Publications
Firm-specific factors and the state-dependent effects of monetary policy [Oxford Economic Papers]
This article demonstrates that firm-specific capital generates non-linear output responses to monetary policy shocks across the business cycle. The implied concave relationship between desired reset prices and aggregate demand conditions results in stronger output responses to monetary measures in expansionary states. The above mechanism alone explains procyclical output response to monetary policy shocks in a canonical sticky-price model. This model feature is supported by empirical evidence from a smooth transition local projection model.
Exchange rate volatility and business cycle fluctuations (with Vahagn Davtyan) [Review of World Economics]
What is the impact of heightened exchange rate volatility on business cycle dynamics? This question is particularly important for emerging economies where exchange rate volatility is substantially higher and time-varying. Using data from emerging countries, we show that exchange rate volatility is an important source of business cycle fluctuations. We find that heightened exchange rate volatility yields a drop in economic activity, an increase in prices, and an exchange rate depreciation. We rationalize our empirical findings in a small open economy New-Keynesian model augmented with time-varying volatility of exchange rate shocks. In the structural model, the main ingredient of the transmission mechanism is the households’ precautionary behavior. We also show that no other shocks, often featured in the literature, can produce the reported co-movement pattern among the macro variables.
Real exchange rate dynamics in the New-Keynesian model [International Economics]
This paper studies the real exchange rate adjustment process in the baseline small open economy New-Keynesian framework. The paper shows that i) the version of the model with real shocks replicates the persistence and the hump-shaped dynamics of the real exchange rate observed in the data, and ii) the model cannot simultaneously match the observed dynamics of the real exchange rate and the close co-movement between the real and nominal currency returns. Thus, the baseline framework cannot fully capture the real exchange rate adjustment process.
Data Revisions and the Effects of Monetary Policy Volatility [Economic Letters]
I quantify the role of data revisions in estimating the impact of monetary policy-induced volatility on business cycle fluctuations. To that end, I construct real-time and final data-based measures of policy volatility. The results suggest that the effects of the two measures are qualitatively similar. However, the impact of real-data volatility on output is lower than that of final data volatility. These findings suggest that the business cycle implications of policy-induced volatility, found in the literature, are possibly overstated.
Working Papers
This paper evaluates state-dependence in monetary policy transmission mechanism under Calvo and Rotemberg price adjustment schemes. Although the two models are equivalent to first order, they produce very different results once considered at a higher order. In particular, the Rotemberg model produces more state-dependence compared to the Calvo model. The result is reversed once the macroeconomic wedges are eliminated from the models.
This paper studies how the effects of monetary and fiscal policy vary depending on the business cycle phase. It shows that in a medium-scale DSGE model, estimated on US data, monetary policy has a stronger impact on the economy in downturns and booms. Labor and capital income taxes display similar patterns. Government expenditure shocks and consumption tax shocks, on the contrary, have a stronger impact on output in depressions and recoveries. The paper also shows that accounting for the source of business cycle fluctuations is potentially important when assessing state-dependence in policy transmission.
Work in Progress
Remittance Curse : The Impact of Remittances on GDP Convergence (with Areg Sargsyan)
The Impact of Volatility Shocks under Market Incompleteness