Publications

Economic Modelling, Volume 127, October 2023, 106438.

This paper assesses and compares the macroeconomic effects of unconventional monetary policy (UMP) measures in the Euro Area (EA) and the United States (US) in a unified framework. Using shadow-rate estimates to characterise the overall stance of monetary policy, we estimate a large-scale 3-region (EA, US, RoW) DSGE model with data for 1999q1-2019q4, and we perform counterfactual simulations (no UMP) with the short-term policy rate at the effective lower bound (ELB). We find contributions of UMP to output growth and inflation in the EA and US to have the same orders of magnitude (0.1-0.4 pp p.a. for real GDP growth; 0.2-0.7 pp p.a. for CPI inflation). The counterfactual suggests that EA output and price levels would have been 3.4% and 6.7% below actual levels in 2020q4 in the absence of UMP. The stronger rebound of activity and prices in the US led to US monetary policy normalisation already during 2016-2019.

Keywords: Unconventional monetary policy, DSGE, Shadow rate, Bayesian model estimation

JEL classification: C51; E32; E44; E52; F41


Journal of International Money and Finance, Vol. 121, March 2022, Article 102509 .

Estimated DSGE models tend to ascribe a significant and often predominant part of a country's trade balance (TB) dynamics to domestic drivers ("shocks"), suggesting foreign factors to be only of secondary importance. This paper revisits the result based on more agnostic approaches to shock transmission and using "agnostic structural disturbances". We estimate multi-region models for Germany and Spain as countries with very distinct TB patterns since 1999. Results suggest that domestic drivers remain dominant when theory-based restrictions on shock transmission are relaxed, although the transmission of foreign shocks is strengthened.

Keywords: Agnostic structural disturbances, open economy DSGE model, trade balance, Germany, Spain

JEL classification: F30; F32; F41; F45


Journal of Economic Behavior and Organization, Vol. 177(C), June 2020, pp. 185-218.

This paper estimates a three-region DSGE model (EA, US, RoW) with international financial linkages in the form of cross-border equity holding and allowing for region-specific as well as global financial shocks, which match empirical measures of financial tightness and global stock market valuation. Spillover from financial shocks increases with international financial integration and is practically zero under full home bias in normal times. The global risk captures international synchronisation of financial cycles. Spillover of financial shocks is amplified at the zero lower bound, at which investment risk takes on the characteristics of a general uncertainty shock. The model results suggest that integrated financial markets should provide a powerful motivation for international policy coordination to prevent financial turmoil.

Keywords: Financial spillover, Global shocks, Risk appetite, DSGE, Bayesian estimation, ZLB

JEL classification: C51; E32; E44; E52; F41; F44


 International Finance, Vol. 23, March 2020, pp. 85-103.

In the context of debates about the euro exchange rate's (EXR) impact on Germany's (DE) trade surplus, we estimate a multiregion macroeconomic model (1999–2018) and provide a counterfactual in which we simulate the shocks of the estimated model in an alternative setting with freely floating nominal EXRs. The results suggest a reduction of the DE trade surplus by up to 1.3% of gross domestic product (GDP; around 1/4 of the surplus) during 2010–2015 compared to the data, together with a stronger real effective EXR (REER). The rest of the euro area (REA) net exports are more negative (by up to −0.6% of GDP) in the counterfactual before the EA crisis, but more positive (by up to 0.4% of GDP) in recent years. Overall, the counterfactual DE and REA trade balance and REER trajectories are very similar to the actual paths. Modifying shock processes in the counterfactual would give rise to larger differences. 

Keywords: euro, exchange rate, Germany, trade balance.

JEL classification: E44, E52, E53, F41 


 Journal of Banking and Finance, Vol. 113, April 2020, Article 105483.

This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and are able to smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live `hand to mouth'. We use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. In light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level, the analysis emphasizes the functional distribution of income.

Keywords: Bayesian estimation, distributional effects, open-economy DSGE model, portfolio rebalancing, quantitative easing.

JEL classification: E44, E52, E53, F41


Journal of Economic Dynamics and Control, Vol. 108, September 2019, Article 103756.

This paper estimates an open-economy dynamic stochastic general equilibrium (DSGE) model with Bayesian techniques to provide a structural empirical evaluation of the macroeconomic effects of the European Central Bank’s (ECB’s) quantitative easing (QE) programme. Allowing for cross-border holding of government debt and using data on government debt stocks and yields across maturities, we identify the parameters governing portfolio rebalancing in the private sector. We rely on a methodological extension that measures the non-linear contribution of QE in shock decompositions under an occasionally binding constraint (zero lower bound). Our results suggest an average contribution of ECB QE to annual Euro Area GDP growth and CPI inflation in 2015-18 of 0.3 and 0.5 percentage points, respectively, with a maximum impact in 2016.

Keywords: Bayesian estimation, open-economy DSGE model, portfolio rebalancing, quantitative easing, zero lower bound.

JEL classification: E44, E52, E53, F41  

Replication package (Matlab/Dynare code)


 Economic Modelling, Vol. 81, September 2019, pp. 242-273.

Following the global financial crisis, the Euro Area (EA) has experienced a persistent slump and notable trade balance adjustments, but with pronounced differences across EA Member States. We estimate a multi-country structural macroeconomic model to assess and compare the main drivers of GDP growth and trade balance adjustment across Germany, France, Italy, and Spain. We find that the pronounced post-crisis slump in Italy and Spain was mainly driven by positive saving shocks (‘deleveraging’) and by an increase in investment and intra-euro risk premia. Fiscal austerity in Spain and the productivity slowdown in Italy have been additional sizable contributors to the economic downturn. The results further suggest that euro depreciation, heightened intra-euro risk premia and subdued investment had a sizable impact on the trade balance reversals in Italy and Spain, which has been offset in France by a strong increase in imports and lower exports.

Keywords: post-crisis dynamics, trade balance, EMU, estimated DSGE, cross-country comparison.

JEL classification: F4, F3, E2, E3, E5, E6, C5

Replication package (Matlab/Dynare code)


Journal of International Money and Finance, Vol. 94, June 2019, pp. 183-205.

The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999–2017) three-region (US, EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and US trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and US trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries’ trade balances and terms of trade.

Keywords: EA and US external adjustment, commodity markets, emerging markets.

JEL classification: F2, F3, F4


Economic Modelling, Vol. 58, November 2016, pp. 512-522.

Due to the experience of large external imbalances and misaligned real exchange rates within the euro area, the concept of fiscal devaluation has gained increasing attention, which mimics the effects of external devaluation in the absence of flexible nominal exchange rates and an independent monetary policy. This paper uses a small open economy model with nominal wage and price rigidities to analyse the welfare effects of fiscal devaluation, understood as budgetary-neutral tax shift from employers' social security contributions towards consumption tax. The paper finds that fiscal devaluation can support external rebalancing by accelerating real exchange rate adjustments and regaining price competitiveness. From a household welfare perspective, internal devaluation with its concomitant worsening of the terms of trade tends to induce welfare losses. The overall welfare effects are pro-cyclical in the sense that the stronger the tax shift, the higher the welfare losses for the average household. The losses increase with the openness of the economy and the relative size of the tradable sector. In the presence of supply shocks, however, fiscal devaluation can imply small welfare gains. A scenario with flexible nominal exchange rates and autonomous monetary policy performs better in terms of household welfare, but implies stronger external fluctuations in the short run.

Keywords: Fiscal devaluation, welfare, competitiveness, external imbalances, monetary union.


CESifo Economic Studies, Vol. 62(3), September 2016, pp. 491-505.

The article assesses the real costs and profits of German claims on the Eurosystem through TARGET2. While Germany’s nominal profits from holding TARGET2 claims depend on the development of the nominal interest rate, the real profits are determined by the real interest rate as well as the real exchange rate. The article finds that at the end of 2014, Germany faced current costs of approximately EUR 17 billion in real terms. Calculating the costs and profits of every member country in the euro area reveals that the TARGET2 system mirrors an implicit distribution mechanism, with a volume of approximately EUR 40 billion. The results underline the aspect that even without a euro area breakup or exit of one member country, holding TARGET2 claims can cause high economic costs in real terms.

Keywords: TARGET2, real costs and profits, euro area

JEL classification: E42, E44, F32


Review of Development Economics, Vol. 19(3), July 2015, pp. 486-501.

To account for the specific situation of commodity exporters, pegging to export prices (PEP) has been proposed elsewhere as an alternative to other conventional monetary regimes such as an exchange rate peg or inflation targeting. PEP is supposed to deliver automatic accommodation to terms‐of‐trade shocks, while retaining the credibility gain from a nominal anchor. This paper analyzes the PEP proposal in a dynamic general‐equilibrium model and compares it with a standard Taylor rule, consumer price index (CPI)‐level targeting and a nominal exchange rate peg. Judged by the degree of output stabilization, PEP performs very similar to CPI targeting for export demand as well as domestic demand shocks and underperforms in the case of shocks to the export price. The results suggest that PEP is not superior to conventional CPI targeting from a macroeconomic stabilization perspective. 


International Economics and Economic Policy, Vol. 12(1), March 2015, pp. 59-74.

The paper uses a two-sector DSGE model with nominal and real rigidities to analyse the stabilising properties of fiscal policy rules in a small open economy in monetary union. The focus is on the potential of budgetary-neutral rules that adjust the composition of government purchases between tradable and non-tradable goods in response to business cycle indicators as a stabilisation tool when fiscal limits are tight. The paper finds that the state-dependent reallocation of government purchases between tradable and non-tradable goods stabilises domestic activity and reduces the welfare costs of economy-wide and sector-specific shocks. Potential welfare gains from such policy rules are higher than welfare gains from standard counter-cyclical fiscal policy rules that adjust the overall level of government purchases. Contrary to standard deficit spending policies, the state-dependent expenditure composition rules avoid the trade-off between, first, counter-cyclical spending and, second, consolidation needs in economic downturns in the presence of explicit or implicit deficit and debt limits. 

Keywords: Fiscal policy, stabilisation, welfare, tradables, non-tradables, small open economy, ,onetary union.

JEL classification: E37, E62, F41  


Open Economies Review, Vol. 25(5), November 2014, pp. 909-936.

Large external imbalances and fragile fiscal positions have emerged as major policy challenges for the euro area in the financial crisis. The paper analyses whether shifting government purchases between tradable and non-tradable goods could help reduce external fluctuations without large swings in the overall fiscal stance. The policy rules considered are budgetary-neutral in the sense that the overall level of government expenditure is kept constant. We compare the policy rules to fiscal devaluation as a strategy to reduce external imbalances and find that state-dependent changes in the composition of government purchases between tradables and non-tradables can stabilise excessive fluctuations in the event of economy-wide supply and demand shocks. Contrary to fiscal devaluation, the expenditure-shifting rule faces a trade-off between stabilising domestic activity and enhancing household welfare, on the one hand, and reducing excessive fluctuations in external positions, on the other hand. The excess volatility of domestic variables associated less volatility in the external position implies welfare losses for standard specifications of household utility. The adverse welfare effect is absent in the case of fiscal devaluation.

Keywords: Fiscal policy, government spending composition, external imbalances, fiscal devaluation.

JEL classification: E62, F32, F41    


Review of International Economics, Vol. 21(1), January 2013, pp. 118-136.

For the individual European Monetary Union (EMU) members fiscal policy has gained in importance owing to the loss of monetary policy as an autonomous policy instrument. Based on a small open economy dynamic stochastic general equilibrium (DSGE) model with fiscal feedback rules, we analyze the dynamic macroeconomic response in particular of the current account under alternative exchange rate regimes. Our results indicate that entry into monetary union makes the economy more vulnerable to a productivity shock and leads to higher variability of the current account. For a risk premium shock, an entry into EMU implies lower variability of most macroeconomic variables, but a higher persistence in the adjustment process of the current account. For both shocks, a countercyclical fiscal response to the current account is more stabilizing for most macroeconomic variables than a conventional countercyclical response to output. Stabilizing the current account comes at the price of higher variability of output in the short‐run, however.