Working papers:
House price expectations and inflation expectations: evidence from survey data, with Ricardo Nunes and Roshni Tara (Submitted)
We find that households tend to overweight house price expectations when forming their inflation expectations. The finding is robust across several specifications and two survey data sets for the United States. We also find that there is a significant effect of the cognitive abilities of households as more sophisticated households don't overweight house price inflation as much. We model this household behaviour in a two-sector New Keynesian model with an overweighted and a non-overweighted sector and analytically derive a welfare loss function consistent with the micro-foundations of the model. In this setup, we show that to gauge the correct interest rate response, the central bank needs to be aware that some sectors are overweighted and that movements in expected inflation in such sectors are important for monetary policy.
The perils of a Dual Mandate, with Cristiano Cantore (Submitted)
We study the implications of a ‘dual mandate’ of price and output stability in a heterogeneous agent New Keynesian economy where fiscal policy is set in nominal terms. Specifically, the government controls the quantity of nominal debt, enabling price level determination independently of the interest rate trajectory (Hagedorn, 2021). Our findings indicate that under an inflation-targeting regime, price level determinacy is often the exception rather than the norm when the central bank pursues a dual mandate. The dynamics of government spending emerge as a crucial driver of this result. To address this challenge, we show that possible solutions include price level targeting and stabilizing consumption inequality.
Government spending and consumption inequality, with Francesco Fusari and Roshni Tara
Inflation expectations shock and household behaviour, with Francesco Fusari and Roshni Tara
Credit growth, market power, and long-term macro-finance trends, with Martin Arazi and Gabor Pinter