Contacts and recent posts


Chair in Macroeconomics
Sidgwick Avenue
Cambridge CB3 9DD
United Kingdom
Tel: +44 (0) 1223 335235
Email: gc422 at
Director of Cambridge-Inet
Fellow of Clare College, Cambridge

New in the research section: papers and revisions

As policymakers and economists are debating the pros and cons of monetary union and the implications of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of alternative monetary regimes for a country’s comparative advantage. Theoretically, we develop a two-country New-Keynesian model allowing for two tradable sectors in each country: firms in one sector are perfectly competitive; firms in the other sector produce differentiated goods under monopolistic competition subject to sunk entry costs and nominal rigidities. Because of this, the performance of firms in the second sector is more sensitive to macroeconomic uncertainty. We show analytically and numerically how monetary stabilization fosters the competitiveness of firms producing differentiated manufacturing goods, encouraging investment and entry in the sector, and ultimately affecting the composition of domestic output and exports. Empirically, we carry out extensive panel regressions based on worldwide exports to the U.S. by sector. In line with theory, we show that constraining monetary policy with an exchange rate peg lowers a country’s share of differentiated goods in exports between 4 and 12 percent. To clarify our contribution to policy debate: in our model, an effective stabilization policy requires contingent expansion and contractions in response to shocks affecting the output gap, which ex post foster the international price competitiveness of a country. But such a policy regime by no means would aim to gain short-run gains by opportunistic exchange rate policy---exchange rate movements would be an implication of efficient domestic stabilization. In this sense, our results suggest that monetary stabilization affects the comparative advantage of a country in a way that is completely separate from the competitive devaluations familiar from traditional policy models. By the same token, our analysis marks an important departure from a key conclusion of recent New Keynesian models, that monetary policy should trade-off output gap stabilization with stronger terms of trade. In our model, efficient stabilization makes differentiated good manufacturing more, not less, competitive. But it also results in a shift in the sectoral allocation of resources and composition of exports, in favor of manufacturing. Because of this shift, the manufacturing terms of trade may fall (enhancing competitiveness) at the same time that the overall terms of trade of a country may improve.

Exploiting three Italian earthquakes as quasi-experiments, we analyze the response of homeowners' consumption to targeted transfers, financing housing reconstruction over time. Like loans, these transfers mainly affect the liquidity of households' wealth in the short run: we show that they have no effect on consumption over a multi-year horizon. Yet, the access to reconstruction funds has significantly heterogeneous effects on impact: it strongly raises non-durable consumption by households with low liquidity and bank debt (the `wealthy-hand-to-mouth'); it makes no difference for liquid households. Consistently, in either group, consumption is insensitive to transfer funds that accrue directly to firms.

New version coming soon
  • The Mystery of the Printing Press, with Luca Dedola
Recently published

New in the policy section: The 2015 CEPR report A New Start for the Eurozone: Dealing with Debt 

New in the teaching section: Fiscal and monetary policy in open economies


On the crisis of the euro area

Sovereign risk, macroeconomic instabilityGiancarlo Corsetti, Gernot Müller , 12 August 2011. With sharply rising sovereign risk spreads, few governments can consider their public finances beyond doubt. This column in VOXEU.ORG explores the macroeconomic consequences when sovereign risk is high.
    • The Future of the Euro and the Euro Bond Market: A Proposal, joint with Hashem Pesaran, voxeu
    • A Wharton-EUI e-book: Life in the eurozone: with or without default?, a Wharton-EUI e-book, edited together with Franklin Allen and Elena Carletti, under the auspices of the Pierre Werner Chair Programme for Monetary Union at the European University Institute, and part of the project ‘Politics, Economics and Global Governance: The European Dimensions’ (PEGGED) funded by the European Commission under its Seventh Framework Programme for Research (Collaborative Project), 2011

    • Recent papers by topic

    Monetary policy
    Fiscal Policy
    International Transmission