Publications
It's All Relative! A Method to Counter Human Bias in Crowdsourced Stance Detection of News Articles (2022; with Ehsan-Ul Haq and Pan Hui)
(Proceedings of the ACM on Human-Computer Interaction,
Vol 6, Issue CSCW2)
Abstract:
Using human
intelligence to identify news articles' political stances is common in research
and practical applications. But human judgement can be biased and prone to
errors stemming from the comprehension of tasks and political alignment. This
paper proposes a relative rating method based on news articles' stances
relative to raters' own stances to avoid comprehension inconsistency and to
control for human bias in crowdsourced stance detection of news articles. We
also show how to use the relative ratings to construct a measure for raters'
stances on a political topic and to identify raters whose ratings are of higher
quality than others. We implement our proposed methods in an online experiment
that recruits Amazon Mechanical Turk users as raters for news articles on Gun
Control. Using the data from the experiment, we find evidence that raters' own
stances on Gun Control significantly impact ratings of related news articles,
both at the individual levels and at the aggregate levels. We also present evidence
that our relative-rating-based stance measure captures more information about
raters' actual stances than their self-reported stance does.
Credibility and Explicit Inflation Targeting (2022; with Robert G. King)
This
article belongs to a
collection of essays honoring Marvin Goodfriend.
Abstract:
In his 2004
inflation targeting manifesto, Marvin Goodfriend described US monetary policy
as implicit inflation targeting and advocated explicit targeting. Summarizing
the 1965-2000 US inflation experience, he highlighted the importance of
evolving Fed credibility, which accords with our recent work using a
quantitative New Keynesian model. We define credibility as policy consistency
with a publicly announced framework and develop two lessons theoretically.
First, under explicit targeting, no conflict arises between flexible inflation
targeting and maintaining/accumulating credibility. Second, implicit targeting
reduces the effectiveness of expectations management and stabilization policy,
as well as opening the door to costly inflation scare episodes.
Creating
Confusion
(2021; with Chris Edmond) Online appendix
(Journal of Economic Theory, Vol 191, 105145)
Abstract:
We develop a model in which a politician seeks
to prevent a group of citizens from making informed decisions. The politician
can manipulate information at a cost. The citizens are rational and internalize
the politician's incentives. In the unique equilibrium of the game, the
citizens' beliefs are unbiased but endogenously noisy. We interpret the social
media revolution as a shock that simultaneously (i) improves the underlying,
intrinsic precision of the citizens' information, but also (ii) reduces the politician's
costs of manipulation. We show that there is a critical threshold such that if
the costs of manipulation fall enough, the social media revolution makes the
citizens worse off despite the underlying improvement in their information.
Decentralization
and Political Career Concerns (2017; with Jiahua Che and Kim-Sau Chung)
(Journal of Public Economics, Vol 145,
201-210)
Abstract:
Politicians¡¯ career paths often start at some
subnational governments and end at the national one. Allocation of authorities
among national and subnational governments affects (i) how tempting the
prospects of taking national offices are, and hence how strong bureaucrats¡¯
political career concerns are, and (ii) whether the incentives generated by
these political career concerns can be put into productive use at subnational
governments. We illustrate this tradeoff in determining the optimal degree of
decentralization using China as a case study. We also compare the equilibrium
degree of decentralization in autocracy and in democracy.
Optimal
Reputation Building in the New Keynesian Model (2016; First
Author, with Robert G. King and Ernesto S. Pasten)
(Journal
of Monetary Economics, Vol 84, 233-249)
Abstract:
We study
the optimal committed monetary policy when the private sector has imperfect
information and has to infer the central banker's ability to commit. The
optimal policy is designed to influence learning and improve the central
banker's reputation of being committed. The reputation building implies that
when a committed central banker first takes office, he should resist the
temptation to stimulate output with initially high but declining inflation; he
should reverse a missed inflation target rather than accommodate it; and he
should adopt a less accommodative inflation response to a cost-push shock than
a full commitment solution suggests.
The
Power of Whispers: A Theory of Rumor, Communication and Revolution (2016; with Heng Chen and Wing Suen)
(International Economic Review, Vol 57, Issue 1, 89-116)
Abstract:
We study how rumors mobilize individuals who
take collective action. Rumors may or may not be informative, but they create
public topics on which people can exchange their views. Individuals with
diverse private information rationally evaluate the informativeness of rumors
about regime strength. A rumor against the regime can coordinate a larger mass
of attackers if individuals can discuss its veracity than if they cannot.
Communication can be so effective that a rumor can have an even greater impact
on mobilization than when the same story is fully believed by everybody.
However, an extreme rumor can backfire and discourage mobilization.
Optimal
Policy with Credibility Concerns (2013)
(Journal of Economic Theory, Vol
148, Issue 5, 2007-2032)
Abstract:
This paper
considers a reputation model of optimal taxation in which the public is unsure
about the government type. A long-lived government can be trustworthy (meaning
that it commits to its announced tax rate) or opportunistic (meaning that it
retains the ability to change its tax rate after announcing it). Unlike in most
prior studies, the committed strategy in this model is optimally chosen by the
trustworthy type. We show that this change has significant consequences for the
equilibrium dynamics. The optimal committed strategy is found to vary with the
time preferences of the two government types, the initial reputation of the
government, and the elasticity of household production. This formulation
explains differences in policy responses across governments in the face of
similar credibility problems.
Modeling and
Forecasting Stock Return Volatility Using a Random Level Shift Model (2009; with Pierre Perron)
(Journal of Empirical Finance, Vol. 17, Issue 1, 138-156)
Abstract:
We consider the estimation of a
random level shift model for which the series of interest is the sum of a short
memory process and a jump or level shift component. For the latter component,
we specify the commonly used simple mixture model such that the component is
the cumulative sum of a process which is 0 with some probability (1-¦Á) and is
some random variable with probability ¦Á. Our estimation method transforms such
a model into a linear state space form with mixture of normal innovations, so
that an extension of Kalman filter algorithm can be applied. We estimate this
random level shifts models for volatility series, proxied by the logarithm of
the absolute returns. We do this for the S&P 500, AMEX, Dow Jones and the
NASDAQ stock market return indices. Our point estimates imply few level shifts
for all series. But once these are taken into account, there is little evidence
of serial correlation in the remaining noise and, hence, no evidence of long
memory. Once the estimated shifts are introduced to a standard GARCH model, any
evidence of GARCH effects disappears. We also produce rolling out-of-sample
forecasts. In most cases, our simple random level shift model clearly
outperforms a standard GARCH(1,1) model and, in many cases, it also provides
better forecasts than a fractionally integrated GARCH model.
Managing Expectations (working paper version, May, 2008; with Robert G. King and Ernesto S. Pasten)
(Journal of Money, Credit and
Banking, Vol 40, Issue 8, 1625-1666)
Abstract:
The idea
that monetary policy is principally about "managing expectations" has
taken hold in central banks around the world. Discussions of expectations management
by central bankers, academics and by financial market participants frequently
also include the idea that central bank credibility is imperfect. We adapt a
familiar macroeconomic model so as to discuss key concepts in the area of
expectations management. Our work also exemplifies a model construction
approach to analyzing the dynamics of announcements, actions and credibility
which we think makes feasible a wide range of future investigations concerning
the management of expectations.
Working
Papers
What does Sovereign Borrowing Signal? Theory
and Evidence from Advanced Economies (NEW!
Oct 2025, with Bowen Qu)
Abstract:
We assess the relative importance of three common sources of government private information in asymmetric-information models of sovereign debt: time preference, default costs, and future economic fundamentals. We develop a parsimonious signaling model that nests all three information structures and show that only private information about future fundamentals can generate a state-dependent signaling effect of sovereign borrowing on default risk. Using quarterly data for 20 advanced economies (2000Q2¨C2020Q3), we document a new stylized fact supporting such a state-dependent signaling effect: debt growth improves sovereign ratings in good fiscal states (primarily due to increases in short-term bonds) and lowers them in poor fiscal states (mainly due to growth in long-term loans)
Evolving Reputation for
Commitment: Understanding Inflation and Inflation Expectations (Oct 2025, with Robert
G. King)
Abstract:
We develop a theory of how inflation
expectations respond to monetary policy when policymakers strategically
influence private learning. The central mechanism is reputation -- private
agents¡¯ belief in the policymaker¡¯s commitment to announced inflation targets.
Reputation evolves as agents update beliefs from deviations of realized
inflation from targets. Reputation feeds back into expectations and
effectiveness of monetary policy. We characterize optimal policy that
internalizes this expectation¨Coutcome loop, provide a recursive solution, and
calibrate the model to demonstrate quantitative importance of strategic
expectation management. Empirically, we document time-varying sensitivity of
long-run inflation forecasts to inflation surprises, supporting the model¡¯s
prediction.
Learning, Rare Disasters, and Asset Prices
(Jan 2016; with Michael Siemer)
Abstract:
We incorporate joint learning about state and
parameter into a consumption-based asset pricing model with rare disasters.
Agents are uncertain whether a negative shock signals the onset of a disaster
or how much long-term damage a disaster will cause and they update their
beliefs over time. The interaction of state and parameter uncertainty increases
the total amount of uncertainty and slows learning. Once the two types of
uncertainty are both priced in asset prices, their joint effect enables our
model to account for the level and volatility of U.S. equity returns without
relying on exogenous variation in disaster risk or any realization of disaster
shock in the data sample.
Coordinating Expectations and the Informational
Role of Policy
(under revision; with Ernesto
S. Pasten)
Abstract:
Policy has
leverage on the dynamics of self-fulfilling prophecies by distorting the
informational content of aggregate history.
Discussions
Discussion
of ¡°Scarcity of Safe Assets, Inflation, and the Policy Trap¡± by Andolfatto
and Williamson