Social preferences facilitate the internalization of health externalities, for example by reducing mobility during a pandemic. We test this hypothesis using mobility data from 258 cities worldwide alongside experimentally validated measures of social preferences. Controlling for time-varying heterogeneity that could arise at the level at which mitigation policies are implemented, we find that they matter less in regions that are more altruistic, patient, or exhibit less negative reciprocity. In those regions, mobility falls ahead of lockdowns, and remains low after the lifting thereof. Our results elucidate the importance, independent of the cultural context, of social preferences in fostering cooperative behavior.
Externalities and social preferences, such as altruism, play a key role in the choice of social interactions, which in turn affect the diffusion of a pandemic. We build a dynamic epidemiological model with endogenous social interactions in a frictional environment, also in a variant with heterogeneous agents and a network structure. Taking into account agents' endogenous behavior and altruism generates markedly different predictions relative to a naive epidemiological model with exogenous contact rates. Congestion and commitment inefficiencies arise, even under full altruism, and call for policy intervention. We derive the efficient allocation, and show how the Ramsey planner can mitigate the respective externalities.
AFA Future of Finance Award 2026
Best Paper Award, 6th Conference on Behavioral Research in Finance, Governance and Accounting
This paper examines how populism shapes the transmission of monetary policy. Combining credit-registry and firm survey data from Germany with voter shares for the populist party AfD, I find that firms in high-populism districts hold elevated inflation expectations and revise them less in response to monetary policy surprises. Most strikingly, their credit demand response is similarly attenuated, indicating a significant weakening of the credit channel. An analysis of over 700,000 German-language tweets is consistent with a distorted information environment: AfD-affiliated media cover ECB decisions less promptly and frame them more negatively than conventional outlets. Firms whose managers report lower trust in the ECB exhibit qualitatively identical results, pointing to institutional distrust as part of the underlying mechanism. A New Keynesian model extended to incorporate biased perceptions rationalizes these findings: distorted beliefs weaken policy transmission and exacerbate adverse shocks, posing significant challenges for central banks in increasingly polarized environments.
Journal of Financial and Quantitative Analysis: reject & resubmit
Using modern natural language processing, we construct a high-frequency inflation expectations index from German-language tweets. This index closely tracks realized inflation and aligns even more closely with household survey expectations. It also improves short-run forecasts relative to standard benchmarks. In response to monetary policy tightening, the index declines within about a week, with the effects concentrated in tweets by private individuals and during the recent period of elevated inflation. Using 117 million online transactions from German retailers, we show that higher inflation expectations are followed by lower household spending on discretionary goods. By linking these shifts in demand to stock returns, we find that, during periods of elevated inflation, firms operating in discretionary sectors experience significantly lower stock returns when inflation expectations rise. Thus, our Twitter-based index provides market participants and policymakers with a timely tool to monitor inflation sentiment and its economic consequences.
A previous version was published as BIS Working Paper No. 1195
We document pronounced time variation in the response of long-term U.S. Treasury yields and term premia to Federal Reserve policy surprises. Before the Global Financial Crisis (GFC), both easing and tightening shocks are associated with a subsequent rise of longer-term yields, inflation compensation and term premia. Over much of the post-GFC period, the pattern reverses and easing and tightening surprises are followed by a compression of yields, breakevens and term premia. We show that the expected inflation-output correlation is a key state variable explaining this time-variation. When inflation is high and output weak, nominal bonds are a poor hedge and command a positive risk premium. When inflation is high and output strong, they are a good hedge and investors pay a premium. Consistent with this mechanism, we show that monetary policy surprises of either sign raise option-implied inflation risk, while the inflation-output relationship determines how that risk is priced.
We analyze the impact of banks intermediating CBDC on the interbank market. When banks increase their CBDC accounts by $1 they need $1 of reserves. Increasing CBDC usage drains reserves and may increase the interbank rate. The effect of CBDC remuneration is unclear: It makes CBDC a more attractive means to pay, thus reducing funding costs (reducing the drain in reserves) and encouraging investment (increasing the drain in reserves). A cap on CBDC holdings reduces interbank and commercial deposit rates, as banks require fewer deposits to buy reserves. Tiered remuneration does not provide additional benefits over a single (lower) rate.
ECB Working Paper No. 2578
We study the macroeconomic effects of central bank digital currency (CBDC) in a dynamic general equilibrium model. Timing and information frictions create a need for inside (bank deposits) and outside money (CBDC) to finance production. To steer the quantity of CBDC, the central bank can set the lending and deposit rates for CBDC as well as collateral and quantity requirements. Less restrictive provision of CBDC reduces bank deposits. A positive interest spread on CBDC or stricter collateral or quantity constraints reduce welfare but can contain bank disintermediation, especially if the elasticity of substitution between bank deposits and CBDC is small.
Does disagreement among central bankers weaken the effectiveness of monetary policy? To investigate this, we analyze speeches by FOMC members with a permanent voting right, applying methods from machine learning and computational linguistics. We examine the tone conveyed in speeches—both broadly and with regard to specific topics and tenses—and distinguish between periods of high and low tone divergence. Using smooth transition local projections, we compare how U.S. government bond yields, their expectations, and term premium components respond to monetary policy shocks under different levels of tone divergence. Our findings suggest that when communication becomes more heterogeneous, monetary policy loses its ability to steer intermediate and long-term government bond yields. This effect appears to stem from disruptions in expectations formation regarding the future path of monetary policy. Employing Latent Dirichlet Allocation topic modeling, we show that this mechanism is particularly pronounced when policymakers discuss ‘Inflation,’ ‘National Economy,’ and ‘Labor Market.’ Moreover, the impact is stronger in speech segments concerning the present or the future.