It identifies a set of policy recommendations that should drive the post-COVID recovery. JUMPS results will be condensed in a set of policy proposals bolstering the societal impact of the project. It collects and coordinates policy recommendations emerging from JUMP research. The coordination is centered on the assumption that the effectiveness of these recommendations should be measured in a post-pandemic economic system characterized by breaks with respect to the pre-Covid 19 world. In order to ensure dissemination of JUMPS results, it regularly organizes research and policy-oriented workshops on European issues and publish policy and research and policy-oriented papers. The JUMPS team is supported by the research infrastructures of the Luiss School of European Political Economy (SEP) and Collegio Carlo Alberto.

It studies the effectiveness of Pandemic Emergency Purchasing Program compared with alternative strategies, like helicopter money and enhanced forward guidance; analyze sovereign-debt risk due to the unwinding of Pandemic Emergency Purchasing Program.

Helicopter money. ECB’s unconventional policies are the companion to structural fiscal interventions in the new post-pandemic policy mix. T1 studies helicopter money and related policies. The focus is on an economy plagued by a slump due to an adverse demand shock in which even cutting the nominal interest rate down to zero does not bring the economy to full capacity. The only way to stimulate short-run aggregate demand is by increasing the long-run price level. The standard way to understand helicopter money is to have the treasury making a transfer to the private sector financed by issuing debt purchased permanently by the CB. This policy increases the long-run nominal wealth of the private sector, their aggregate demand and pushes up long-run prices in a way to reflate the economy in the short run. One key aspect for the effectiveness of this policy is that there should be no reversal in the transfer policy, meaning that it should not be financed by raising future taxes, but only by permanently increasing government debt. How is it possible? Why is the treasury not subject to an intertemporal budget constraint and therefore Ricardian equivalence does not hold? The main reason is that the transfer is financed by a permanent increase in CB’s liabilities, which are risk-free given that they define what a currency is. The CB is not subject to a solvency condition, a money claim at the CB can always be honored by the CB since it can print money at will. By backing the treasury, the CB makes sure that government debt can be considered private wealth. This observation raises several doubts on the possibility that institutions like the EMU can implement such policies since the ECB does not back treasury’s debt. JUMPS investigates if there are similar policies that can approximate helicopter money in a context in which the treasury needs to necessarily satisfy a solvency constraint.

Enhanced forward guidance. It studies how unconventional quantitative-easing policies can be enhanced by forward guidance. ECB’s communication about future monetary policy actions, so called forward guidance, has been mainly used to indicate the future path of the short-term interest rate. More recently, forward guidance has been used to give signals about APPs duration (see the following ECB quote: “The Governing Council decided to restart net purchases under its APPs at a monthly pace of 20 EUR billion as from 1 November. We expect them to run for as long as necessary to reinforce the accommodative impact of our policy rates, and to end shortly before we start raising the key ECB interest rates.”) The setting extends Sims et al. (2020), using a microfounded loss and conducting optimal policy analysis. In this framework, the duration of forward guidance on QE policies is endogenous and dependent on fiscal policy and the share of borrowers present in the economy. Optimal policy can be expected to reduce consumption dispersion and to affect the intensive and the extensive margin of commitment on the short-term interest rate. JUMPS aims at contributing by showing that, away from the ZLB, QE is also relevant to reduce consumption dispersion. Moreover, commitment on QE should reinforce the positive impact of commitment on the short-term interest rate at the point to reduce its duration at the ZLB.

Sovereign-debt risk due to the PEPP unwinding. It investigates the unwinding from the PEPP program. The literature has largely studied the channels through which QE affects the economy, pointing to a portfolio balance and to a signaling channel. Existing literature focuses on the standard expansionary effects of QE, we instead look at a potential side effect that could arise once the pandemic-induced downturn is over. The ECB’s response to crisis has further enlarged its balance sheets through sovereign bond purchases. These measures could undermine the conduct of the ECB in normal times. Once the pandemic is over and output and employment reach their normal level again, the CB would turn the monetary policy stance into restrictive by selling sovereign bonds to shrink their balance sheets. However, this could trigger sovereign defaults in highly indebted countries. The risk of sovereign default in case of restrictive monetary policy is particularly pronounced in the Eurozone. Massive sovereign bond purchases could bias monetary policy: it can always be expansionary, but it can never become restrictive without triggering sovereign defaults. JUMPS aims to account for this side effect of QE by extending existing literature and by considering the role of monetary policy in making the solvency condition to hold when expansionary fiscal policies are pursued to bring the economy out of a slump.

It provides a quantitative assessment of structural investments both from a micro and a macro perspective, by developing a new generation of models that integrate the macro dynamic approach with the fiscal microsimulation.

Evaluation of structural policies using a DSGE model. It develops a DSGE model suitable for evaluating the impact of NGEU, in particular the role of public investments and related structural reforms. The setting is a New-Keynesian model augmented with semi-endogenous growth, which uses a variety approach for modelling knowledge investment and heterogenous labor supply. Endogenizing factors which determine growth allows to study structural policies aimed at increasing the rate of knowledge creation. Semi-endogenous growth, coupled with real and nominal rigidities, skill-heterogeneity in labor makers, liquidity constraints and limited-asset market participation, provides a richer transmission mechanisms of different policy interventions. We plan to capture the endogenous effects of public capital on intangible private capital. This would allow us to study in a general equilibrium framework the effects of public investment on new technology adoption, e.g., digitalization and greening that are crucial in NGEU. An additional objective is to develop a closer link between the implementation of public investments and the micro studies that evaluate their impact, introducing a robust calibration of the impact multipliers and the introduction of time-to-spend and time-to-built. Another issue that this line of research aims at exploring is the counter-cyclicality of markups and profits. This should contribute to our understanding of fiscal multipliers. In fact, countercyclical markups and profits generate negative wealth effects that raise multipliers in sticky price models.

Distributive effects and growth. Global economies are facing new challenges following the pandemic shock. Some had already emerged after the financial crisis and made worse by the pandemic. Among these, the issue of inequalities is becoming crucial. It has been overlooked in macroeconomic policy analysis and growth-oriented policies. The effect between inequality and macroeconomic policies is bidirectional. Structural reforms have effects, even immediate, on inequalities; but then inequalities, especially in the long period, have effects on the performance of the reforms. The analysis of both directions is essential to correctly understand the effects of the policy responses to the global challenges and emerging megatrends in a perspective of a resilient economy. This line of research aims to build an integrated micro-macro approach that can be used to investigate the bidirectional link between inequality and growth in policy assessments. The methodology proposed is new and it is based on a combination of two different advanced macro/micro approaches: DSGE and microsimulation models (e.g., Euromod). The former has been already described in the above line of research. The latter gives a precise picture of the heterogeneity characterizing the economy. Microsimulations enable to calculate the effects of fiscal policies on household incomes and work incentives for the population. The combination of the two approaches should help to understand how policy affecting individual incomes translate to the average macroeconomic variables and, on the other way around, how changes in the macroeconomic outcomes affects back income distribution. To grasp an idea of the methodological approach and expected outcomes, see, e.g., the analysis of OECD growth-oriented fiscal proposal in the last Country report for Italy. In a policy evaluation perspective, the main question addressed concerns short- and long-run policy trade-offs and complementarities between economic growth and inequality. The objective is twofold. 1) To provide advice to the policymakers about practical questions, assessing the growth/inequality interdependence of specific policy measures as, e.g., the impact on income distribution and short-/long-term growth of the NGEU, MES, and SURE on EU Member Countries. 2) To build a clear methodology that integrates micro and micro tools in a country comparative perspective. The task outlet should improve our knowledge about the link between growth and distribution and to support the policy recommendation about the two-way effects between them.

It investigate reallocation effects and cross-sectional spillovers of new technologies adoption, skill-biased technological change and capital-skill complementarities.

Effects of public investment on IT adoption. The aftermath of the financial crisis has been characterized by a resurgence of interest in the effects of public investment. This literature essentially trivializes the importance of public capital, that is modelled as an argument of the production function, where total factor productivity and market structure are assumed exogenous to public investment. The starting point of our contribution would be the assumption that the supply of IT innovation is endogenous to public infrastructure and market forces generate uneven access of firms to IT. In this framework, public investment has an obvious potential to stimulate productivity. By modelling endogenous firm dynamics, we plan to characterize the reallocation effects of the policy actions. We shall borrow from and contribute to a recent literature that treats IT as exogenous technological change, and investigates its effects on the response of firms, highlighting some potentially adverse effects. Moreover, we shall explore the complementarity between public investment in IT and policies aimed at removing obstacles to the adoption of new technologies already described.

Challenges to implementing equitable digital and green transitions. The research question here concerns the identification of the wage premium response to the surge in public investments in digitalization and green technologies. We categorize digitalization and the adoption of green technologies as skill-biased technological change, raising the relative demand for high-skill jobs. In addition, recent empirical research emphasizes the importance of capital skill complementarity effects associated to the spread of IT. Our line of research is build on the frontier, adding two extensions. The first one concerns the policy endogeneity of the IT supply. The second one would be a different characterization of firm technology that would incorporate capital accumulation. Our theoretical approach could be extended to investigate the effects of green transitions, that play an important role in the EU financing strategy.

It explains the heterogeneity in the policy multipliers, measure capital misallocation across European regions and investigating how public investments can affect it. It aims at identifying the causal effects and explaining the heterogeneity in the effectiveness of regional policy by a) introducing a novel identification strategy to empirically identifying fiscal multipliers, using changes in predicted payments associated with previous approved allocations as an instrument for changes in total “modelled expenditures” and b) adopting a Bayesian Hierarchical estimation procedure that allows the data to speak flexibly about the extent and determinants of the cross-sectional heterogeneity of Regional Policy effectiveness. The analysis makes use of the “Historic EU payments - regionalized and modelled database” released by the EC, focusing on all the programming periods (1989-2020) and on the whole set of countries whose regions have benefitted from EU Structural and Investment Funds. This is complemented by an analysis of capital misallocation across regions and of how new public infrastructures can affect it. Differences in the return to capital provide evidence of capital misallocation and so of inefficient integration. We propose a measure of misallocation at the EU regional level by using the 1980-2018 Cambridge Regional Database. The capital stock is computed using the perpetual inventory method.