Working Papers
Friend, Not Foe - Energy Prices and European Monetary Policy, with Alexander Kriwoluzky, Frederik Kurcz, and Ben Schumann
Abstract: This paper first documents that, contrary to conventional wisdom, the ECB's monetary policy decisions influence global energy prices. Second, through Lucas critique-robust empirical counterfactual analysis, we study the implications of this finding for the transmission of monetary policy. Our findings show that the ECB's ability to affect fast-moving energy prices strengthens and accelerates the monetary transmission to inflation dynamics, and alleviates the output-inflation trade-off. Third, we examine the optimal ECB policy response to energy price shocks in accordance with its primary mandate of price stability. We find that the ECB response has historically been too accommodative, and the response necessary to optimally fulfill its primary mandate requires a swift policy tightening. Crucially, the tightening required depends on the ECB’s ability to influence global energy prices. Finally, we find this policy strategy could have largely prevented the post-pandemic inflation episode.
Comparing the Efficacy and Efficiency of Fiscal Interventions, with Malte Rieth
(working paper available upon request)
Abstract: We study the efficacy and efficiency of alternative fiscal tools for macroeconomic stabilization in the euro area. We identify shocks to government consumption, government investment, income taxes, and consumption taxes in one model, using cross-sectional heteroskedasticity in a panel structural vector autoregression. All interventions are effective: expansionary shocks raise GDP significantly. Their efficiency is different: peak output multiplier is 1.6 for income taxes, 1.1 for government consumption, 0.7 for government investment, and 0.6 for consumption taxes. Exploiting these differences for policy design, we suggest budgetary neutral stimulus packages and efficient consolidations. We also investigate how these alternative fiscal tools transmit to the macroeconomy.
Work in Progress
Insulation through Credibility: Navigating U.S. Monetary Spillovers
(Job Market Paper)
Abstract: This paper studies how a country's inflation-targeting credibility influences the transmission of U.S. monetary spillovers and the resulting policy trade-offs. I provide new evidence from daily event study regressions for a large panel of inflation-targeting countries, which reveal two key findings. First, in economies with weaker credibility, contractionary U.S. monetary policy leads to larger inflationary spillovers and an unanchoring of long-term inflation expectations. This amplification arises from upward revisions in long-term expectations, an effect absent in more credible regimes, rather than from differential exchange rate adjustments. Second, the results show that less credible economies systematically respond with more aggressive monetary tightening, aligning domestic monetary conditions more closely with U.S. policy and thus limiting the scope for countercyclical policy to mitigate the adverse output effects. To examine the broader macroeconomic consequences of credibility constraints, I turn to a case study of an inflation-targeting economy with credibility challenges. Using a Bayesian structural VAR with a Lucas critique–robust empirical optimal policy counterfactual framework, I quantify the inflation-output trade-off resulting from U.S. monetary policy shocks, and find that credibility constraints sharply narrow the scope for countercyclical policy. Finally, an open-economy New Keynesian model with endogenous inflation-targeting credibility provides a structural interpretation of the empirical findings, rationalizing how limited credibility amplifies the inflation-output trade-off in response to foreign monetary shocks. Together, the analysis underscores that inflation-targeting credibility is not just a long-run objective but a crucial buffer against global monetary spillovers, with direct implications for the design of monetary policy in open economies.
Collateral Policy Interventions and Financial Markets, with Pia Hüttl and Matthias Kaldorf
Abstract: This paper proposes a novel empirical approach to study the macroeconomic effects of Eurosystem collateral policy on financial markets. We identify collateral policy surprises using high-frequency (intraday) changes in bank stock prices around the Eurosystem collateral announcements. Expansionary collateral policy surprises increase overall stock returns and reduce volatility. They interact non-trivially with conventional monetary policy, as they increase expected short-term interest rates, and reduce market inflation expectations. Collateral policy surprises also compress government bond spreads, particularly for euro area periphery countries, suggesting that collateral policy affects the conduct of fiscal policy. We outline how our empirical findings can be reconciled in a DSGE model with financial frictions.
Monetary Policy Surprises in the Euro Area, with Michael Bauer