Research

"Persistent Global Growth Differences and Euro Area Adjustment: Real Activity, Trade and the Real Exchange Rate", (with Kollmann, R., Pfeiffer, P., Ratto, M., Roeger, W.) CEPR Discussion Paper DP20476, forthcoming Journal of International Economics

Since the launch of the euro, the Euro Area has combined weak growth with persistent trade surpluses, a rising trade share, and the absence of a real exchange rate trend. In academic and policy debates, the Euro Area’s trade surplus is often viewed as reflecting weak domestic aggregate demand. This paper argues that a purely demand-based view of the trade balance is incomplete. Using an estimated two-region framework, we find that slower productivity growth in the Euro Area has been a major driver of the trade surplus since 1999, while demand shocks play an important role in the rising trade balance following the global financial crisis. We further show that real exchange rate dynamics cannot be understood from productivity growth differentials and aggregate demand shocks alone, but also reflect longer-run shifts in trade patterns.

"Learning to Be Rich: How Expectations amplify Wealth Inequality" (with Pau Belda and Janko Heineken) (link to draft)

We document systematic heterogeneity in stock-market beliefs across the wealth distribution: low-wealth households are persistently too pessimistic, while high-wealth households’ expectations are approximately unbiased. We develop a heterogeneous-agent model in which belief dispersion arises endogenously through learning from experience, generating a feedback loop: good past returns foster optimism, induce higher equity shares, and lead to higher future returns that further reinforce optimistic beliefs. The calibrated model matches key features of the joint distribution of expectations, portfolio returns, and wealth. Heterogeneous beliefs increase the top 1% wealth share by 50% relative to homogeneous expectations. Methodologically, we show that Internal Rationality—where households learn directly about the law of motion for prices rather than forecasting entire distributions—makes heterogeneous-agent models with aggregate risk both more realistic and tractable.

"Myopic behavior in macroeconomic models: Empirical evidence from the US" (with S. Hohberger, B. Pataracchia, and M.Ratto) (link to paper) (submitted)

We explore the empirical implications of myopic behaviour as a form of bounded rationality in an estimated medium-scale macroeconomic dynamic stochastic general equilibrium (DSGE) model and provide a comprehensive and agnostic analysis of the macroeconomic implications when households and firms beliefs deviate from rational expectations as in Gabaix (2020). The estimation on US data proposes a strong preference towards cognitive discounting. Our analysis suggests a (i) significant improvement of the overall model fit and forecast performance, (ii) more stimulative fiscal policy, (iii) uncertainty-like demand shocks where private consumption and investment co-move, and (iv) less powerful monetary policy. Notably, our empirical results support the presence of rational price setters.

"The Macroeconomic Effects of Deglobalisation" (with Christian Buelens, Leonor Coutinho,and Marco Ratto), European Commission DP 227 (link to paper)

This paper assesses the macroeconomic impact of deglobalisation scenarios using an estimated three-region global dynamic general equilibrium framework, considering the euro area, the US, and the rest of the world. We focus on two structural deglobalisation trend scenarios: first, exogenous disruptions to inter-regional trade, and second, greater inward orientation that is reflected in a higher home bias. Our simulations reveal that the trade compression caused by deglobalisation significantly reduces economic activity globally and in the individual blocs. Transition dynamics are typically stagflationary and are often characterised by substantial exchange rate fluctuations. We show that bilateral trade disruptions have both direct and indirect effects, which intensify the more regions are open and integrated into global value chains. Additionally, we find that inward orientation is generally costly when occurring universally. However, a unilateral increase in a region’s home bias that entails no other costs, might spur economic activity in the region implementing it. This benefit is at a disproportionate expense to others, as their export markets contract and their currencies devalue. However, if the preference shift entails efficiency costs, in terms of stifled competition or more rigid labour markets, a favourable unilateral outcome is less likely to materialise. Finally, we discuss the international transmission of shocks and show that in a less globalised steady state, external shocks produce less volatility for the euro area economy in terms of GDP and inflation, but there is also less external attenuation of domestic shocks. One implication is that certain structural trends observed in recent decades, such as the ‘globalisation of inflation’, may weaken as a result.

"Expectation-driven Wealth Effects" (ECB Young Economists' Competition Finalist, ERMAS Association Prize best paper) (link to paper) (video presentation) (submitted)

Departures from full-information rational expectation models give rise to equity-wealth effects that generate inefficient cyclical fluctuations. I propose a theory in which belief-driven asset price cycles influence investors’ perceived real wealth and subsequently aggregate demand via the equity-wealth channel. Optimal monetary policy sets interest rates depending on the stance of the stock market and isolates the real economy from financial cycles. A quantitative model estimated on US data reveals that i) increasing interest rates by 0.12% for every 100% rise in stock prices accomplishes this goal ii) responding non-linearly only when capital gains exceed 7% delivers similar welfare benefits.

Working Papers

Sentimental Discount Rate Shocks (link to draft, Updated Draft 2024)

This paper provides empirical evidence that the price-dividend ratio variability is explained in a large proportion by shocks affecting the subjective distribution of capital gain expectations: sentimental discount rate shocks affecting average beliefs explain at least 30% and disagreement shocks up to 20% of the variability of stock prices. The results from an estimated FAVAR model including the distribution of survey expectations show that in contrast to discount rate shocks, sentiment shocks produce a hump-shape response in the P/D ratio and introduce additional persistence into the impulse-response functions. These shocks played an essential role during the 2002 dot-com bubble by driving the boom and subsequent bust in asset prices. These findings add to the empirical support for asset pricing models that incorporate subjective beliefs that are consistent with the dynamics of expectations from survey data. Finally, I provide a heterogeneous subjective beliefs asset pricing model that rationalizes the above findings and can reproduce the dynamic effects of sentiment and disagreement shocks.

Work in progress

Foundations of Disagreement ( with Albert Marcet and Renbin Zhang)
Solving Models with Heterogeneous Subjective Beliefs via D-PEA (with Pau Belda)
The Expectation Channel of Monetary Policy Shocks
Heterogeneous Expectations, Learning and Inflation Dynamics

Contributions to European Economic Policy

Ph.D Thesis: Essays in Asset Pricing, Monetary Policy and Expectations

Pre-doctoral publications:

"Eastern Europe In The World Economy: A Global Var Analysis", Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-26, September 2015 (with Moisa Altar and Adam-Nelu Altar Samuel)
"The Systematic Component of Monetary Policy in Open Economy SVARs", Central Bank Journal of Law and Finance, vol. 4, no. 2, 2017 (with Moisa Altar and Onundur Pall Ragnarsson)

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