Abstract:  We introduce a multisector New Keynesian model with heterogeneous households, segmented sectoral labor markets and a production network to study the transmission channels of sector-specific government expenditures on the economy. The model features an intersectoral Keynesian cross from which we derive a MPC-augmented network multiplier. We formulate analytically how the network structure determines spillover and cascade effects via intersectoral linkages and sectoral spending propensities. We argue that the interaction of the Keynesian spending multiplier and the network multiplier displays a novel mechanism which is important for the understanding of the propagation of sectoral demand shocks. Sector-specific fiscal policy is particularly strong when a large fraction of high-MPC households is employed in labor-intensive and downstream sectors. Using household balance sheet data, we show that there are substantial and persistent divergences in household portfolios and in the proportion of hand-to-mouth households between sectors. When calibrating our model to the U.S. economy, we find sizable differences in sectoral government spending multipliers and distributional effects.

Awards: Winner of the Young Scholars Award from the Society for Nonlinear Dynamics and Econometrics (2024)

Presented at: Boston College Dissertation Workshop (2023, 2024), Boston College Macro Lunch Seminar (2023*, 2024), Boston College & Boston University Green Line Macro Meeting (2023)*, Mini-Workshop of the Research Task-Force on Heterogeneity in Macroeconomics and Finance at the European Central Bank (2023), Directorate General Research Internal Seminar Series at the European Central Bank (2023), 17th RGS Doctoral Conference in Economics (2024), 50th Annual Conference Eastern Economic Association (2024), 31th Symposium of the Society for Nonlinear Dynamics and Econometrics (2024), European University Institute Macro Working Group (2024), Goethe-Universtät Frankfurt Brown Bag Seminar (2024), Society for Economic Dynamics (2024), Tor Vergata Ph.D. Conference in Economics (2024), Directorate General Economics at the European Central Bank (2024)

Abstract: The last decades have witnessed dramatic economic changes in the US corporate sector: long-term-oriented financial investors hold an increasingly large proportion of the outstanding shares of listed firms, and intangible capital investments overtake physical capital investments in importance. In this paper, I document that the investors' investment horizon, demand elasticities, and more generally financial markets, matter for corporate governance and finance decisions in the face of short-term distortions from the equity markets. I show empirically that the presence of large long-horizon institutional shareholdings eases the short-term pressure to meet analysts' profit forecasts by supporting the firms' share prices after earning announcements.

Presented at: Boston College Dissertation Workshop (2022)

Abstract: The paper presents a two-country open economy model with information frictions that provides novel insights into the pricing-to-market theory based on an information-constrained price-setting. I show that international price discrimination in the firm's domestic and export prices can be rationalized by a close link between the allocation of the firm's attention and the partition of the firm's profits between the home and foreign country. In a dynamic rational inattention problem, actions deviate from their optimal outcome and decision-makers in firms must allocate their attention so as to minimize the profit loss deriving from suboptimal pricing decisions. Once there is segmentation in international goods markets, monopolistic firms opt for paying more attention to the market that dominates their product sales, thereby differentiating their pricing strategies which drives a wedge between the product prices. 

Presented at: Boston College Dissertation Workshop (2022)

Abstract:  The paper examines the distributional implications and spillovers between the eurozone's core and periphery economies following an expansionary fiscal policy under two alternative price-setting behaviors of intermediate goods producers. Blanchard, Erceg, and Lindé (2017) propose a tractable approach for the policy analysis in a currency union. Accordingly, fiscal policy can be a useful tool to stimulate the economy in a recession when using the conventional short-run sticky price rigidity. Once the nominal interest rate hits the lower bound, government spending initiates a feedback loop between inflation, the real rate and consumption. Hence, the sticky price model generates notable spillovers and fiscal multipliers in a long-lived liquidity trap. I derive a modified version of the commonly-used DSGE model of a currency union following the approach of Mankiw and Reis (2002) by including sticky information in the New Keynesian Philips curve. While under sticky prices the fiscal spending hike immediately causes inflationary pressure, inflation rises gradually in the sticky information model reducing the impact of the real rate on private consumption. This effect is particularly prominent when the interest rate is stuck at the lower bound for a longer time period. In this framework, inflation only slightly reacts to a fiscal spending increase, thereby breaking up the reinforcing stimulus on consumption. It is noted that the fiscal multiplier in the sticky information model merely reaches the lower end of the fiscal multiplier in the sticky price model. Contrary to the dynamics in the sticky price model where greater price flexibility leads to a growing fiscal multiplier the longer the nominal rate is constrained by the lower bound, output reacts to a weaker extent when increasing the frequency of information updates in the sticky information model.

Awards: 2nd Prize for Best Master Thesis in Monetary Economics, Deutsche Bundesbank

Abstract: Forward guidance operates via the expectations formation process of the agents in the economy. In standard quantitative macroeconomic models, expectations are unobserved variables formed endogenously via the dynamics of the model and little scrutiny is devoted to analysing the behaviour of these expectations. We show that the introduction of survey and financial market-based forecast data in the estimation of the model disciplines the expectations formation process in DSGE models. When the model-implied expectations are matched to observed expectations, the additional information of the forecasts restrains the agents’ expectations formation. We argue that the reduced volatility of the agents’ expectations dampens the model reactions to forward guidance shocks and improves the out-of-sample forecast accuracy of the model. Furthermore, we evaluate the case for introducing a discount factor as a reduced form proxy for a variety of microfounded approaches, proposed to mitigate the forward guidance puzzle. Once data on expectations is considered, the empirical support to introduce a discount factor dissipates.

Presented at: Working Group on Econometric Modelling (WGEM) of the European System of Central Banks (2021), 15th Economics Graduate Student Conference at the Washington University in St. Louis (2020), Forecasting and Policy Modelling Division at the European Central Bank (2019), Business Cycle Analysis Division at the European Central Bank (2019)