Working Papers:

How much do Banks Hide?  (2024) with Roman Goncharenko

presented at: 55th Annual Conference of the Money, Macro & Finance Society, University of Manchester, Sept 2024 (scheduled), De Nederlandsche Bank, Oct 2024 (scheduled), CERGE-EI, Nov 2023 (scheduled)

Abstract.  We develop a simple quantitative model of a bank to study hidden loan losses under regulatory scrutiny. The model incorporates stochastic regulatory audit, enabling temporary concealment of losses. Calibration shows that banks typically hide about 0.8% of loan portfolios as defaulted loans. Following a contractionary aggregate shock, this rises sharply to 2.9% staying elevated for four years. We further show that hidden defaults heighten the risk of bank failure and increases its expected costs.

Inflation Expectations and Term Premium, (2024) with Raf Wouters 

presented at:  55th Annual Conference of the Money, Macro & Finance Society, University of Manchester, Sept 2024 (scheduled),  CEBRA Annual Meeting 2024, ECB, Aug 2024 (scheduled), RES Annual Conference, Queen's University Belfast, March 2024 (scheduled), ASSA 2024 Annual Meeting, San Antonio,  Jan 2024 (scheduled), National Bank of Belgium, April 2023, 8th annual conference of the Society for Economic Measurement, Milan, June 2023, De Nederlandsche Bank, Jan 2023, Annual Congress of the EEA, Bocconi, Milan, Aug 2022, Annual Meeting of the Austrian Economic Association, University of Vienna, Vienna, Sept 2022, Bank of Portugal, Aug 2022

Abstract.  We study the drivers of the co-movement in inflation expectations and term premium that we observe in the data. Since these two variables are unobserved, their empirical estimates are based on different structural models. We build a general equilibrium model that is consistent with the empirical evidence and incorporates the endogenous dynamics of both variables. To further account for the fact that these series are unobserved, we introduce information frictions. We find that the drivers of the co-movement switch from the actions of the Fed to decrease inflation to shocks originated in financial markets. We interpret this as follows: increased demand for safe assets drove term premiums down lowering expectations about future growth and, consequently, about inflation. This switch occurs as the central bank faces challenges in communicating changes in the target effectively due to the environment of information frictions.

Re-assessing International Effects of the U.S. Monetary Policy Shocks, (2024) with Katrin Rabitsch

R&R International Journal of Central Banking

presented at: 25th International Conference on Macroeconomic Analysis and International Finance, University of Crete, July 2021, University of Sheffield, May 2021

Abstract. In light of recent evidence on the significant contribution of persistent monetary shocks to inflation dynamics in the U.S., we study their international transmission. Opposite to the standard temporary nominal interest rate shock, persistent shocks increase long-run inflation and the nominal rate while decreasing the real rate. We find that it leads to non-negligible international spillovers and dollar depreciation. We further show that when it comes to understanding the international spillover effects of U.S. monetary policy, persistent monetary policy shocks rather than temporary nominal interest rate shocks have the potential to explain long-run co-movements of macroeconomic variables across advanced countries.

Persistent Monetary Policy in a Model with Involuntary Unemployment, (2023) with Roman Goncharenko

R&R Economic Inquiry

presented at: ASSA 2022 Annual Meeting, Boston 2022, Annual Congress of the EEA Virtual, Copenhagen 2021 

a short version: Persistent Monetary Policy in a Model with Labor Market Frictions, in AER Papers & Proceedings (2022)

Abstract. In a basic New Keynesian DSGE model with involuntary unemployment, we study the role of labor markets in the transmission of persistent monetary policy shocks that increase households' inflation expectations. The model predicts that, in contrast to the standard nominal interest rate shocks, labor market conditions can affect the outcomes of persistent monetary policy shocks suggesting a trade-off between inflation and output growth: restricted labor market access leads to higher inflation response with smaller effects on output. Using a VAR analysis, we further provide empirical evidence consistent with the predictions of our theoretical model.

Negative Nominal Rates, (2024) with Julio Dávila  

presented at: Asia Meeting of the Econometric Society, East and Southeast Asia, Singapore,  July 2023, Asian Meeting of the Econometric Society, Beijing, July 2023, Annual Congress of the EEA, Bocconi, Milan, Aug 2022, World Finance and Banking Symposium, Budapest, Dec 2021, NYU Abu-Dhabi, Nov 2021, CORE, Dec 2020

Abstract. This paper explains negative nominal interest rates in a general equilibrium model with a role for financial intermediation. Key implications of the model are shown to be consistent with empirical evidence from US data. We use the model to show first that, while banks increase output, they fall short of implementing efficiency. We show next that implementing the planner’s steady state requires firms to be bound to collateral requirements that limit their leverage. Finally, and most importantly, we show that the decentralization of the planner’s steady state also requires a zero nominal lending rate on bank loans to firms, as well as a negative nominal lending rate on central bank loans to banks - a result which may go some way towards providing a rationale for the ultra-low rates policy implemented by major central banks in the second half of the 2010’s and early 2020’s.

Online Appendix

The Costs of Transitioning to a Green Economy  (2023) with Anna Matzner and Katrin Rabitsch

presented at:  NOEG Winter Workshop, WU Wien, Dec 2023

draft coming soon!