RESEARCH

Abstract: We use historical data and a calibrated model of the world economy to study how a synchronous tightening of monetary policy can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy. 

Abstract:  The COVID-19 pandemic has led to an unprecedented shift in consumption expenditures from services to goods. This paper studies the effect of this demand reallocation in a multi-sector New Keynesian model featuring input-output linkages and costs to reallocating labor across sectors. These costs inhibit the increase in the supply of goods, causing inflationary pressures that propagate through the production network. The inflationary effects of this shock are amplified by the fact that goods prices are more flexible than those of services. We estimate the model allowing for a demand reallocation shock, sectoral productivity shocks, and an aggregate labor supply shock. The demand reallocation shock can account for a large portion of the rise in U.S. inflation in the aftermath of the pandemic.

Abstract: A standard New Keynesian model is extended to include a rich financial system in which financially constrained banks lend to firms and homeowners via defaultable long-term loans. The model generates two endogenous components of interest rate spreads on mortgages and corporate loans: i) a default premium and ii) a liquidity premium. Financial shocks affecting these premiums can reproduce the behavior of several macroeconomic variables during the Great Recession, when we take into account the impact of the zero-lower-bound. The model is also used to quantify the effect of the Federal Reserve's purchases of mortgage-backed securities during the last recession.

Abstract: I develop a macroeconomic model in which banks can affect loan quality by exerting costly screening effort. Informational frictions limit the amount of external funds that banks can raise. In this framework I consider two types of financial intermediation, traditional banking and shadow banking. By pooling different loans, shadow banks achieve a higher endogenous leverage compared to traditional banks, increasing credit availability. However, shadow banks also make the financial sector more fragile, because of the lower quality of the loans they finance and because of their exposure to bank runs. In this setting unconventional monetary policy can reduce macroeconomic instability.

Abstract: The deep deterioration in the labor market during the Great Recession, the subsequent slow recovery, and the missing disinflation are hard to reconcile for standard macroeconomic models. We develop and estimate a New-Keynesian model with financial frictions, search and matching frictions in the labor market, and endogenous intensive and extensive labor supply decisions. We conclude that the estimated combination of the low degree of nominal wage rigidities and high degree of real wage rigidities, together with the small role of pre-match costs relative to post-match costs, are key in successfully forecasting the slow recovery in unemployment and the missing disinflation in the aftermath of the Great Recession. We find that endogenous labor supply data are very informative about the relative degree of nominal and real wage rigidities and the slope of the Phillips curve. We also find that none of the model-based labor market gaps are a sufficient statistic of labor market slack, but all contain relevant information about the state of the economy summarized in a new indicator for labor market slack we put forward. 

Abstract:  We study currency devaluation episodes in a small open economy heterogeneous households model with leverage-constrained banks. Our framework captures three stylized facts about liability dollarization in emerging economies: i) banks and firms borrow in foreign currency; ii) households save in dollar-denominated local bank deposits; and iii) such deposits are mainly held by wealthier households. The resulting currency mismatch in our economy causes an erosion of banks' net worth during a devaluation. We show that the subsequent macroeconomic decline is amplified by a strong reduction of consumption among poorer households in response to rising borrowing costs and falling labor income. Richer households are partially insured, as they are holding a larger share of their wealth in foreign currency denominated assets. We show that larger currency hedging by wealthier households deepens the recession and amplifies the negative implications for poorer agents. When deposit dollarization is high welfare gains can arise if monetary policy dampens a depreciation.

Abstract: We study how, in a heterogeneous-agent-New-Keynesian (HANK) model with long-term debt, the power of forward guidance depends on three redistributive channels. First, expected lower rates imply a future transfer from savers to borrowers, reducing precautionary motives via a transfer news channel. Second, if debt is nominal, a Fisher channel generates a wealth transfer towards borrowers. Finally, a debt revaluation channel affects the debt burden for constrained agents through fluctuations in bond prices. These channels can make forward guidance more powerful in a HANK model than in a RANK framework when debt is nominal, while the opposite holds with real debt.