Research

Since the economic reopening following COVID-19, Euro area inflation has reached a 40-year high. This paper introduces a novel framework to diagnose the structural shocks at play, focusing on their nature (transitory and permanent) and channels (global, domestic, and energy supply shocks), while also emphasizing the modeling of second-moments to better capture extraordinary events. The model decomposes variables into trends and cycles, and obtains permanent and transitory shocks that feature stochastic volatility. In 2022, trend inflation has skyrocketed to 3-4% due to a reduction in production capacity - negative supply shocks from a global and domestic side. The inflation-gap (transitory part) is at 6-7%, explaining around 85% of the total increase in headline inflation, which is mainly driven by energy supply shocks and global-domestic excess demand. With these results, in the medium-term, headline inflation is expected to stay above the ECB’s inflation target. Overall, this paper offers new insights on what drivers have fueled Euro area inflation post-COVID19. 

This paper empirically confronts two different channels driving the 2000s boom-bust and the recent strong appreciation of house prices in Europe. The first channel, the fundamental view, is characterized by income and credit. While the expectational view is based on the expectations/beliefs of households and construction firms. I propose a Panel Favar model that can determine these views' importance. First, the results show that expectations play a significant role in short and medium-run fluctuations of house prices, explaining 30% and 20% respectively. Second, the effect of a household's belief shock on house prices depends on the level of mortgage credit liberalization. Specifically, in countries with looser credit conditions, household beliefs significantly impact house prices. While in countries with tighter credit conditions, the impact is not significant.  Overall, this research provides new evidence that credit market conditions can influence the effect of expectations on house prices.

Presented at: International Association for Applied Econometrics (IAAE) Annual Conference (June 2022),  Midwest Macro Meeting Fall (November 2022),  Spanish Economic Association (SAEe) Symposium (December 2022).

This paper identifies non-technological news shocks from firm and household survey data. For a panel of 22 European countries, we find that nontechnological news shocks explain a significant proportion of unemployment’s variance in the medium/long run. We show that a search and matching model applied to the business cycle with news shocks generates a realistic response of unemployment to such shock if one allows for small deviation from rational expectations. 

Presented at:  22nd annual SAET Conference (July 2023).