Research
Here my page at Ideas
Inflation Uncertainty and Unemployment in the Long Run, with Mirela Miescu (Catholic University of Milan) - SSRN Working Paper, invited to revise and resubmit to American Economic Journal: Macroeconomics. (Cleveland FED slides)
UPDATED Inflation Uncertainty data:
US index (monthly, 1963:m6-2024:m9, and quarterly, 1964:q3-2024:q3)
UK index (quarterly, 1972:q1-2016:q4)
Carbon Policy, Oil Cycles and Macro-Financial Dynamics, with Luca Maria Lochi (Lancaster University) and Lorenza Rossi (Lancaster University) - SSRN working paper, submitted. (RISE Conference slides)
What Drives Downside Risk? Asymmetries in Shocks vs. Economic Transmission, with Domenico Giannone (Johns Hopkins), Lorenza Rossi (Lancaster University)
On the Identification of Unfunded Fiscal Shocks with Risk-Neutral Expectation Premium, with Andrea Fratini (Sapienza University), Valeria Patella (Sapienza University), Lorenza Rossi (Lancaster University)
Patent Pending or Patent Granted? Published vs. Granted Patents in Green Innovation: How Innovation News Shapes the Economy, with Katerina Deligianni (Lancaster University), Lorenza Rossi (Lancaster University)
External vs. Internal Habit Formation in Consumption: When it Matters?, with Giorgio Motta (Lancaster University)
Heterogeneous Firm Default and Downside Risk in GDP, with Michele Lenza (European Central Bank), Giuseppe Pagano Giorgianni (Sapienza University), Lorenza Rossi (Lancaster University), and Ettore Savoia (Sveriges Riksbank)
Equity Premium, Firm Dynamics, and Uncertainty Shocks
Belief Distortions and Uncertainty about Inflation, with Giuseppe Pagano Giorgianni (Sapienza University), Valeria Patella (Sapienza University), Lorenza Rossi (Lancaster University) - Journal of Political Economy Macroeconomics (forthcoming). CESifo Working Paper, SSRN Working Paper
Abstract: This paper studies the macroeconomic effects of an inflation belief shock—an unexpected increase in household inflation expectations relative to a full-information rational forecast. We identify the shock using machine-learning methods applied to U.S. survey data and a large set of news, macroeconomic, global, and financial variables. In normal times, the shock raises inflation while reducing consumption and increasing unemployment. At the zero lower bound, it lowers real interest rates, boosts consumption, and reduces unemployment. Inflation uncertainty rises in both regimes, dampening the expansionary effects at the ZLB. A theoretical model replicates these findings, highlighting the need for monetary policy to stabilize both inflation beliefs and uncertainty about inflation.
Nonlinearities with de-anchored inflation expectations, with Mirela Miescu (Catholic University of Milan) and Lorenza Rossi (Lancaster University) - International Economic Review (2026). Supplementary Appendix. replication code
Abstract: Using a nonlinear VAR, we examine the asymmetric effects of shocks to long-run inflation expectations. Negative shocks, which temporarily lower long-run inflation expectations, have a stronger and more persistent impact on output, investment, and firm entry compared to positive shocks. We provide a novel theoretical explanation, demonstrating how these shocks influence the second-order components of the model, shaping firms’ “wait-and-see” behavior - particularly along both the intensive and extensive margins of the investment channel.
Firm Entry, Endogenous Wage Moderation, and Labor Market Dynamics, with Andrea Colciago (De Nederlandsche Bank, Univ. of Milan Bicocca) and Lorenza Rossi (Lancaster University), European Economic Review (2025). Online Appendix. replication code
Abstract: Profit-seeking is a key driver of new business creation, which, in turn, significantly influences unemployment dynamics. This paper uses US data to estimate the joint responses of firm entry, profits, unemployment, hours worked, and other aggregates to commonly studied supply shocks. Our analysis finds a positive correlation between firm entry, profits, and total hours worked, alongside a negative correlation with the unemployment rate. We develop and estimate a general equilibrium model that captures these dynamics.
Endogenous Uncertainty and the Macroeconomic Impact of Shocks to Inflation Expectations, with Guido Ascari (DNB, Univ. of Pavia), Jakob Grazzini (Univ. of Pavia), and Lorenza Rossi (Lancaster University, Univ. of Pavia), Journal of Monetary Economics (2023).
Abstract: A shock that increases short-term inflation expectations has negative macroeconomic effects, increasing inflation and decreasing output. The third-order solution of a rich DSGE model with firm dynamics shows that the endogenous increase in uncertainty is key for both amplifying the transmission mechanism and providing robust sign restrictions to identify the inflation expectations shock in an empirical VAR. The model, estimated using limited information impulse response matching techniques, shows the importance of endogenous uncertainty and firm dynamics for the transmission mechanism of an inflation expectations shock. Furthermore, shocks that increase inflation expectations have stronger effects than shocks that reduce inflation expectations.
Monetary Policy Uncertainty and Firm Dynamics, with Haroon Mumtaz (Queen Mary, Univ. of London) and Lorenza Rossi (Lancaster University, Univ. of Pavia), Review of Economic Dynamics (2023). replication code
Abstract: This paper uses a FAVAR model with external instruments to show that monetary policy uncertainty shocks are recessionary and are associated with an increase in firms' exit and a decrease in firms' entry. At the same time, the stock price declines, while the TFP increases in the medium run. To explain this result, we build up and estimate a medium-scale DSGE model featuring firm heterogeneity and endogenous firm entry and exit. These features are crucial in matching the empirical responses. The baseline model outperforms an alternative model without firm dynamics in reproducing the FAVAR responses and implies a larger effect of monetary policy uncertainty shock on the real economic activity.
Are Uncertainty Shocks Aggregate Demand Shocks?, with Lorenza Rossi (University of Pavia), Economics Letters (2018). Online Appendix
Abstract: This note considers the Leduc and Liu (JME, 2016) model and studies the effects of their uncertainty shock under different Taylor-type rules. It shows that both the responses of real and nominal variables highly depend on the Taylor rule considered. Remarkably, inflation reacts positively so that uncertainty shocks look more like negative supply shocks, once an empirically plausible degree of interest rate smoothing is taken into account. This result is reinforced with less reactive monetary rules. Overall, these rules alleviate the recession.
On the Long-run Unemployment, Inflation, and Volatility
QMUL-SEF Working Paper, DEMS Working Paper, CEIS Research Paper
Unemployment and Nominal Volatility at low frequency: a Bayesian TVP-VAR approach