Min Ouyang



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Working Papers and Journal Publications

Capital-good R&D and the Input-output Linkage, coming soon.

We show the comovement between capital-good R&D and the rest of the economy is what drives aggregate R&D pro-cyclical, and the input-output linkage contributes to such comovement. In particular, capital-good R&D co-moves with output by industries that either demands capital goods or serves as intermediate suppliers for capital-good production.Such comovement related to the input-output linkage helps to account for over 50% aggregate R&Dís procyclicality, and amplifies aggregate fluctuations by about 15%. We propose an economyís input-output structure as an important factor on the link between short-run cycles and long-run growth.

Cyclical Persistence and the Cyclicality of R&D, March, 2011.


We propose cyclical persistence as an important factor influencing the link between short-run cycles and long-run growth, through the cyclicality of R&D. A simple theory is presented, suggesting that higher persistence can drive R&D pro-cyclical by raising the cyclicality of innovationís expected marginal return relative to that of its marginal opportunity cost. Our theory is carried to an industry panel of R&D and output. We find that cyclical persistence can account for about half of the observed variation in industry R&Dís cyclicality.

Virtue of Bad Times and Financial Market Frictions, under revision


We revisit the "virtue of bad times" theoretically and empirically. Our theory suggests that recessions have such virtue only when the cyclicality of innovation's marginal opportunity cost dominates that of its marginal expected return; but binding financial constraints can hinder such virtue, preventing innovation from rising during recessions. Our theory is carried to an industry panel of production and innovation. Our evidence suggests that recessions indeed have potential virtue, but such virtue is hindered by financial-market frictions.

Pro-cyclical Aggregate R&D: A Comovement Phenomenon,


Pro-cyclical aggregate R&D has been taken as evidence against the conventional Schumpeterian view on the optimal timing of innovation. This note decomposes aggregate R&D and real GDP in the U.S. into those by 22 industry groups. Surprisingly, we find only 5.67% of pro-cyclical aggregate R&D reflects within-industry timing of innovation and production, but 94.37% arises from inter-industry co-movement between R&D and output. We posit pro-cyclical aggregate R&D, just like the business cycle itself, is a comovement phenomenon.

R&D, Liquidity Constraint, and the Schumpeterian View,


The literature has reached the consensus that pro-cyclical R&D is inconsistent with the Schumpeterian view that predicts innovation to be concentrated during downturns. However, authors disagree on whether liquidity constraint is the explanation. Based on an industry panel of R&D, output, and finance, we document vast differences in industry R&Dís cyclicality and find liquidity constraint serves as a useful but not the only explanation. Our results suggest the Schumpeterian view does capture important aspects of innovationís cyclical behavior, but its potential consistency with data is masked by many factors including liquidity constraint.

On the Cyclicality of R&D , forthcoming, Review of Economics and Statistics

This version, October 2009, previous version as Cleveland-Fed working paper 07-07R.



This paper explores the link between short-run cycles and long-run growth by examining the cyclicality of R&D. Existing theories propose that R&D is concentrated when output is low; but aggregate data repeatedly show that R&D appears pro-cyclical. We estimate the relationship between R&D and output at the disaggregated industry level, using an annual panel of 20 U.S. manufacturing industries from 1958 to 1998. The results indicate that R&D is in fact pro-cyclical; but interestingly, estimates using demand-shift instruments suggest that it responds asymmetrically to demand shocks. We discuss the possibilities that liquidity constraints and technology improvement cause the observed pro-cyclicality of R&D.

The Scarring Effect of Recessions, Journal of Monetary Economics 56(2009), 184-199. Appendix


According to the conventional Schumpeterian view, recessions improve resource allocation by driving out less productive producers. We posit that recessions bring an additional scarring effect by impeding the developments of potentially superior producers, which can be destroyed during their infancy and never realize their potential. A model combining creative destruction with learning is developed to capture both the cleansing and scarring effects. A key ingredient of our model is that idiosyncratic productivity is not directly observable, but can be learned over time. When calibrated with statistics on productivity and on cyclical entry and exit, the model suggests that the scarring effect can dominate the cleansing effect, and can give rise to lower average productivity during recessions.

Plant Life Cycle and Aggregate Employment Dynamics, Forthcoming, Macroeconomic Dynamics Appendix.


Past empirical studies have repeatedly found that plant age matters for aggregate employment dynamics. This paper develops a model of plant life cycle to capture this empirical regularity. In the model, plants differ by vintage and by idiosyncratic productivity. The idiosyncratic productivity is not directly observable, but can be learnt over time. This setup gives rise to a learning effect and a creative destruction effect, under which labor flows from plants with low idiosyncratic productivity to those with high idiosyncratic productivity and from old vintages to new vintages. When calibrated to the U.S. manufacturing job flow series, our model of plant life cycle delivers the observed link between plant age and aggregate employment dynamics.




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