Richard M. H. Suen
Assistant Professor
Department of Economics, Sproul Hall
University of California,
Riverside, CA 92521.
Email: richard.suen@ucr.edu
Phone: (951) 827-1502
Fax: (951) 827-5685
Assistant Professor
Department of Economics, Sproul Hall
University of California,
Riverside, CA 92521.
Email: richard.suen@ucr.edu
Phone: (951) 827-1502
Fax: (951) 827-5685
| Teaching Econ 201C Econ 282G |
Research
Finite State Markov-Chain Approximations to Highly Persistent Processes
joint with Karen A. Kopecky
Abstract: This paper re-examines the Rouwenhorst method of approximating first-order
autoregressive processes. This method is appealing because it can match the conditional and
unconditional mean, the conditional and unconditional variance and the first-order autocorrelation of
any AR(1) process. This paper provides the first formal proof of this and other results. When
comparing to five other methods, the Rouwenhorst method has the best performance in
approximating the business cycle moments generated by the stochastic growth model. It is shown
that, equipped with the Rouwenhorst method, an alternative approach to generating these moments
has a higher degree of accuracy than the simulation method.
Bounding the CRRA Utility Functions
Abstract: The constant-relative-risk-aversion (CRRA) utility function is now predominantly used in
quantitative macroeconomic studies. This function, however, is not bounded and thus creates
problems when applying the standard tools of dynamic programming. This paper devises a method
for "bounding" the CRRA utility functions. The proposed method is based on a set of conditions that
can establish boundedness among a broad class of utility functions. These results are then used to
construct a bounded utility function that is identical to a CRRA utility function except when
consumption is very small or very large. It is shown that the constructed utility function also satisfies
the Inada condition and is consistent with balanced growth.
Technological Advance and the Growth in Health Care Spending
Economie D'Avant Garde Research Report No. 13.
Abstract: The second half of the twentieth century recorded a rapid growth in health care spending
and a significant increase in life expectancy. This paper hypothesizes that technological progress in
medical treatment, combined with rising incomes, are the driving forces behind these two trends.
Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper
argues that the rapid growth in medical spending is not driven by factors associated with market
structures or insurance opportunities, but instead by factors underlying the production and
accumulation of health. According to this model, improvements in medical treatment and rising
incomes can explain all of the increase in medical spending and more than 60% of the increase in life
expectancy at age 25 during the second half of the twentieth century.
A Quantitative Analysis of Suburbanization and the Diffusion of the Automobile*
joint with Karen A. Kopecky
International Economic Review forthcoming.
Abstract: Suburbanization in the U.S. between 1910 and 1970 was concurrent with the rapid
diffusion of the automobile. A circular city model is developed in order to access quantitatively the
contribution of automobiles and rising incomes to suburbanization. The model incorporates a number
of driving forces of suburbanization and car adoption, including falling automobile prices, rising real
incomes, changing costs of traveling by car and with public transportation, and urban population
growth. According to the model, 60 percent of postwar (1940-1970) suburbanization can be
explained by these factors. Rising real incomes and falling automobile prices are shown to be the key
drivers of suburbanization.
*This paper was previously circulated with the title “Suburbanization and the Automobile.”
Superneutrality, Indeterminacy and Endogenous Growth
joint with Chong K. Yip
Journal of Macroeconomics, 27 (2005) p.579-595.
Abstract: In this paper, we explore the possibility of having money as a source of indeterminacy in
endogenous growth models. We adopt the simple Ak model of endogenous growth to be the main
analytical vehicle whose balanced growth paths do not display local indeterminacy. Money is
introduced via either a general cash-in-advance (CIA) constraint or a pecuniary transaction costs
(PTC) technology. It is shown that local indeterminacy of the dynamics is due to the presence of an
intertemporal substitution effect on capital accumulation that works against and dominates the
conventional inflation effect of Tobin (1965). If money is growth-rate superneutral, then the
intertemporal substitution effect is absent so that local indeterminacy cannot occur. Finally, the
strength of the intertemporal substitution effect depends positively on the intertemporal elasticity of
substitution in consumption.
Finite State Markov-Chain Approximations to Highly Persistent Processes
joint with Karen A. Kopecky
Abstract: This paper re-examines the Rouwenhorst method of approximating first-order
autoregressive processes. This method is appealing because it can match the conditional and
unconditional mean, the conditional and unconditional variance and the first-order autocorrelation of
any AR(1) process. This paper provides the first formal proof of this and other results. When
comparing to five other methods, the Rouwenhorst method has the best performance in
approximating the business cycle moments generated by the stochastic growth model. It is shown
that, equipped with the Rouwenhorst method, an alternative approach to generating these moments
has a higher degree of accuracy than the simulation method.
Bounding the CRRA Utility Functions
Abstract: The constant-relative-risk-aversion (CRRA) utility function is now predominantly used in
quantitative macroeconomic studies. This function, however, is not bounded and thus creates
problems when applying the standard tools of dynamic programming. This paper devises a method
for "bounding" the CRRA utility functions. The proposed method is based on a set of conditions that
can establish boundedness among a broad class of utility functions. These results are then used to
construct a bounded utility function that is identical to a CRRA utility function except when
consumption is very small or very large. It is shown that the constructed utility function also satisfies
the Inada condition and is consistent with balanced growth.
Technological Advance and the Growth in Health Care Spending
Economie D'Avant Garde Research Report No. 13.
Abstract: The second half of the twentieth century recorded a rapid growth in health care spending
and a significant increase in life expectancy. This paper hypothesizes that technological progress in
medical treatment, combined with rising incomes, are the driving forces behind these two trends.
Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper
argues that the rapid growth in medical spending is not driven by factors associated with market
structures or insurance opportunities, but instead by factors underlying the production and
accumulation of health. According to this model, improvements in medical treatment and rising
incomes can explain all of the increase in medical spending and more than 60% of the increase in life
expectancy at age 25 during the second half of the twentieth century.
A Quantitative Analysis of Suburbanization and the Diffusion of the Automobile*
joint with Karen A. Kopecky
International Economic Review forthcoming.
Abstract: Suburbanization in the U.S. between 1910 and 1970 was concurrent with the rapid
diffusion of the automobile. A circular city model is developed in order to access quantitatively the
contribution of automobiles and rising incomes to suburbanization. The model incorporates a number
of driving forces of suburbanization and car adoption, including falling automobile prices, rising real
incomes, changing costs of traveling by car and with public transportation, and urban population
growth. According to the model, 60 percent of postwar (1940-1970) suburbanization can be
explained by these factors. Rising real incomes and falling automobile prices are shown to be the key
drivers of suburbanization.
*This paper was previously circulated with the title “Suburbanization and the Automobile.”
Superneutrality, Indeterminacy and Endogenous Growth
joint with Chong K. Yip
Journal of Macroeconomics, 27 (2005) p.579-595.
Abstract: In this paper, we explore the possibility of having money as a source of indeterminacy in
endogenous growth models. We adopt the simple Ak model of endogenous growth to be the main
analytical vehicle whose balanced growth paths do not display local indeterminacy. Money is
introduced via either a general cash-in-advance (CIA) constraint or a pecuniary transaction costs
(PTC) technology. It is shown that local indeterminacy of the dynamics is due to the presence of an
intertemporal substitution effect on capital accumulation that works against and dominates the
conventional inflation effect of Tobin (1965). If money is growth-rate superneutral, then the
intertemporal substitution effect is absent so that local indeterminacy cannot occur. Finally, the
strength of the intertemporal substitution effect depends positively on the intertemporal elasticity of
substitution in consumption.
