Research Statement
Publications
Monetary Policy and Liquidity Constraints: Evidence from the Euro Area with Mattias Almgren (IIES Stockholm), John Kramer (IIES Stockholm) and Ricardo Lima (IIES Stockholm).
[Pre-publication Draft] [Replication Package]
Forthcoming at AEJ: Macroeconomics
Presented at: Stockholm University, IIES Stockholm, Warwick University, Queen Mary University of London, Stanford, Yale, MIT, Harvard, and Università Bocconi.
Media Coverage: Nada es Gratis (in spanish).
Abstract: We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity constrained households. We do so in the context of the euro area using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy is larger in countries that have a larger fraction of households that are liquidity constrained.
Working Papers
Inflation Persistence, Noisy Information and the Phillips Curve (Job Market Paper)
Presented at Banca d'Italia, Banco de España, Bilkent, CBS, CUNEF, ICEF Moscow, European Commission, HEC Lausanne, HSE Moscow, NOVA, Los Andes, Tilburg, ULB, University of Queensland, University of Liverpool, University of Vienna, the CEBRA 2021 Annual Meeting, EEA-ESEM 2021 Congress, Macro Finance Society, 11th RCEA Money, Macro & Finance Conference, 9th UECE Conference on Economic and Financial Adjustments
Abstract: A vast literature has documented that US inflation persistence has fallen in recent decades. However, this empirical finding is difficult to explain in monetary models. Using micro-data on inflation expectations, I document a positive co-movement between ex-ante average forecast errors and forecast revisions (suggesting forecast sluggishness) prior to 1985, and no co-movement afterwards. I extend the New Keynesian (NK) setting to noisy and dispersed information, where firms receive an imperfect signal of the aggregate state, and I show that inflation is more persistent in periods of greater forecast sluggishness. My results show that this change in firm forecasting behavior explains around 90% of the fall in inflation persistence since the mid 1980s. I also find that the disconnection between inflation and the real side of the economy can be explained by the change in information frictions. Contrary to the literature which has emphasized a flattening of the NK Phillips curve in recent data, I do not find any evidence of the change in the structural slope of the Phillips curve once I control for imperfect expectations.
HANK beyond FIRE
Presented at IIES Stockholm, Oxford NuCamp Virtual Workshop, Nordic Junior Macro Virtual Series, UCL Enter Seminar, and Norges Bank Macro Modelling Workshop.
Abstract: The transmission channel of monetary policy in the benchmark New Keynesian (NK) framework relies on the counterfactual Full-Information Rational-Expectations (FIRE) assumption, both at the partial and general equilibrium (GE) dimensions. We relax the Full-Information assumption and build a Heterogeneous-Agents NK model under dispersed information. We find that the amplification magnitude is dampened by dispersed information. This result is explained by the lessened and lagged role of GE effects in our framework. We then conduct the standard full-fledged NK analysis: we find that the determinacy region is widened as a result of as if aggregate myopia and show that our framework beyond FIRE does not suffer from the forward guidance puzzle. Finally, we find that transitory "animal spirits" shocks generate persistent effects in output and inflation.
Reconciling Empirics and Theory: The Behavioural Hybrid New Keynesian Model with Atahan Afsar (Stockholm School of Economics), Richard Jaimes (Pontificia Universidad Javeriana) and Edgar Silgado (Central Bank of Ireland).
Presented at IIES Stockholm, Stockholm School of Economics and Pontificia Universidad Javeriana.
WP Javeriana
Submitted
Abstract: Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behavioral New Keynesian model augmented with backward-looking households and firms. We find (i) strong evidence for bounded rationality, with a cognitive discount factor estimate of 0.4 at quarterly frequency; and (ii) that the behavioral setting with backward-looking agents helps us in harmonizing the New Keynesian theory with empirical studies. We suggest that both cognitive discounting and anchoring are essential, first, to match empirical estimates for certain parameters of interest, and second, to obtain the hump-shaped and initially muted impulse-response functions that we observe in the data.
Publications
Monetary Policy and Liquidity Constraints: Evidence from the Euro Area with Mattias Almgren (IIES Stockholm), John Kramer (IIES Stockholm) and Ricardo Lima (IIES Stockholm).
[Pre-publication Draft] [Replication Package]
Forthcoming at AEJ: Macroeconomics
Presented at: Stockholm University, IIES Stockholm, Warwick University, Queen Mary University of London, Stanford, Yale, MIT, Harvard, and Università Bocconi.
Media Coverage: Nada es Gratis (in spanish).
Abstract: We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity constrained households. We do so in the context of the euro area using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy is larger in countries that have a larger fraction of households that are liquidity constrained.
Working Papers
Inflation Persistence, Noisy Information and the Phillips Curve (Job Market Paper)
Presented at Banca d'Italia, Banco de España, Bilkent, CBS, CUNEF, ICEF Moscow, European Commission, HEC Lausanne, HSE Moscow, NOVA, Los Andes, Tilburg, ULB, University of Queensland, University of Liverpool, University of Vienna, the CEBRA 2021 Annual Meeting, EEA-ESEM 2021 Congress, Macro Finance Society, 11th RCEA Money, Macro & Finance Conference, 9th UECE Conference on Economic and Financial Adjustments
Abstract: A vast literature has documented that US inflation persistence has fallen in recent decades. However, this empirical finding is difficult to explain in monetary models. Using micro-data on inflation expectations, I document a positive co-movement between ex-ante average forecast errors and forecast revisions (suggesting forecast sluggishness) prior to 1985, and no co-movement afterwards. I extend the New Keynesian (NK) setting to noisy and dispersed information, where firms receive an imperfect signal of the aggregate state, and I show that inflation is more persistent in periods of greater forecast sluggishness. My results show that this change in firm forecasting behavior explains around 90% of the fall in inflation persistence since the mid 1980s. I also find that the disconnection between inflation and the real side of the economy can be explained by the change in information frictions. Contrary to the literature which has emphasized a flattening of the NK Phillips curve in recent data, I do not find any evidence of the change in the structural slope of the Phillips curve once I control for imperfect expectations.
HANK beyond FIRE
Presented at IIES Stockholm, Oxford NuCamp Virtual Workshop, Nordic Junior Macro Virtual Series, UCL Enter Seminar, and Norges Bank Macro Modelling Workshop.
Abstract: The transmission channel of monetary policy in the benchmark New Keynesian (NK) framework relies on the counterfactual Full-Information Rational-Expectations (FIRE) assumption, both at the partial and general equilibrium (GE) dimensions. We relax the Full-Information assumption and build a Heterogeneous-Agents NK model under dispersed information. We find that the amplification magnitude is dampened by dispersed information. This result is explained by the lessened and lagged role of GE effects in our framework. We then conduct the standard full-fledged NK analysis: we find that the determinacy region is widened as a result of as if aggregate myopia and show that our framework beyond FIRE does not suffer from the forward guidance puzzle. Finally, we find that transitory "animal spirits" shocks generate persistent effects in output and inflation.
Reconciling Empirics and Theory: The Behavioural Hybrid New Keynesian Model with Atahan Afsar (Stockholm School of Economics), Richard Jaimes (Pontificia Universidad Javeriana) and Edgar Silgado (Central Bank of Ireland).
Presented at IIES Stockholm, Stockholm School of Economics and Pontificia Universidad Javeriana.
WP Javeriana
Submitted
Abstract: Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behavioral New Keynesian model augmented with backward-looking households and firms. We find (i) strong evidence for bounded rationality, with a cognitive discount factor estimate of 0.4 at quarterly frequency; and (ii) that the behavioral setting with backward-looking agents helps us in harmonizing the New Keynesian theory with empirical studies. We suggest that both cognitive discounting and anchoring are essential, first, to match empirical estimates for certain parameters of interest, and second, to obtain the hump-shaped and initially muted impulse-response functions that we observe in the data.
