Research

Publications:

We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams' approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. An important result is that, even in the absence of a zero lower bound, monetary and fiscal policies proved ineffective in bringing the Japanese economy out of a situation of prolonged stagnation and low inflation. This happened even when the yield curve moved below its natural level.

Price inflation in the U.S. economy has been remarkably stable over the past 25 years, in spite of large fluctuations in real economic activity. This observa- tion has led some to believe that the Phillips curve has flattened. We argue that this viewpoint may be premature unless one accounts explicitly for all supply-side varia- tion in data. In fact, we show that it is crucial to control for an entire array of supply shocks (and not only cost-push shocks) when evaluating alternative explanations for the puzzling behavior of inflation. Equipped with a combination of New Keynesian theory and SVAR models, we decompose the unconditional variation in data into the components driven by demand and supply, respectively. This allows us to conduct a simple yet novel accounting exercise, which reveals that the Phillips curve remains relatively stable once supply shocks are properly controlled for. The demand curve, in contrast, has flattened substantially. Our results are fully consistent with an explanation based on a more aggressive monetary policy response to inflation.

Working Papers:

Long-term yields can be broken down into two components: a risk-neutral rate and a term premium. While the transmission of Quantitative Easing (QE) through the risk-neutral rate is attributed to the well-known signaling effect, changes in the term premium are usually associated to the so-called portfolio-balance mechanism. However, this mapping is not entirely correct: the signaling effect can and does also affect the term premium. A clear distinction between the two components of long-term yields is therefore essential to quantify the transmission of QE through the yield curve. In this paper, I study the term premium channel of QE for the asset purchase programme of the European Central Bank. I find a strong dominance of the term premium channel over the risk-neutral channel, both for the transmission of QE to the yield curve and to aggregate macroeconomic variables. This term premium channel is found to have significantly raised inflation and real GDP, and was a major driving force for the macroeconomic variables from 2015 on. Using cutting-edge econometric techniques, this paper provides a robust view of the importance of the little known term premium channel of QE.

This paper analyzes how different forms of inequality have affected potential growth and the natural interest rate in the U.S., Germany, and Japan during the last two decades. Growing inequalities may constitute a drawback for the recovery of these economies after the Great Recession (GR) and the Covid-19 pandemic. To this aim, we modify the semi-structural model initially proposed by Holston, Laubach and Williams (2017) by considering the effects of several types of inequalities. We jointly estimate potential growth and the natural interest rates showing that the latter can substantially modify the time path of the real interest rate that prevails when economies are at full strength and inflation is stable. Finally, we study the effects of our estimates on the reaction functions of the monetary authorities.

Policy Papers:

Unpublished: