Research
Research
WORKING PAPERS
Tightening Cycles and Inequality
Abstract: This paper analyzes the interaction between credit tightening and inequality. In a standard New-Keynesian model with financial frictions and household heterogeneity I first show that asset purchases are expansionary and redistributive. To better understand monetary policy transmission, I decompose the aggregate responses into direct and indirect effects. Indirect effects are shown to play a dominant role in driving the economy's response during the build-up of the asset purchase program. I then explore an aggressive unwinding of the central bank's balance sheet and show this policy to be deflationary and dis-equalizing, imposing a trade-off for policymakers. While monetary policy can commit to deliver on its price stability mandate in response to supply side disruptions, this comes at the cost of weakening the equalizing forces of credit easing.
Central Bank Digital Currency Spillovers
Abstract: This paper analyzes the cross-border spillover effects of central bank digital currency (CBDC). In a two-country model of the financial accelerator, I show that the introduction of CBDC does materially change the international spillover effects of country-specific monetary and real shocks. In this regard, my findings confirm already established results in the literature of central bank digital currencies, that argue in favor of stronger amplification effects. In addition to reinforcing the validity of existing results, my model provides a unified framework to study conventional and unconventional monetary policies, and the cross-border transmission of the latter in response to country-specific shocks.
Credit Crunches with Recursive Preferences, with Oliver de Groot.
Presented at CRETE (Tinos, Greece) and NWSSDTP Conference (Manchester, UK)
Abstract: Recursive preferences have substantial effects on household behavior. In an otherwise standard model of incomplete markets and heterogeneous agents we establish two general results. First, when properly calibrated, our baseline model with recursive preferences fits U.S business cycle moments following a credit crunch, and is in line with the predictions of the von Neumann-Morgenstern (VNM) expected-utility framework. Second, a shock of identical size is shown to dampen households' responses compared to the model in which consumption and leisure enter the utility in an additive separable fashion. This is because risk aversion and intertemporal substitution are distinct structural parameters, and allowing the former to take on large values we are able to generate substantial swings in consumer behavior. In addition to being consistent with business cycle statistics, our model facilitates the study of asset returns, and the potential resolution of the equity premium and risk free rate puzzles.