Research

Research Summary

A short description of all projects I am involved in can be found here 

Working Papers

Asset Purchases, Limited Asset Markets Participation and Inequality , Journal of Economic Dynamics and Control, Volume 154, 2023

Abstract  This paper analyses the effects of quantitative easing (QE) on households’ income and consumption inequality in the Euro Area. Using a SVAR with high frequency identification, I show that an identified QE shock is redistributive and expansionary. To rationalize the empirical findings, I build a New Keynesian DSGE model with household heterogeneity and financial frictions which explains the empirical results and provides insights on the inequality channel. Bond purchases increase aggregate demand and benefit financially restricted households more than investors, due to the dominance of QE's indirect effects and the foregoing term spread between bonds and reserves. Thus, income and consumption inequality decline in line with the evidence. 

Optimal Liquidity Provision and Interest Rate Rules (with Paul Levine , Joseph Pearlman and Maryam Mirfatah), [revision requested at the Journal of Money, Credit and Banking]

Abstract  This paper analyses and estimates optimized simple and implementable liquidity and interest rates rules that maximize welfare. We employ a DSGE model, estimated for the Euro Area, with financial frictions on the supply and demand side of credit where liquidity provision could be welfare reducing due to the existence of the risk-taking channel. We show that our estimated Taylor-type liquidity rule linked to output, inflation and spreads increases welfare, eliminates the contractionary effects and stimulates the macroeconomy in contrast to  a simple liquidity rule. Furthermore, we estimate an optimized monetary rule that is also linked to spreads. Our findings suggest that introducing liquidity provision  policy alongside  the standard monetary rule is welfare enhancing.

Active and Passive (Un)conventional Monetary and Fiscal Policies for Debt Stability (with Luisa Lambertini and Gleb Kurovskiy)

We study the impact of different fiscal and monetary strategies on debt stability in the wake of a large increase in debt. We propose a macroeconomic policy under which debt stability is achieved by a Quantitative Easing (QE) rule that responds to changes in the government debt-to-GDP ratio. In a New Keynesian DSGE model with household heterogeneity, financial frictions, and nominal rigidities calibrated to the U.S. economy, we show that the QE profits earned from the bond-reserve spread and remitted to the treasury are a significant source of fiscal revenues. We compare the use of QE to changes in taxes as a debt stabilization tool under both an active and passive monetary policy framework. We find that the QE rule can stabilize debt even without an increase in taxes and that its general equilibrium effects are less contractionary.

The Greek Great Depression from a Neoclassical Perspective  (with Dimitris Papageorgiou), [revision requested at The B.E. Journal of Macroeconomics] 

Bank of Greece WP 286

Abstract This paper follows the great depression methodology of Kehoe and Prescott (2002, 2007)  to study the importance of total factor productivity (TFP) in the Greek economic crisis over the period 2008-2017. Using growth accounting and the neoclassical growth model, the paper shows that exogenous changes in TFP are crucial for the Greek depression. The theoretical model reproduces quite well the decline in economic activity over 2008-2013 and the subsequent period of slow recovery found in the data. Nevertheless, it is less successful in predicting the magnitude of the decline in output and the labour factor. In addition, including financial frictions and risk shocks into the neoclassical growth model, does not significantly improve the model's performance. 

Financial Crisis, Monetary Base Expansion and Risk

Previously as WP DP 02/18, School of Economics, University of Surrey

Presented at: 5th ECB Forum on Central Banking,  RES conference 2018,  RES Junior Symposium,  5th Money Macroeconomics and Finance PhD Conference,  22nd Annual International Conference on Macroeconomic Analysis and International Finance and  University of Surrey macro working group.

Abstract  This paper examines the post-2008 European Central Bank’s liquidity enhancing policies and provides evidence of risk-taking incentives of monetary policy. I build and estimate a dynamic, general equilibrium model that incorporates financial frictions in both the supply and demand for credit and allows banks to receive liquidity and hold reserves. When the central bank supplies liquidity during turbulent times, banks grant loans to riskier firms. This increases the firms’ default on new credit and worsens the performance of the economy. Additionally, I find that borrower’s risk increase can explain the recent reserve accumulation by the banking system. Lastly, I evaluate the effects of negative interest rates on credit and assess the welfare implications of the recent policies.

Work in Progress

Assessing the interaction of borrower based and capital based measures (Project by Banco de Portugal and the University of Surrey)

Description:

 In this project we build a macroeconomic framework to identify interactions and trade-offs between the countercyclical buer (CCyB) and the LTV constraints. We do that in a NK closed economy with financial frictions estimated for the Euro Area and Portugal. Banks provide mortgages to households and working loans to the firms. They are subject to capital requirements where a portion of those move counter-cyclically similarly to the Basel III framework. Households buy real estate and are subject to a borrowing constraint conditionally to their housing value.