Research

This paper proposes a new strategy for the identification of monetary policy shocks in SVARs. It combines traditional sign restrictions with external variable constraints on high-frequency monetary surprises and Federal Reserve internal forecasts. I employ it to evaluate the transmission of US monetary policy over the period 1965-2007. First, I find that contractionary monetary policy shocks unequivocally decrease output, sharpening the ambiguous implications of standard sign-restricted SVARs. Second, I show that the identified monetary policy shocks and monetary policy equations are consistent, respectively, with a narrative reading of the times and Taylor-type rules. Finally, I implement an algorithm for robust Bayesian inference in SVARs identified with external variable constraints, providing further evidence in support of this approach.

Presented at: Econometric Society European Meeting (ESEM) 2022, Econometric Society Australasia Meeting (ESAM) 2022, International Association for Applied Econometrics (IAAE) Annual Conference 2022, Scottish Economic Society (SES) Annual Conference 2022, Newcastle Economics Research and Development (NERD) Conference 2022, 4th QMUL Economics and Finance Workshop for PhD & Post-doctoral Students, 10th SIdE Workshop for PhD Students in Econometrics and Empirical Economics, Workshop in Empirical and Theoretical Macroeconomics at King's College London, 1st UEA Time Series Workshop.

This paper studies the relationship between monetary policy decisions taken by the Federal Open Market Committee (FOMC) and higher moments of expected economic outcomes. First, I employ quantile factor models to characterize the conditional distribution of central bank economic projections and construct indicators of uncertainty and skewness. Second, I find that the skewness of expected output growth and inflation rate is a crucial predictor of the changes in the intended federal funds rate deliberated by the FOMC. This empirical evidence is found to be reconcilable with central bank’s optimal behavior under non-linear weighting of probability. My findings suggest that considering central moments only is not enough to fully capture the systematic component of monetary policy and lead therefore to important implications for the identification of monetary policy shocks. Specifically, I find that conditioning on higher moments allows to identify monetary policy shocks exhibiting lower predictability and that generate theoretically consistent effects on the economy.

Presented at:  Indiana University, Bank of England, Econometric Society North American Summer Meeting (NASM) 2024, European Economic Association (EEA) Meeting 2024, International Association for Applied Econometrics (IAAE) Annual Conference 2024,  Econometric Society European Meeting (ESEM) 2023, International Association for Applied Econometrics (IAAE) Annual Conference 2023, Money, Macro and Finance (MMF) Society Conference 2023, Virtual Time Series Seminar (VTSS) Workshop for Junior Researchers, 4th Macroeconomics Network in the Southwest Workshop. 

This paper studies the effects of government spending on US consumption inequality. We depart from previous literature on the distributional effects of fiscal policy and separately identify surprise and news shocks to government spending. In line with existing evidence and with the predictions of TANK models with Ricardian and non-Ricardian households, positive surprise shocks are found to decrease consumption inequality. On the contrary, we find that positive news shocks to government spending increase consumption inequality. We show that these findings can be explained by the response of the financial sector. The long-term interest rate rises after news of a future fiscal expansion and results in a drop in consumer credit. This prevents households at the bottom of the consumption distribution from financing their spending through credit, leading to larger consumption inequality. 

Presented at: Money, Macro and Finance (MMF) Annual Conference 2024 (scheduled).

This paper evaluates how changes in inflation expectations affect US private consumption. First, we retrieve inflation expectations shocks by using structural vector autoregressions (SVARs) identified through bounds on the forecast error variance decomposition (FEVD). Compared to alternative identification schemes, our strategy requires milder restrictions on the contemporaneous relationship between inflation expectations and fundamental shocks. Second, we find that a positive inflation expectations shock is inflationary, contractionary, and lowers private consumption. This evidence is driven by a large decline in consumption of durables, while non-durable spending is only mildly affected. Our results show that this finding may be due to a negative income effect caused by the drop in expected real income. 

Presented at: Money, Macro and Finance (MMF) Annual Conference 2024 (scheduled).