UC Santa Cruz

This dissertation presents three empirical studies on topics in labor market and globalcommodity prices. The first chapter analyzes how consumption, spending and labor market decisions vary across the life-cycle, and their implications for the aggregate economy. The second chapter discovers the dynamic adjustments of 49 world commodity prices in response to innovations in the nominal and real shocks, and the third chapter reveals how commodity prices are affected by information from the news in high-frequency trading.

The first chapter studies the effect of aging on service consumption quantity and pricein the United States. In particular, I ask, do older households consume more service goods? Can aging explain the rise of service price? I investigate the impact of age profile on service consumption and service price in the U.S. using household survey data and metropolitan statistical areas (MSAs) level variations, respectively. The results show that after controlling for household income, as people age, they consume progressively more health insurance and medical services and less food away from home. Furthermore, there is a positive correlation between service price and old-age dependency ratio1 in the long run across MSAs. I then build a two-period two-sector OLG model with an education entry cost to explain these results. In this model, age affects service price through two channels: 1) on the demand side, labor markets with older populations tend to demand more services; 2) on the supply side, the education friction would cause worker mobility from the service sector to the manufacturing sector, which further increases the service price.

The second chapter is a group project with Professor Hyeongwoo Kim. We studydynamic adjustments of 49 world commodity prices in response to innovations in the nominal exchange rate and the world real GDP. After we estimate the dynamic elasticity of the prices with respect to these shocks, we obtain the kernel density of our estimates to establish stylized facts on the adjustment process of the commodity price toward a new equilibrium path. Our empirical findings imply, on average, that the law of one price holds in the long-run, whereas the substantial degree of short-run price rigidity was observed in response to the nominal exchange rate shock. The real GDP shock tends to generate substantial price fluctuations in the short-run because adjustments of the supply can be limited, but have much weaker effects in the long- run as the supply eventually counterbalances the increase in the demand. Overall, we report persistent long-lasting effects of the nominal exchange rate shock on commodity prices relative to those of the real GDP shock.

The third chapter is a group project with Yifei Sheng and Zijing Zhu. To uncover thenews impact on the price of WTI crude oil futures, the third chapter applies supervised and unsupervised machine learning algorithms to conduct news sentiment and topic analysis. With the assumption that the crude oil futures market is efficient enough to respond quickly to new information, this chapter obtains high-frequency prices and news from the Bloomberg terminal. Using results from logistic regression and K-means clustering, this chapter defines the positive score and topic for each news article as inputs for the final logistic regression. The regression results show that the "World Crude Oil" news is more positively correlated with price increase than other topics. Moreover, the "WTI Crude Oil" news has the highest correlation with the price increase as the positive score increases.