Working papers:

• House price expectations and inflation expectations: Evidence from survey data (joint with Ricardo Nunes and Vedanta Dhamija) 

Paper - (CfM Working Paper), Policy Summary - (SUERF Policy Brief, No 642)

We find that households tend to overweight house price expectations when forming their inflation expectations. The finding is robust across several specifications and two survey data sets for the United States. We also find that there is a significant effect of the cognitive abilities of households as more sophisticated households don't overweight house price inflation as much. We model this household behaviour in a two-sector New Keynesian model with an overweighted and a non-overweighted sector and analytically derive a welfare loss function consistent with the micro-foundations of the model. In this setup, we show that to gauge the correct interest rate response, the central bank needs to be aware that some sectors are overweighted and that movements in expected inflation in such sectors are important for monetary policy.

• Estimating the impact of monetary policy shocks: A model averaging approach (joint with Vasco Gabriel) 

The quest to determine the true monetary policy shock has been one of the most studied problems in macroeconomics and the literature is replete with different identification methods. In this paper, we use various monetary policy shocks, that have been previously identified, as instruments in a proxy VAR. But we depart from the standard practice by employing the first-stage model averaging method of Kuersteiner and Okui (2010) to construct an optimal instrument for US monetary policy shocks. We also conduct a small Monte Carlo simulation to explore the gains from using this methodology. Our results largely support the efficiency argument that using more information seems to always be preferable to selecting a single instrument. We find only marginal gains in using model averaging in terms of the correct response of output and prices in response to a contractionary monetary policy shock for the US. This, however, allows us to gauge which instrument(s) and identification strategies drive the results.