Working papers and work in progress
Myopic behaviour in macroeconomic models: Empirical evidence from the US (with Adrian Ifrim, Beatrice Pataracchia and Marco Ratto)
We investigate the empirical implications of myopic behaviour, a specific form of bounded rationality, within an estimated medium-scale macroeconomic dynamic stochastic general equilibrium (DSGE) model. Our analysis provides a comprehensive and agnostic examination of the macroeconomic outcomes when households' and firms' beliefs deviate from rational expectations, as proposed by Gabaix (2020). The estimation on US data proposes a strong preference towards cognitive discounting. Our findings suggest: (i) a notable enhancement in overall model fit and forecasting performance, (ii) a more stimulative fiscal policy, (iii) demand shocks resembling uncertainty shocks where private consumption and investment co-move in the short-term, and (iv) a diminished efficacy of monetary policy. Notably, our empirical observations support the presence of rational price setters.
The ECB's strategy review - Implications for the space of monetary action (with Lucian Briciu, Luca Onorante, Beatrice Pataracchia, Marco Ratto and Lukas Vogel)
This paper investigates two important elements of the ECB’s 2021 monetary policy strategy review in an estimated structural open-economy macro model of the euro area: (a) explicit symmetry of the 2% inflation target, which can be expected to lower the risk of hitting the effective lower bound (ELB) on short-term interest rates by raising average inflation towards the target, and (b) commitment to forceful or persistent monetary accommodation in a low interest rate environment, here interpreted as low-for-longer response in the recovery from the ELB. We simulate the model with draws from the estimated distribution of shocks. Both elements increase average inflation and reduce the average output gap. Stabilisation gains are modest in quantitative terms, however, for the given illustrative policy rules, and they are more pronounced when the economy operates at the ELB. Important in the current context, the low-for-longer policy in the model does not jeopardise inflation stabilisation in the event of (inflationary) negative supply shocks at the exit from the ELB. With private sector ‘myopia’ instead of fully rational expectations, the low-for-longer rule still yields stabilisation gains at the ELB, but they shrink in quantitative terms.
European Economy Discussion Paper 193
Adjustment dynamics and business cycle heterogeneity in the EMU: Evidence from estimated DSGE models (with Massimo Giovannini, Marco Ratto and Lukas Vogel)
The paper reviews adjustment dynamics in the EMU on the basis of estimated DSGE models for four large EA Member States (DE, FR, IT, ES). We compare the response of the four countries to identical shocks and find a particularly strong response of employment and wages in ES, a high sensitivity of IT to investment-related shocks, and a comparatively strong impact of global shocks on the DE economy. We also perform counterfactual exercises that apply the estimated shocks and parameters for ES to DE, FR, and IT. The counterfactual simulations suggest that differences in shocks have been important for GDP growth differentials, and together with structural differences also contributed to differences in employment fluctuations across the four countries considered.
JRC Working Paper in Economics and Finance 2018/8
Domestic versus foreign drivers of trade (im)balances: How robust is evidence from estimated DSGE models (with Roberta Cardani, Philipp Pfeiffer and Lukas Vogel)
JRC Working Paper in Economics and Finance 2020/5
The Macroeconomic Effects of Quantitative Easing in the Euro Area: Evidence from an estimated DSGE model (with Romanos Priftis and Lukas Vogel)
Bank of Canada Staff Working Papers 2018-11 (March 2018)
EUI Working Papers ECO 2017/04 (March 2017)
The euro exchange rate and Germany’s trade surplus (with Marco Ratto and Lukas Vogel)
CESifo Working Paper No. 7543, March 2019
Euro Area and U.S. External Adjustment: The Role of Commodity Prices and Emerging Market Shocks (with Massimo Giovannini, Robert Kollmann, Marco Ratto, Werner Roeger and Lukas Vogel)
Globalization Institute Working Paper 2018/344 of the Federal Reserve Bank of Dallas
The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model (with Romanos Priftis and Lukas Vogel)
Bank of Canada Staff Working Papers 2019-6
JRC Working Paper in Economics and Finance 2018/12
The Global Multi-Country Model (GM): An Estimated DSGE Model for Euro Area Countries (with Alice Albonico, Ludovic Cales, Roberta Cardani, Olga Croitorov, Filippo Ferroni, Massimo Giovannini, Beatrice Pataracchia, Filippo Pericoli, Rafal Raciborski, Marco Ratto, Werner Roeger and Lukas Vogel)
European Commission, European Economy Discussion Paper 102, July 2019
JRC Working Paper in Economics and Finance 2017/10
Analyzing the drivers of fiscal multipliers using global sensitivity analysis (with Marco Ratto)
(Part of) deliverable D.8.11 (March 2017)
New software tool for the evaluation of DSGE models: An application with DYNARE (with Marco Ratto and Matthias Burgert)
deliverable D.8.5 (October 2016)