Research

Abstract: The literature established that a sovereign bond’s “convenience yield” premium diminishes when that country issues more debt. But how is this convenience yield affected when another country issues sovereign debt? Using high-frequency identification and debt management offices’ communication, we find that an increase in German or French debt reduces convenience yields across the eurozone. Spillovers to low-risk countries are one-for-one while those to riskier countries are smaller. To rationalize these findings, we develop a model with heterogeneous credit risk. Safe sovereign bonds are close substitutes to hedge against idiosyncratic risk, explaining large spillovers, while risky bonds are poor substitutes.

Abstract: This paper introduces a granular measure of labor market slack to estimate the slope of the Phillips curve. The measure is based on business surveys of perceived labor shortages and is available at the sub-sector-country level. This granularity enables panel estimation with interactive fixed effects, which flexibly controls for unobserved common factors related to inflation expectations and supply-side determinants. Crucially, we allow sub-sectors and countries to differ in their exposure to common factors, so that their responses can vary across units. Estimates for the euro area result in a significantly steeper Phillips curve than those obtained using conventional measures and standard empirical specifications.

Abstract: Does faster productivity growth reduce inflation, and what are the implications for monetary policy in the AI era? Drawing on a panel of 17 advanced economies from 1890 and across six different monetary regimes, we show that it does -- but that the resulting disinflationary effect is almost fully offset by a commensurate increase in the real interest rate, leaving the appropriate nominal policy rate roughly unchanged. These two effects persist over time and across different monetary regimes and are robust to a wide range of alternative specifications. Applied to the current AI debate, our estimates suggest neither preemptive monetary easing nor preemptive tightening: over the long run, the two channels largely offset each other.