Portrait of Dr Mathan Satchi

Dr Mathan Satchi

Lecturer in Economics

About

Mathan Satchi is a Lecturer in Economics. He began studying economics as an MPhil student after completing an undergraduate degree in mathematics at Cambridge. He then moved to Oxford to do a doctorate on the role of intermediation in the business cycle, after which he worked there as a research officer on a project on macroeconomic policy in the European Monetary Union zone. He joined the University of Kent in 2004.

Research interests

Mathan's research interests are mostly oriented towards macroeconomics and theory.

His RePEc page is http://econpapers.repec.org/RAS/psa636.htm

Teaching

Supervision

Mathan can consider supervising PhD students in macroeconomic theory, in areas such as growth theory or macroeconomics aspects of labour markets. 

Professional

Administrative roles

  • Concessions Co-ordinator

Publications

Article

  • Leon-Ledesma, M. and Satchi, M. (2019). Appropriate Technology and Balanced Growth. The Review of Economic Studies [Online] 86:807-835. Available at: https://doi.org/10.1093/restud/rdy002.
    We provide a general theoretical characterization of how firm's technology choice on a technology frontier determines the long-run elasticity of substitution between capital and labor. We show that the shape of the frontier determines factor shares and the elasticity of substitution between capital and labor. If there are adjustment costs to technology choice, the short- and long-run elasticities differ, with the long-run always higher. If the technology frontier is log-linear, the production function becomes Cobb-Douglas in the long run but, consistent with empirical evidence, short-run dynamics are characterized by gross complementarity. The approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of our production technology provides a good match for the short- and medium-run behavior of the US labor share.
  • Leon-Ledesma, M. and Satchi, M. (2018). Appropriate Technology and Balanced Growth. Review of Economic Studies [Online] 86:807-835. Available at: https://www.restud.com/paper/appropriate-technology-and-balanced-growth/.
    We provide a general theoretical characterization of how firms' technology choice on a technology frontier determines the long-run elasticity of substitution between capital and labor. We show that the shape of the frontier determines factor shares and the elasticity of substitution between capital and labor. If there are adjustment costs to technology choice, the short- and long-run elasticities differ, with the long-run always higher. If the technology frontier is log-linear, the production function becomes Cobb-Douglas in the long run but, consistent with empirical evidence, short-run dynamics are characterized by gross complementarity. The approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of our production technology provides a good match for the short- and medium-run behavior of the US labor share.
  • Satchi, M. and Temple, J. (2009). Labor Markets and Productivity in Developing Countries. Review of Economic Dynamics [Online] 12:183-204. Available at: http://dx.doi.org/10.1016/j.red.2008.09.001.
    In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the e¤ects of di¤erent types of growth on wages and the informal sector, and the extent to which labor market institutions can in?uence aggregate productivity. We quantify these e¤ects by calibrating the model to data for Mexico.
  • Kirsanova, T., Satchi, M., Vines, D. and Wren-Lewis, S. (2007). Optimal fiscal policy rules in a monetary union. Journal of Money Credit and Banking [Online] 39:1759-1784. Available at: http://dx.doi.org/10.1111/j.1538-4616.2007.00086.x.
    This paper investigates the importance of fiscal policy in providing macroeconomic stabilization in a monetary union. We use a microfounded New Keynesian model of a monetary union, which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation, output, and the terms of trade, but that not much is lost if national fiscal policy is restricted to react, on the one hand, to national differences in inflation and, on the other hand, to either national differences in output or changes in the terms of trade. However, welfare is reduced if national fiscal policy responds only to output, ignoring inflation
  • Kirsanova, T., Satchi, M., Vines, D. and Wren-Lewis, S. (2007). Optimal Fiscal Rules in a Monetary Union. Journal of Money, Credit and Banking [Online] 39:1759-1784. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1538-4616.2007.00086.x.
    This paper investigates the importance of fiscal policy in providing macro-economic stabilization in a monetary union. We use a microfounded NewKeynesian model of a monetary union, which incorporates persistence ininflation and non-Ricardian consumers, and derive optimal simple rules forfiscal authorities. We find that fiscal policy can play an important role inreacting to inflation, output, and the terms of trade, but that not much is lostif national fiscal policy is restricted to react, on the one hand, tonationaldifferencesin inflation and, on the other hand, to either national differencesin output or changes in the terms of trade. However, welfare is reduced ifnational fiscal policy responds only to output, ignoring inflation.
  • Satchi, M., Henry, S. and Vines, D. (2006). The Effect of Discounting on Policy Choices in Inflation Targeting Regimes. The Economic Journal [Online] 116:266-282. Available at: http://dx.doi.org/10.1111/j.1468-0297.2006.01056.x.
    This article assesses the implications of discounting on a result derived by Bean (1998) : that in a model of monetary policy where policy acts with a lag, the outcomes of monetary policy are very similar for a wide range of preferences of the monetary authority with respect to inflation and output stability. We show that when the authority discounts the future, outcomes become more sensitive to its preferences, and that it is important to take the discount rate into account when examining the question of how the authority's remit should be specified.
  • Kirsanova, T., Satchi, M. and Vines, D. (2004). Monetary Union: Fiscal Stabilization In The Face of Asymmetric Shocks. Centre for Economic Policy Research Discussion Paper [Online]. Available at: http://www.cepr.org/pubs/dps/DP4433.asp.
    This Paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union that incorporates persistence in inflation, and examine non-cooperative interactions of fiscal and monetary authorities. We find that particularly when inflation is persistent, the use of fiscal policy for stabilisation can significantly improve welfare over and above that which arises through the working of automatic stabilisers. We conclude that a regulatory framework for fiscal policy in a monetary union should allow a role for active fiscal stabilisation.
  • Satchi, M. (2004). A method of satisfying adding up restrictions when modelling trade flows. Economic Modelling 21:999-1002.
  • Satchi, M., Chamberlin, G. and Henry, S. (2003). A Model of the G-3. Economic Modelling 20:1083-1095.

Book section

  • Leon-Ledesma, M. and Satchi, M. (2011). Factor Substitution and Biased Technology with Balanced Growth. In: Economic Growth and Development. Emerald Group Publishing Limited, pp. 437-454. Available at: https://www.emerald.com/insight/content/doi/10.1108/S1574-8715(2011)0000011021/full/html.
    The famous Uzawa (1961) balanced growth theorem has exercised a tyranny of sorts over macroeconomics for decades. It is the prime reason why researchers use Cobb–Douglas production functions and abstract from considering movements in factor shares. Others have had to recourse to complex explanations for long-run labor augmentation in technical progress. In this chapter, we discuss the issues arising from this problem and propose a way of achieving balanced growth with a short-run production function where the elasticity of factor substitution is less than one, and capital augmenting technology shocks can be permanent. We do so by allowing firms to choose the relative reliance on capital in the production technology and introducing a suitable modification of the production function. We also provide some model simulations in the context of a simple deterministic neoclassical growth model.

Thesis

  • Khan, S. (2019). Growth & Labour Market in Developing Countries.
    Economic development is deemed to be the process whereby a low-income nation improves the economic, political and social well-being of its citizen and transform into a modern
    industrialised nation. Although growth is vital and necessary for development, it is not a sufficient condition as development cannot be guaranteed. Over business cycle, growth
    fluctuates and this triggers movement between different labour market states. If there is positive growth, labour market tightness improves and with more vacancies available job finding rate goes up whilst separation rate declines. All in all, more individuals move to employment which in turn improves living standard. Hence, in a way, development, growth and labour markets are all interconnected.

    In this research project, first, we examine the impact of FDI on growth which is considered to be one of the primary determinants. In the literature, there is a debate on-going regarding the effectiveness of FDI on growth due to the conflicting empirical evidences. In addition to that, whilst it is claimed that BRICs over time have attracted quality FDI, there is no empirical support. Therefore, we take this opportunity to derive an augmented Solow model that accounts for different forms of capital investments as well as country-specific institutional characteristics and conduct panel estimations using 32 years of data on 54 developing countries to address those issues. Our main result is that FDI, GDI, human capital and infrastructure are all important factors and promote growth in developing countries. However, only FDI and GDI are more effective in BRICs whilst investment in human capital is detrimental to the growth of BRICs and as such in varying degrees contributed to the growth disparity.

    Second, we elucidate the dynamics of the Brazilian unemployment for the period 2002 to 2014 in the presence of temporary and permanent contracts. In the literature, there has been many studies which address the gross flows, transition rates and unemployment dynamics but almost all focused on developed countries due to the lack of micro-data required for such investigation. The new Monthly Employment Survey (PME-Nova) was modified in 2002 for greater coverage and to make it more aligned for international comparison in line with ILO recommendation. With the availability of information on contracts, we take this opportunity to work out the worker flows and transition rates in a 6-state model and subsequently observe business cycle properties of these transition rates and their contribution to unemployment dynamics so as to compare our findings to those from other countries. Our main result is that transition rates involving permanent contracts are more important in explaining the cyclical fluctuations in unemployment and play a crucial role in job creation but even more so in job destruction.

    Finally, we explore the dualistic nature of labour market in developing countries where there are different tiers of informal job such as informal employer, self-employed and informal salaried. In the literature, informal sector is often claimed to be an unregulated microentrepreneurial enterprise where individuals find work through word-of-mouth
    communication. However, this has never been explicitly modelled. Therefore, we take this opportunity to develop a matching model where the formal sector is characterized by search frictions whilst the informal sector is frictionless and perfectly competitive but comprising of different categories of informal job. Afterwards, this 5-state model is calibrated using the stylized facts from Brazil and a policy simulation is performed. Our main result is that a payrolltax aggravates labour market tightness, deter firms to open new vacancies, reduce search intensity and willingness of workers to leave non-formal states and last but not the least, widens inequality. Therefore, tax plays an integral role in increasing non-employment as wellas the size of informality.
  • Kwon, Y. (2018). Essays on Bond Pricing and Growth-Indexed Bonds Within the New Keynesian Framework.
    The term structure of interest rate has long been a special topic of interest in both academia and the financial market. A plethora of models developed in both finance and macroeconomics literature are only partially useful for either macroeconomic analysis or bond pricing, but not for both at the same time. The second chapter of this thesis focuses on this issue from the macroeconomic viewpoints. Firstly, we survey the important papers in term structure of interest rates and asset pricing models and discuss their key features. We then examine the ability of standard DSGE models at replicating the stylized bond pricing facts especially focusing on the volatility of long-term bonds. Lastly, we survey various recent modifications made to the DSGE models and investigate whether and how each approach may (or may not) improve the ability of DSGE model in terms of replicating key bond pricing facts, either under the expectations hypothesis or with the help of term premium.

    The third chapter focuses on nominal GDP growth-indexed bonds where their nominal payoffs are fully indexed to nominal GDP growth of the issuing country. The idea of indexing government debt to a country's growth rate goes back at least to the 1980s, and several papers have already illustrated the potential benefits of issuing such bonds. However, most of the analysis were conducted using partial equilibrium models. In addition, as there exists no actual market for such an asset, only few analyses exist for the price of growth-indexed bonds, and most of them are based on simple CAPM models.In this chapter, on the contrary, we try to calculate the theoretical price of nominal GDP growth-indexed bonds using a general equilibrium model. Based on a medium sized New Keynesian DSGE model estimated with the U.S. macroeconomic data, we show that the government may face lower borrowing cost when replacing conventional nominal bonds with nominal GDP growth-indexed bonds, assuming the other premiums - such as novelty and liquidity premiums - are negligible. As a by-product of the analysis, we also show such a change may benefit the government by giving more room for countercyclical fiscal policy.

    The fourth chapter examines the welfare effect of growth-indexed bonds within the framework of new Keynesian DSGE model. Even though there already exist papers that show issuing growth-indexed bond may help stabilize the debt process and give more room for countercyclical fiscal policy, the analysis on its welfare effect has not been actively conducted, especially within the framework of general equilibrium model. It was mostly because the standard
    DSGE models, where Ricardian equivalence holds, the choices of consumers are immune to the source of government finance. This chapter examines whether and how the use of growth-indexed bonds, instead of the conventional nominal bonds, affects the business cycle and welfare when Ricardian equivalence does not hold any more. More specifically, we augmented hand to mouth households, distortionary income taxes, and Epstein-Zin type recursive preference to the most widely used medium scale DSGE model of Smets and Wouters (2007). The results show that the growth-indexed bond can significantly increase the welfare of the hand-to-mouth households by stabilising their consumption and labour especially when the government cannot flexibly change its debt-to-GDP ratio.
  • Jump, R. (2015). Essays on Heterogeneous Agent Economics.
    This thesis traces the history of heterogeneous agent computational economics, and then presents original research in three different strands of heterogeneous agent economics. This includes disequilibrium dynamics, wage posting theory, and heterogeneous agent dynamic stochastic general equilibrium.
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