Publications
A HANK^2 model of monetary unions, with Christian Bayer, Gernot Müller, and Alexander Kriwoluzky, Journal of Monetary Economics, 147, 2024, Online Appendix
Abstract: How does a monetary union alter the impact of business cycle shocks at the household level? We develop a Heterogeneous Agent New Keynesian model of two countries (HANK^2) and show in closed form that a monetary union shifts the adjustment to a shock horizontally---across countries---within the brackets of the union-wide wealth distribution rather than vertically---that is, across the brackets of the union-wide wealth distribution. Calibrating the model to the euro area reveals that a monetary union alters the impact of shocks most strongly in the tails of the wealth distribution but leaves the middle class almost unaffected.
Unconventional Fiscal Policy in a Heterogeneous-Agent New Keynesian Model, with Hannah Seidl, Journal of Political Economy Macroeconomics, Vol. 1, Issue 4, 2023
Abstract: We show that in a New Keynesian model with household heterogeneity, fiscal policy can be a perfect substitute for monetary policy: three simple conditions for consumption taxes, labor taxes, and the government debt level are sufficient to induce the same consumption and labor supply of each household and, thus, the same allocation as interest rate policies. When monetary policy is constrained by a binding lower bound, a currency union, or an exchange rate peg, fiscal policy can therefore replicate any allocation that hypothetically unconstrained monetary policy would generate.
Working Papers
Being and Consciousness: Fiscal attitudes according to HANK, with Christian Bayer, Gernot Müller, and Alexander Kriwoluzky
Abstract: Attitudes toward fiscal policy differ: fiscal conservatism and fiscal liberalism vary in their willingness to tolerate budget deficits. We challenge the view that such attitudes reflect national preferences. Instead, we offer an economic explanation based on a two-country Heterogeneous Agent New Keynesian model, bringing its implicit political economy dimension to the forefront. We compute the welfare implications of alternative fiscal policies at the household level to assess the conditions under which a policy commands majority support. Whether the majority supports fiscal conservatism or liberalism depends on a country’s debt level, its wealth distribution, and the nature of the economic shock.
Beyond bad luck: Macroeconomic Implications of Persistent Heterogeneity in Optimism, with Oliver Pfäuti, and Jonathan Zinman (previously titled: "Bad luck or bad decisions? Macroeconomic Implications of Persistent Heterogeneity in Cognitive Skills and Overconfidence")
Abstract: Household savings behavior and financial situations have important implications for macroeconomic fluctuations and policy. They are empirically persistent within households and heterogeneous across them. Yet standard modeling practice assumes ex-ante identical households and accounts for heterogeneity only in shock realizations. We consider persistent heterogeneity in a key aspect of consumer decision making—--(biased) beliefs about one’s own future financial situation---and show that it strongly conditionally correlates with actual financial decisions and conditions. We then use novel microdata to quantitatively discipline ex-ante optimism heterogeneity in an otherwise standard HANK model. Optimistic bias drives households to spend instead of precautionary save and thereby produces more empirically realistic HtM, wealth, and MPC distributions, with optimistic households exhibiting higher MPCs than their rational counterparts even away from the borrowing constraint. Accounting for optimism makes targeted transfers less stimulative and incentivizing self-insurance less effective, but also implies that public insurance is less distortionary.
Empirical Monetary-Fiscal Equivalence, with Ulf Nielsson, Jesper Rangvid, Farzad Saidi, and Daniel Streitz
Abstract: What stimulus payments replicate the consumption effect of a desired (but potentially infeasible) interest rate cut? Using granular full-population administrative data, we estimate consumption responses to interest rate changes via adjustable-rate mortgage resets and lump-sum cash windfalls from unanticipated inheritances. Combining them, we map a 1 percentage point monetary policy rate decrease to equivalent uniform transfers of ≈ $1,000 per person paid over 5 years, totaling 1.3% of GDP. This estimate remains robust when accounting for heterogeneity in the cross-sectional incidence of these macro-equivalent policies. We find only modest heterogeneity in marginal propensities to consume, limiting efficiency gains from targeting transfers.
Redistribution within and across borders: The fiscal response to an energy shock, (previously titled: "Hicks in HANK: Fiscal Responses to an Energy Shock") with Christian Bayer, Gernot Müller, and Alexander Kriwoluzky, revise & resubmit at Journal of Political Economy Macroeconomics
Abstract: The distributional and disruptive effects of energy supply shocks are potentially large. We study the effectiveness of alternative fiscal responses in a two-country HANK model that we calibrate to the euro area. Energy subsidies can stabilize the domestic economy, but are fiscally costly and generate adverse spillovers to the rest of the monetary union: What the subsidizing country gains, the other countries lose. Transfers based on historical energy consumption in the form of a Hicks/Slutsky compensation are less effective domestically as subsidies but do not harm economic activity abroad. In addition, transfers increase welfare at Home while subsidies reduce welfare.
A Behavioral Heterogeneous Agent New Keynesian Model, with Oliver Pfäuti, reject & resubmit at American Economic Review
Abstract: We develop a heterogeneous agent New Keynesian model in which households' expectations underreact to aggregate news and in which they are unequally exposed to business cycles, both consistent with the data. Unlike existing models, our model simultaneously accounts for the empirical findings that monetary policy affects consumption largely through indirect effects, income risk is countercyclical conditional on monetary policy shocks, and forward guidance is less powerful than contemporaneous monetary policy. While after persistent monetary policy shocks, heterogeneous exposure and households' underreaction counteract each other, supply shocks are unambiguously amplified, offering a theory how supply shocks can trigger large inflation spikes.
Awards:
Winner of the Young Scholar Award for the best paper presented by graduate student from the Society for Nonlinear Dynamics and Econometrics (SNDE)
Finalist Paper for the European Central Bank's 2022 Young Economist Prize
Finalist Paper for the Young Economist Prize 2022 from the QCGBF