Michael Dobrew - Research

Publications

Energy price shocks, Monetary policy and Inequality (with Alina-Gabriela Bobasu, Amalia Repele) [SSRN, ECB WP] European Economic Review (2025)
We study how monetary policy shapes the aggregate and distributional effects of an energy price shock. Based on the observed heterogeneity in consumption exposures to energy and household wealth, we build a quantitative small open-economy HANK model matching salient features of Euro Area data. Our model features energy as both a consumption good for households with non-homothetic preferences as well as a factor input into production with input complementarities. Independently of policy, energy price shocks always lead to a reduction in aggregate consumption. Poor households are more adversely affected through both a decline in labor income as well as negative direct price effects. “Active” monetary policies raising rates in response to rising energy prices amplify aggregate outcomes through a reduction in aggregate demand but speed up the recovery by enabling households to rebuild wealth through higher returns on savings. However, poor households are further adversely affected as they have little savings to rebuild wealth from and instead loose due to further declining labor income.

Make-Up Strategies with Incomplete Markets and Bounded Rationality (with Rafael Gerke, Sebastian Giesen, Joost Roettger) [SSRN, Bundesbank WP], European Economic Review (2025)
We study the impact of market incompleteness and bounded rationality on the effectiveness of make-up strategies. To do so, we simulate a heterogeneous agent New Keynesian (HANK) model with reflective expectations and an occasionally binding effective lower bound (ELB) on the policy rate. Our simulations show that make-up strategies can mitigate the negative consequences of the ELB for inflation and real economic activity. This result holds both for our HANK model as well as a corresponding representative-agent (RANK) model. However, the stabilization benefits of make-up strategies are quite small when agents’ cognitive ability is consistent with micro-evidence. This result is independent of market (in)completeness, emphasising the importance of rational expectations for make-up strategies. Furthermore, while market incompleteness and bounded rationality complement each other in attenuating the effects of forward guidance in our model, we do not observe such a complementarity with respect to the benefits make-up strategies.

Working Papers

Different Unconventional Monetary Policies, different stories? A HANK perspective, with Martin Arazi, Antzelos Kyriazis [slides]

Monetary Policy Strategies under Bounded Rationality (with Rafael Gerke, Daniel Kienzler, Alexander Schwemmer) (2023) [SSRN]
We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their advantage over inflation targeting in mitigating a demand-driven recessions when interest rates are constrained by the ELB. For supply shocks, inflation targeting outperforms history-dependent rules for a sufficiently high degree of BR. An exponential average inflation targeting rule, which features a variable degree of history dependence, performs remarkably well, independent of the degree of BR.

(Dis-)Aggregate Consumption and Monetary Policy (2019, currently revising)
This paper studies how empirically observed consumption behavior influences monetary policy transmission into output and prices. I show that extensive margin changes in employment lead households to consume disproportionately more flexible price necessities. In contrast, intensive margin changes of permanent income prompt households to consume more sticky price luxuries. Empirical impulse responses to high-frequency identified shocks show that monetary policy predominantly works through the extensive margin. I analyze the theoretical implications in a representative family New Keynesian model with two key features: i) non-homothetic preferences between necessities and luxuries (intensive margin) and ii) home production of necessities by unemployed household members (extensive margin). In the model expansionary monetary policy increases employment but thereby reduces home production. Households smooth consumption by increasing market demand for necessities which due to the higher price flexibility implies faster transmission into prices with little additional output gains. Optimal policy in turn follows a dual mandate in inflation and employment stabilization.

Work in Progress

A Multi-Sector Production Network Model for the Euro Area (with Kai Christoffel, Stefan Gebauer, Christian Höynck, Noëmie Lisack, Falk Mazelis, Tobias Müller)

Target Inflation and Forward Guidance (draft coming soon)

I show that higher inflation targets reduce the effectiveness and credibility of forward guidance announcements. A higher target induces more forward looking price setting behavior of firms as they put more weight on future marginal costs and discount the future less heavily. This implies that agents "see through" interest rate announcements which reduces the effectiveness of forward guidance. This result remains valid under expectations processes that resolve the forward guidance puzzle, e.g. under learning, imperfect credibility or finite horizon expectations. Optimal policy holds interest rates lower for longer at the zero lower bound but this becomes less credible the higher the inflation target.

Monetary policy normalization in a currency union under sovereign risk, with Yildiz Akkaya, Noëmie Lisack

Discussions

Klopack, Yoon, Fueling Expectations: The Causal Impact of Gas Prices on Inflation Expectations and Consumption (Kiel-CEPR Conference, 2025)

Cantelmo, Lin, Zanetti, Natural Disasters and Unconventional Monetary Policy (ICMAIF, 2024)

Kurcz, Quantifying the Fiscal Channel of Monetary Policy (CZNB/CERGE-EI Workshop on Heterogeneous Agents, 2024) - discussion

Dupraz, Marx, Anchoring Boundedly Rational Expectations (ESCB Research Cluster 1, 2024)

Audzei, Sutoris, A heterogeneous agent model of energy consumption and energy conservation (ESCB Research Cluster 2, 2023) - discussion

Boehl, Goy, Strobel, A Structural Investigation of Quantitative Easing, (ICMAIF, 2021) - paper, discussion

Selected Contributions to Policy Work

Report on monetary policy tools, strategy and communication - ECB Occasional Paper (2025)

Heterogeneous effects of monetary tightening in response to energy price shocks - ECB Research Bulletin (2024)

Challenges for monetary and fiscal policy interactions in the post-pandemic era - ECB Occasional paper (2024)

Monetary policy rules under bounded rationality - SUERF Policy Brief No 731 (2023)

How will higher carbon prices affect growth and inflation? - ECB Economic Bulletin [ECB blog] (2023)

A comparison of monetary policy rules in a HANK model - Bundesbank technical paper (2021)

The ECB's price stability framework: past experience, and current and future challenges - ECB Occasional paper (2021)

The Eurosystem's monetary policy strategy - Bundesbank monthly report (2021) [german]

A proportionality assessment of the PSPP - Bundesbank internal report (2020)

On the process of assessing monetary policy at the Bundesbank - Bundesbank internal report (2019)

Dormant Projects

The effects of Unemployment eligibility (with Jakob Hennig)
Most research on the labor supply effects of unemployment insurance (UI) benefits has focused on how benefit extensions change labor incentives on the margin, i.e how an additional week of UI benefits influences the unemployment duration. Using matched employer-employee data from Germany we focus on the more fundamental question of how general (non-)access to unemployment insurance impacts unemployment duration and initial wages out of unemployment by comparing UI eligible to non-eligible unemployed. We use establishment mass layoffs and a policy reform increasing the qualifying period for unemployment benefits in 1982 as two quasi-natural experiments to estimate causal effects. Preliminary findings indicate that non-eligible workers have lower unemployment duration with mixed evidence on initial wages.

The corporate bond financing channel during the financial crisis 2007-2009
This paper studies the real and financial effects of monetary policy on firm investment, cash holdings, debt re- payment and equity issuance during the financial crisis 2009. I create a novel dataset linking bond issuance data from Mergent FISD with firm balance sheet data from Compustat via a fuzzy-matching algorithm. Employing a matching-estimator in a treatment-effects framework I compare floating-rate bond issuers, whose coupon (interest) payments are tied to monetary policy rates, to fixed-rate bond issuers. Compared to the latter, floating-rate issuers experienced significant windfall gains after the large interest rate drop in 2008, which translated into differentially higher investment rates with little differences in financial outcomes.