with the wealth effect via incomplete markets are key to understanding the empirical moments of real exchange rates. Compared with the standard model, the model with the housing sector generates larger variations of the real exchange rate, a stronger Balassa-Samuelson effect, and more realistic Backus-Smith correlations.

  • [New Draft!] Dollar Liquidity Flows in Small-Open Economies (with Saki Bigio and Paul Castillo)
    [Draft]
    Abstract This paper investigates how local dollar liquidity conditions shape exchange rate dynamics in small open economies. In such economies, the financial system issues dollar liabilities to facilitate transactions, creating a structural demand for dollar reserves for settlement. We distinguish between reserve supply, which responds to external factors, and reserve demand, which fluctuates with domestic liquidity conditions. Using a policy shock as an instrumental variable for Peruvian economy, we show that domestic dollar liquidity demand shocks significantly drive short-run exchange rate dynamics. We rationalize these findings using a small open economy model with banking liquidity frictions that accounts for observed interest rate dynamics and Covered Interest Parity (CIP) deviations. Our policy counterfactuals demonstrate that quantity-driven regulations---specifically reserve requirements, forward market regulations, and FX intervention---can meaningfully influence exchange rates and mitigate arbitrage deviations.

  • [New Draft!] The Effect of Housing on Portfolio Choice: House Price Risk and Liquidity Constraint
    [Draft]
    UCLA Ziman Center Working Paper 2022-06
    Rosalinde and Arthur Gilbert Research Grant 2021-2022
    Abstract Housing crowds out households' risky financial assets through a liquidity constraint channel and a house price exposure channel, which previous studies could not separate because homeowners are exposed to both. I exploit jeonse, a unique Korean housing tenure in which the tenant pays a large deposit (about two-thirds of house value) instead of rent and receives it back in full, so that the tenant bears the liquidity constraint but not the exposure to house prices. Using two Korean household panel datasets, I show that both jeonse tenancy and homeownership substantially crowd out risky financial asset holdings on average, but the jeonse crowding-out fades among wealthier households, while the homeownership crowding-out persists at all wealth levels. A standard life-cycle model with three tenures cannot replicate these patterns. Simulation analysis shows that replicating them requires a consumption-based money-in-advance constraint, under which households must hold liquid assets against everyday expenditure, and a small per-period stock-market participation cost. Comparative statics show that higher house price volatility mainly shifts housing tenure choice itself, barely affecting the homeowner crowding-out, whereas indexing the jeonse deposit to house prices makes its crowding-out persist, as homeownership's does.

  • Priced Out of Entrepreneurship? Rising Local Home Prices Lower Economic Opportunities for Young Renters (with Jinseok Park)
    [Draft]
    USC Lusk Center Research Awards 2023 & USC Economics Summer Research Award 2023-2024
    Abstract Rising housing costs reshape who can afford to become an entrepreneur. This paper examines how housing affordability influences entry into entrepreneurship, focusing on young individuals who lack housing collateral and are more exposed to liquidity constraints as affordability declines. While prior studies emphasize how higher house prices can encourage entrepreneurship among homeowners through collateral gains, much less is known about how worsening affordability affects those without housing wealth. We show that examining the non-owner side is essential to understanding the broader link between housing markets and entrepreneurship. We build a stylized life-cycle model in which renters and homeowners are exogenously separated, and show that these groups respond to changes in housing affordability through opposite mechanisms: a collateral channel for owners and a liquidity channel for renters. Using U.S. Census microdata aggregated to MSA-year panels and an instrumental variable strategy interacting national housing demand shocks with local housing supply elasticities, we find that declining affordability significantly reduces self-employment among young adults. The model and evidence together highlight housing affordability as a fundamental determinant of who can take entrepreneurial risks. Beyond housing policy, improving affordability is crucial for expanding economic opportunity, fostering social mobility, and sustaining local dynamism.

  • [New Draft!] Where to Build New Cities: Optimal Urban Land Supply and Korea’s New Town Projects (with Sunham Kim)
    (previously circulated as Building Housing: The Allocative Efficiency of Creating New Cities Versus Expanding Existing Cities)
    [Draft]
    UCLA Ziman Center Working Paper 2026-05
    Rosalinde and Arthur Gilbert Research Grant 2022-2023 & Krannert Doctoral Research Funds 2022-2023
    Abstract Where should governments supply new urban land? We study this question in a dynamic spatial growth model with a government that allocates land across regions under a budget constraint, where procurement cost scales with the local land price. In the short run, the welfare gain per dollar of procurement cost is equal across regions, and location is irrelevant at the margin. Permanently expanding the urban land stock moves the economy to a new steady state, as capital accumulates, workers migrate, and prices adjust over decades. This long-run gain per dollar no longer scales with the local land price. It varies across regions with the reallocation and accumulation of capital and labor that the new land induces, and the welfare return per dollar of procurement cost, not the local land price, ranks regions for new land. We take the model to South Korea's Second New Town Project, a large-scale urban land supply that converted roughly 5,000 hectares around Seoul into nine serviced cities and delivered around 610,000 housing units at a cost above 10% of 2004 GDP. The project raised long-run aggregate welfare by 0.28%. In our counterfactual, the same budget supplied to a lower-priced region outside the Seoul Metropolitan Area raises welfare by 0.35%. Our results suggest that when the instrument for correcting spatial misallocation is costly, where to deploy it depends on the long-run gains from adjustment relative to their cost, which may not necessarily be the most productive regions.

Work in Progress