Research

Abstract: We study how uncertainty shocks affect the macroeconomy across the inflation cycle using a nonlinear stochastic volatility-in-mean VAR. When inflation is high, uncertainty shocks raise inflation and depress real activity more sharply. A nonlinear New Keynesian model with second-moment shocks and trend inflation explains this via an "inflation-uncertainty amplifier": the interaction between high trend inflation and firms’ upward price bias magnifies the effects of uncertainty by increasing price dispersion. An aggressive policy response can replicate the allocation achieved under standard policy when trend inflation is low.

Presentations:

• Annual Conference of the International Association for Applied Econometrics (IAAE 2023), Oslo. Slides

• 31st Symposium of the Society for Nonlinear Dynamics & Econometrics (SNDE 2024), Padova. Slides

Abstract: Imposing restrictions on policy rule coefficients in vector autoregressive (VAR) models sharpens the identification of monetary policy shocks obtained with sign and narrative restrictions. We demonstrate this claim through extensive Monte Carlo simulations, showing that policy coefficient restrictions, combined with narrative restrictions, reduce the distance between the VAR-estimated impulse response of output and its true counterpart. The contribution of policy coefficient restrictions is particularly important when the volatility of monetary policy shocks is consistent with empirical estimates (i.e., not implausibly large) and the number of narrative restrictions is low. Using US data, we find that adding policy coefficient restrictions yields a larger and more precise short-run output response, along with more stable Phillips multiplier estimates.

Abstract: This paper estimates the macroeconomic effects of defence spending for a panel of up to 27 EU member states over 1999–2025 using Panel Local Projections. We look beyond the output multiplier that dominates the literature to trace the price implications of defence spending and the demand-side channels through which effects operate. A key methodological contribution is a country-specific order-date adjustment for capital expenditure, constructed from the SIPRI Arms Transfers Database, which shifts the estimated (unitary) peak GDP multiplier from around year one to approximately year three to four. Under this specification, the HICP inflation response is higher and occurs earlier. Capital expenditure drives the positive output effects, whereas personnel and intermediate consumption generate stronger inflationary pressures per unit of fiscal impulse. Capital spending induces additional recurrent costs, standing at about 30 cents per euro spent over five years. Multipliers are also found to be substantially lower, on average, in high public debt regimes.