Research

What drives Green Innovation? Uncovering European Regional Factors and Policy Implications (with Fulvia Marotta and Tobias Wendler), PDF, May 2023

This paper explores the drivers of green innovation and their policy implications for European decarbonization efforts. Using patent data from 144 regions, the study identifies region-specific factors as the primary drivers of innovation, while country-specific and global factors also contribute. The findings highlight the need for tailored regional innovation policies to accommodate local dynamics and address heterogeneity among countries. The study reveals a moderation in the volatility of green and non-green innovation factors, with non-green innovation performing weaker overall. Correlations with macroeconomic variables suggest knowledge spillover channels and the influence of global trade on non-green innovation, whereas green innovation relies more on region-specific drivers. The implications underscore the importance of targeted policies and policy competition.

The Price of Stability: Volatility and Markups during the Great Moderation (with Giovanni Colla-Rizzi and Giovanni Morzenti),  PDF,  February 2023 

During the Great Moderation, macroeconomic volatility declined while firm markups increased. We document a causal relationship between volatility and markups due to tacit collusion. We exploit the legalisation of interstate banking as an exogenous decrease in volatility. Using an instrumental variable approach, we show that a 1% reduction in volatility causes a 19 p.p. increase in aggregate markups. The effect is due to large firms and firms operating in non-tradable industries. The changing market structure explains two-thirds of the effect, whereas reallocation only accounts for one-third. The reduction of volatility during the Great Moderation explains 31% of the markup increase between 1980 and 1997.

Productivity and Environmental Decoupling,  December 2023 

We study the effects of productivity on CO2 emissions at the sector-level in EU countries. Therefore, we estimate CO2 emission functions for each country-sector, which we use to compare productivity growth-driven decarbonization trajectories. We study the drivers of CO2 decoupling across countries and analyse the implications thereof on economic policy, in particular the decarbonization strategies of European countries. We find that only five EU economies show decreasing CO2 emissions with productivity growth. Additionally, we show that policy makers can improve the decoupling of their economies through increased environmental taxes, research funds and investments in renewable energies.

The Great Moderation and the Financial Cycle (Job Market  Paper) PDF  Summary Online Appendix, December 2022, R&R at Macroeconomic Dynamics

We show that the defining features of the Great Moderation were a shift of  output volatility to medium-term fluctuations and a shift in the origin of those fluctuations from real to financial sector.  We discover a Granger-causal relationship by which financial cycles attenuate short-term business cycle fluctuations while they amplify longer-term fluctuations at the same time. As a result, financial shocks systematically drive medium-term output fluctuations whereas real shocks drive short-term output fluctuations. We use these results to argue that Great Moderation and Great Recession both result from the same economic forces. Finally, we show that long-run risk is a critical ingredient of DSGE models with financial sectors that seek to replicate these shifts.

Repeated Bailouts and Austerity PDF, December 2022

This paper studies the incidence of bailouts with the possibility that bailouts may be required repeatedly before a crisis is resolved. I build a model in which two countries engage in a strategic interaction over repeated bailouts and austerity. The strategic interaction ends when the crisis is resolved or when the country in crisis has defaulted. Evaluating the properties of the Markov-equilibrium of the model, I show how the rescuing country trades off the costs of bailouts with spillover costs from default. I find that the fundamental conflict of interest over austerity arises over the speed of repayment of the failing country's debt. This finding suggests a new definition for austerity that distinguishes between a solvency and a liquidity dimension of a sovereign debt crisis.

Introducing the Finance Co-Movement Slope PDF, December 2022

We study the relationship between bilateral capital flows and the synchronization of the countries' domestic financial cycle over different time horizons. We find that the relationship is increasing with the time horizon. Normally positive, it may be negative in the short-run. We show that an off-the-shelf model on international capital flows can reproduce the main empirical properties of the Finance Co-movement Slope and offer insights on the propagation mechanisms.

Financial Limit Cycles (work in progress)

We investigate whether models whose equilibrium is a limit cycle are useful to explain the US financial cycle. We find that the data offers limited support for such an approach. Due to the instability that is required to generate limit cycles, both the empirical and the theoretical approach have shortcomings in their quantitative applicability and are more suitable as a thought exercise.