"A Dynamic Production Network Approach to Model Resource Productivity Shocks from Policy Interventions in the UK", with Peter Hopkinson, Markus Zils,  and Tomoko Kobayashi (International Economics and Economic Policy)

Abstract: Widespread interest in circular economy policies to drive resource productivity with

positive environmental and social spillovers has led to a proliferation of small-scale

studies and case examples. To date, there remain relatively few macroeconomic

approaches to estimate aggregate resource productivity impacts mostly reliant on static

input–output (I/O) general equilibrium approaches rather than discrete sectoral value

chain analysis. This paper presents the first steps in a novel approach to measuring

the potential effects of transitioning to a circular economy in the UK by modelling

the propagation of resource productivity shocks in a large-scale dynamic production

network model. In contrast to static approaches, our framework assumes rich dynamic

adjustment through input–output linkages. Using production network I/O data from

the UK, we examine the interconnectedness of the UK economy and how this impacts

the potential propagation of total factor productivity shocks. We find that highly connected

sectors benefit more from an increase in productivity. Furthermore, we show

that a subsidy program scenario based on potential outcomes of circular economy

interventions, such as reduced material costs initially in the manufacturing sector,

amplifies the effects of a positive total factor productivity shock, leading to large

output gains. These gains are even larger when the subsidy support is allocated to

influential sectors, and slightly less when extended to large sectors.We also show that

this program generates positive spillover effects on non-targeted sectors.

"Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model", with Francesco Ravazzolo

(February 2025)

Abstract: We study the effects of monetary policy shocks in a two-agent New Keynesian model with a bank-based prudential measure capturing the cyclicality of credit and defaults in the data. In our theory, prudential collateral requirements counter-cyclically respond to defaults and credit growth. They are implemented to tackle distortions arising from the peculiar behavior of defaults in the private sector. An active collateral requirement amplifies the impact of a monetary policy shock on output and labor relative to an economy with a constant collateral requirement. The extent to which monetary policy affects output and employment depends on bank-based prudential practices and whether the defaults fluctuate due to some exogenous or cyclical deviation. Monetary policy cannot prevent significant employment and output losses when the default probability constant. When the defaults are endogenous, monetary policy can create long-run distortions in employment while amplifying output loss. A countercyclical response to defaults and credit supply is optimal for the constrained and unconstrained households when both have access to the housing markets. Nevertheless, when only borrowers consume housing goods, a constant collateral requirement rule induces significant welfare gain. Although the monetary policy and the collateral requirement measures are costly, this policy mix emerges as a potential tool for preventing the risk of delinquency in the short run. Specifically, we find that monetary policy in a model that features an anti-default collateral requirement rule that leans against the credit cycle leads to a temporary yet significant decline in defaults in the private sector and induces moderate volatility in house prices and consumption.

"Macroeconomic Effects of Collateral Requirement and Financial Shocks"

(September 2024)

Abstract: A common feature of economic downturns is the collapse in firms borrowing and tighter collateral conditions for the business sector. Once the economic crisis hit, it became increasingly difficult for firms to access credit when pledging collateral as banks attached much significance to its value. The slump in credit supply in the aftermath of 2019 coincides with a large share of banks reporting stricter collateral limits. This article explores the implications of borrower's side collateral constraints in the business cycle. Entrepreneurs, who are collateral-constrained, are subject to speculative swings in collateral price and face shocks to the amount of revenues that a bank can recover after a default. We found collateral requirements to be highly volatile during the period between 2007–2009. The effect of an increase in collateral requirements is highly significant. It has a long-lasting impact on output and induces a strong phase of investment, which is amplified by a high credit supply. Our model assigns an important role for collateral in the shock decomposition, explaining almost half of the variance in business credit. Furthermore, a speculative price component implicitly emerged in the dynamic model when the collateral conditions were relaxed. The BVAR evidence favors the model predictions and confirm that relaxed collateral terms result in episodes of economic expansion and credit booms.  

"Supply Shocks when Workers are Imperfect Substitutes: Implications for Labour Demand and Wages", with Erminia Florio

(June 2025)

Abstract: We examine the impact of supply shock on labour demand and wages for workers of different ages, skill levels, and nationalities in the United States. To analyse these effects, we develop a macroeconomic model of labour demand with a nested CES structure, capturing the distributional general equilibrium consequences of supply disruptions and highly persistent decline in productivity on various groups. We estimate the average elasticity of substitution between different worker categories over time and across industries, based on wage and hours worked. Our model results indicate that supply disruptions disproportionately harmed the most vulnerable workers. Young, low-skilled foreign workers and middle-aged native workers experienced the largest reductions in total hours worked. In terms of wages, middle-aged, low-skilled native workers faced the most significant decline.

"Collateral, Household Borrowing, and Income Distribution", with Luisa Corrado 

(May 2025)

Abstract: In this article, we provide key stylised facts about the relationship between household debt and wealth accumulation at both the state and household levels. We then integrate a collateral constraint into a model with heterogeneous agents to study the effects of collateral on wealth inequality. We use estimates from US microeconomic data and the simulated time series from our macro model to predict the wealth accumulation response at the top and bottom of the personal income distribution. Debt is modelled as collateral-dependent, and its concentration poses a serious concern. Our results indicate that high collateral requirements benefit high-income more than low-income households.

"On the Saving Behavior of European Households", with Michael Hanke, Sebastian Stöckl, and Alex Weissensteiner

(May 2023)

Abstract: We develop an overlapping generation model to analyze the underlying factors that determine the saving behavior among European households. We show that an increase in youth labor supply causes a rise in household savings. In response to an increase in corporate equity, household savings experience a sustained decline, while a fall in interest rate translates into a decline in savings. Using cross-sectional data from Europe between 1960 and 2020 to estimate the optimal saving function, we find large support for the theoretical prediction.

"Minimum Wage and Labour Market Dynamics in Pakistan", with Saite Lu and Ghulam Mustafa

(June 2025)

Abstract: Public support for raising the minimum wage to address income inequality is growing, yet its effectiveness in developing countries remains underexamined. This paper assesses the impact of minimum wage increases on earnings and hours worked in Pakistan, using 21 waves of Labour Force Survey data spanning 1992–2021. Employing fixed effects, instrumental variables, and dynamic panel estimators, we find that minimum wage hikes modestly raise earnings, with disproportionately larger gains for low-skilled male workers. While the policy helps reduce wage gaps between educational groups, it has limited success in narrowing gender pay disparities. In terms of labour supply, minimum wage increases are associated with greater reductions in hours worked among women, particularly those who are less educated or married. These findings highlight the constrained effectiveness of minimum wage policy in addressing structural inequalities within a highly informal labour market and underscore the need for stronger enforcement and complementary, gender-sensitive employment interventions.