Publications
Publications
ECB Working Paper Series, 2024
We study the application of approximate mean field variational inference algorithms to Bayesian panel VAR models in which an exchangeable prior is placed on the dynamic parameters and the residuals follow either a Gaussian or a Student-t distribution. This reduces the estimation time of possibly several hours using conventional MCMC methods to less than a minute using variational inference algorithms. Next to considerable speed improvements, our results show that the approximations accurately capture the dynamic effects of macroeconomic shocks as well as overall parameter uncertainty. The application with Student-t residuals shows that it is computationally easy to include the COVID-19 observations in Bayesian panel VARs, thus offering a fast way to estimate such models.
with Giuseppe Cappelletti, Ivan Dimitrov, Catherine Le Grand, Laurynas Naruševičius, André Nunes, Jure Podlogar, Nicola Röhm, ECB Occasional Paper Series, 2024
This paper presents the updated macroprudential stress test for the euro area banking system, comprising around 100 of the largest euro area credit institutions across 19 countries. The approach involves modelling banks’ reactions to changing economic conditions. It also examines the effects of adverse scenarios as defined for the European Banking Authority’s 2023 stress test on economies and the financial system as a whole by acknowledging a broad set of interactions and interdependencies between banks, other market participants and the real economy. Our results highlight the resilience of the euro area banking system and the important role banks’ adjustments play in the propagation of shocks to the financial sector and real economy.
with Moritz Schularick and Felix Ward, American Economic Review: Insights, 2021
Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies the state-dependent effects of monetary policy on financial crisis risk. Based on the near-universe of advanced economy financial cycles since the nineteenth century, we show that discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.
with Volker Daniel, Explorations in Economic History, 2020
A regime shift toward increased inflation expectations is credited with jump-starting the recovery from the Great Depression in the United States. Germany experienced a similarly successful recovery in the 1930s. What role did inflation expectations play at the start of this remarkable economic upturn? To answer this question, we study inflation expectations in Germany across several di erent methods: we conduct a narrative study of media sources; we estimate inflation expectations from a factor-augmented vector autoregression model, real interest rate forecasts, and quantitative news series. Consistently across these approaches, we do not find a shift to increased expected inflation. This recovery was different, and its causes lie elsewhere.
with Lisa Dähne
Households face large fluctuations in income risk over the business cycle, to which the cost of loans in unsecured credit markets is intimately linked. We study the effects of time-varying income risk on borrowing constraints in a New Keynesian model with incomplete markets and consumer bankruptcy. An increase in income risk increases the likelihood of default, thus raising the cost of borrowing which tightens borrowing constraints that households face. We find that the preemptive tightening of credit constraints explains a large fraction of the aggregate decline in consumption and output. Our analysis shows that the endogenous response of the price of borrowing creates a destabilizing effect for economic activity, which can be partially offset by a forceful response by the monetary authority to inflation.
with Alexander Kriwoluzky, Moritz Schularick and Stephanie Ettmeier