Abstract: The COVID-19 epidemic affected the ability of traditional forecasting models to produce reliable scenarios for the evolution of economic activity. We combine macroeconomic variables with epidemiological indicators to account for the COVID-19 shock and predict the short-term evolution of Italian GDP growth. In particular, we use a mixed-frequency dynamic factor model together with a sophisticated susceptible-infectious-recovered epidemic model featuring endogenous policy responses. First, we simulate different scenarios of economic growth depending on the course of the pandemic in Italy. Second, we evaluate the forecast performance of the model for the period August 2020-March 2021. We find that taking epidemiological indicators into consideration is important for obtaining reliable projections. 

Abstract: We analyse the pass-through of exchange rates to prices in small, open, commodity-exporting economies, taking Canada as a case study. We estimate pass-through on a wide cross-section of disaggregated import, producer, and consumer prices, conditional on commodity shocks that explain a major share of the volatility in prices and exchange rates. Our pass-through measure is free from endogeneity concerns between prices and exchange rates and leads, in some cases, to opposite inference in reference to the sign of the passt-through compared with standard estimates. By focusing on industry-level producer price indexes, we show that conditional pass-through decreases with industry market power, while it increases with the degree of import penetration and the persistence of industry-specific shocks. 

Selected for: North American Summer Meeting of the Econometric Society 2021, Montreal (UQAM); 11th RCEA Money-Macro-Finance Conference (RCEA, Milano-Bicocca, California Riverside, European Commission); and CEBRA Workshop for Commodities and Macroeconomics (FED Board).

Abstract: We set up a New Keynesian model for a small open economy with dominant currency pricing, to study the response of domestic inflation to an increase in the US interest rate. We show that the sign of the inflation response crucially depends on the monetary policy regime: after a US monetary tightening, inflation decreases in countries with an exchange rate peg; it increases in countries with a flexible exchange rate, unless the country follows a strict inflation targeting: in this latter case, inflation barely moves. These results are consistent with empirical evidence in a sample of emerging economies, using local projection methods. 

Selected for: Bank of Italy seminar series; Bocconi University seminar series; and 11th RCEA Money-Macro-Finance Conference (RCEA, Milano-Bicocca, California Riverside, European Commission); CEPR International Macroeconomics and Finance (IMF) Annual Meeting.

Abstract: We assess the impact on the Italian industrial sector of the abrupt increase in energy prices and of shortages in the supply of inputs since the early months of 2021, focusing on production and producer prices and conducting a disaggregated analysis. Producer prices in energy- and non-energy-intensive industries had already exhibited different dynamics at the beginning of 2021. The same pattern characterized industrial production only after the spring of 2022. These developments are consistent with the result of firms’ responses to bottlenecks and energy supply shocks, as shown by the Bank of Italy’s Business Outlook Survey of Industrial and Service Firms in the second-half of 2022. The majority of firms, which have been affected by higher energy costs or supply bottlenecks, reported having increased their selling prices. Some firms also reduced profit margins and implemented energy-saving measures. Only a small share of firms reported having reduced or discontinued production. 

Abstract: This paper studies the impact of global risk aversion on the cost of borrowing for emerging market governments. On average, emerging markets pay a higher risk premium on long-term than short-term sovereign bonds. In a sample of four emerging markets from the late 1990s to 2020, we show that in response to risk aversion shocks that lower global risk appetite the difference across the risk premia decreases. Our result can be rationalized by considering that passing from periods of low to high risk aversion, the risk-reward trade-off (Sharpe ratio) changes in favour of longer maturities. As a consequence, holding long term bonds becomes more convenient for investors.

Selected for: 11th PhD Student Conference on International Macroeconomics (Université Paris Nanterre).