Estimating the slope of the Phillips curve: reducing the bias (with Anton Nakov)
The Phillips curve slope captures the extent to which inflation responds to aggregate demand fluctuations. When estimating the Phillips curve, one can only imperfectly control for supply shocks. We document that because of this, standard estimation approaches yield biased estimates of the Phillips curve slope. We measure the bias. We propose a method aiming to correct for the bias.
Idiosyncratic volatility and pricing decisions (with Raphael Schoenle)
State-of-the art macro models with endogenous pricing decisions typically feature firm-specific shocks, given the notion that such shocks are important for firms' pricing decisions. In this project, we empirically examine whether changes in the volatility of firm-specific shocks alter US firms' price setting in ways predicted by menu cost models.
How does the Phillips curve slope vary with repricing rates? DNB Working Paper No. 735, ECB Working Paper No. 2804. Current version.
> Revise-and-resubmit at the Oxford Bulletin of Economics and Statistics
A key implication of sticky price models is that the Phillips curve is steeper when firms change their prices more often. This paper is the first to directly test this implication in the data. I find that the US Phillips curve is steeper when the repricing rate is higher, in line with sticky price models. My results imply an intermediate position on whether the Phillips curve has been flat. In particular, I find that since the mid-1980s, the Phillips curve has often been flat, but it has been quite steep indeed during several episodes with high repricing rates. Finally, I document that the empirical Phillips curve slope is much flatter than in benchmark sticky price models.
Loan-to-value shocks and macroeconomic stability, DNB Working Paper No. 763.
> Revise-and-resubmit at the International Journal of Central Banking.
The model-based literature that examines the macroeconomic effects of changes in household collateral constraints typically abstracts from collateral constraints on firms. In this paper, I examine the general equilibrium effects of changes in household collateral constraints while assuming that firms are collateral constrained as well. I find that in this case, a tightening in household collateral constraints leads to a reduction in aggregate output, in line with empirical evidence.
De Veirman, Emmanuel, and Jasper de Jong (2025), Heterogeneity and the macroeconomic effects of changes in loan-to-value limits.
> Journal of Money, Credit and Banking, forthcoming. Download.
We develop an approach to estimate the macroeconomic effects in an individual economy of changes in regulatory loan-to-value limits on mortgage borrowing. This is not trivial because the limit typically has existed for a short time. We first impose a loan-to-value limit on the cross-sectional loan-to-value distribution and track the resulting change in the average loan-to-value ratio. We then track the effect of these changes in the average loan-to-value ratio on aggregate output and house prices. Our approach accounts for the notion that changes in the limit have larger macroeconomic effects when the limit binds for a larger fraction of households.
Bonam, Dennis, Emmanuel De Veirman, and Gavin Goy (2024), Should developed economies manage international capital flows? An empirical and welfare analysis
Oxford Bulletin of Economics and Statistics, 86, 1511-1538. Download OBES or working paper.
We find empirically that an increase in the country-specific risk premium leads to a decline in aggregate output in European Monetary Union countries, but not so in other developed economies. We show that this is consistent with an open economy general equilibrium model. Capital outflows imply an increase in the risk premium and in interest rates, which tends to dampen current consumption. But with a freely floating exchange rate, capital outflows also imply a depreciation of the real exchange rate, which works against the downward effects on output. We show that developed economies would benefit from managing international capital flows if they belong to a monetary union, but not otherwise.
De Veirman, Emmanuel, and Andrew Levin (2018), Cyclical changes in firm volatility
Journal of Money, Credit and Banking 50, 317-349. Download JMCB or working paper.
Earlier literature indicates that firm-level uncertainty is systematically higher in recessions, which leaves open the possibility that firm uncertainty has a downward effect on aggregate output growth. Earlier papers measure firm-level uncertainty by dispersion measures such as the cross-sectional standard deviation of firm-level sales growth. In this paper, we develop an approach which is meant to imply a cleaner measure of firm-specific volatility. We show that unlike dispersion measures, firm-specific volatility relates only weakly to the US business cycle. Rises in idiosyncratic volatility do not systematically anticipate recessions.
De Veirman, Emmanuel, and Andrew Levin (2012), When did firms become more different? Time-varying firm-specific volatility in Japan
Journal of the Japanese and International Economies 26, 578-601. Download JJIE or working paper.
We show that during Japan's deep recession around 2000, there was pronounced turnover in Japanese firms' market shares. However, firms with low profitability or increased leverage did not systematically lose market share. This suggests that the recession did not cause weak (zombie) firms to shrink, such that it was not cleansing.
De Veirman, Emmanuel, and Ashley Dunstan (2012), Debt dynamics and the relationship between consumption and cyclical wealth changes
Economic Record 88(282), 330-340. Download ER or more extensive working paper.
Most empirical studies on the relation between household consumption and wealth focus on household net worth, and are therefore silent on any relationship between assets and debt. In this paper, we show that in the data, increases in asset prices are associated with increased borrowing. This is at odds with standard Permanent Income Hypothesis theory which implies that in response to a transitory wealth increase, households save more and borrow less.
De Veirman, Emmanuel, and Ashley Dunstan (2011), Time-varying returns, intertemporal substitution and cyclical variation in consumption
B.E. Journal of Macroeconomics (Topics) 11, Article 23. Download BEJM or working paper.
When households expect high wealth returns, the anticipated wealth gain tends to cause them to consume more today. On the other hand, the anticipated high returns on saving also tend to cause them to save more and therefore to consume less today. We examine both these effects. We first show that in the data, transitory wealth increases are associated with transitory increases in consumption. We then show that a consumption model that accounts for time-varying returns goes a long way in explaining this empirical finding. The intuition is that when wealth reaches the peak of its cycle, households consume more because they anticipate low returns on saving.
De Veirman, Emmanuel (2009), What makes the output-inflation trade-off change? The absence of accelerating deflation in Japan
Journal of Money, Credit and Banking 41, 1117-1140. Download JMCB or working paper (the latter is entitled "Which nonlinearity in the Phillips curve?").
This paper shows that the Japanese Phillips curve gradually flattened. I show that this flattening is consistent with three possible explanations: (1) a decline in trend inflation, in line with endogenous pricing models; (2) a decline in aggregate volatility, in line with misperceptions models; (3) the economy moving further away from the production capacity constraint. Each of these models outperforms a benchmark where the Phillips curve slope evolves as a random walk. Finally, I find that in this sample, endogenous pricing models outperform the two other theories. This paper introduced the modelling of the Phillips curve slope as a random walk. This approach is now in common use.
Dedola, Luca, Erwan Gautier, Anton Nakov, Sergio Santoro, Lukas Henkel, Bruno Fagandini and Emmanuel De Veirman (2023), Some implications of micro price-setting evidence for inflation dynamics and monetary transmission, ECB Occasional Paper 321. Download.
Gautier e.a. (2023), Price adjustment in the euro area in the low-inflation period: evidence from consumer and producer micro price data, ECB Occasional Paper 319. Download.
Bolt, Wilko, Dennis Bonam, Gerbert Hebbink, Maarten van Rooij, Emmanuel De Veirman and Maikel Volkerink (2022), Wage-price dynamics: a negative spiral? DNB Analysis. Download.
Bonam, Dennis, Emmanuel De Veirman and Gavin Goy (2021): Should developed economies manage international capital flows? SUERF Policy Brief No. 49, February. Download.
Emmanuel De Veirman (2016): Er is geen sterk verband tussen micro-onzekerheid en de macro-economie (there is no strong connection between microeconomic uncertainty and the economy), Economisch Statistische Berichten, 252-254, maart. Download.
Emmanuel De Veirman (2015): Micro uncertainty and macro slowdowns: new evidence, VoxEU column, December. Download.