Research

The Political Economy of Currency Unions, slides

Abstract: How can monetary policy sustain a currency union when member states have an exit option? This paper derives how a central bank prevents a break-up by following a monetary rule with state-dependent country weights. With a credible rule an announcement effect arises rendering most interventions unnecessary. I show that monetary policy lacks credibility as it only sustains the union for a while. A union between Italy and Germany survives in the long run with fiscal transfers while a hypothetical Germany-UK union does not. More open member states bear a larger burden if policies are targeted towards countries that would leave.

Consumption Inequality in the Digital Age, slides (with Katja Mann)

Abstract: This paper studies how digitalization affects consumption inequality. We assemble a novel dataset of digital technology used in the production process, link it to US consumption data and establish a new stylized fact: High-income households consume a higher share of digitally produced products than low-income households. Building on this finding, we present a structural model in which digitalization affects consumption inequality in two ways: By a polarization of incomes and by a decline in the relative price of digitally produced goods. Both channels work in favor of high-income households. Calibrating the model to the US economy between 1960 and 2017, we demonstrate that the price channel has sizeable welfare effects and amplifies the increase in consumption inequality that is caused by digitalization by around 25%.

Gains from Commitment: The Case for Pegging the Exchange Rate, slides (with Ricardo Duque Gabriel)

Abstract: Does the exchange rate regime matter for inflation and economic activity? This paper argues that it does and that there are substantial benefits to a fixed exchange rate regime. At the heart of these benefits lies an increase in commitment for the central bank that reduces the inflationary bias of monetary policy. Using an open economy model we provide an estimate for the credibility of hundred different central banks between 1950 and 2016. Our empirical analysis demonstrates that after pegging the currency to a more credible anchor, the average economy benefits from persistently lower inflation of 3.5% per year, higher temporary economic growth and lower inflation volatility. Moreover, the less credible countries are the ones benefiting the most from committing to a fixed exchange rate regime.