Research Projects

Please click on each project to find out more.

  • When Creativity Strikes: News Shocks and Business Cycle Fluctuations

    When Creativity Strikes: News Shocks and Business Cycle Fluctuations

    with Silvia Miranda-Agrippino and Sinem Hacioglu Hoke. Centre for Macroeconomics, Discussion Paper n. 2018-23.

    We use monthly US utility patent applications to construct an external instrument for identification of technology news shocks in a rich-information VAR. Technology diffuses slowly, and affects total factor productivity in an S-shaped pattern. Responsible for about a tenth of economic fluctuations at business cycle frequencies, the shock elicits a slow, but large and positive response of quantities, and a sluggish contraction in prices, followed by an endogenous easing of the monetary stance. The ensuing economic expansion substantially anticipates any material increase in TFP. Technology news are strongly priced-in in the stock market on impact, but measure of consumers’ expectations take sensibly longer to adjust, consistent with a New-Keynesian framework with nominal rigidities, and featuring informationally constrained agents.

    Click here for a current version of the paper.

  • Multi-period loans, occasionally binding constraints and monetary policy: a quantitative evaluation

    Multi-period loans, occasionally binding constraints and monetary policy: a quantitative evaluation

    with Michał Brzoza-Brzezina, Paolo Gelain, and Marcin Kolasa. Staff Working Paper 749, Bank of England. Revise & Re-submit.

    We study the implications of multi-period mortgage loans for monetary policy, considering several realistic modifications — fixed interest rate contracts, lower bound constraint on newly granted loans, and possibility for the collateral constraint to become slack — to an otherwise standard DSGE model with housing and financial intermediaries. We estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent US housing market boom and bust. We show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle, with weaker effects observed when house prices are high or start falling sharply. We also find that higher average loan duration makes monetary policy less effective, and may lead to asymmetric responses to positive and negative monetary shocks.

    Click here for a current version of the paper.

  • Asymmetric Macro-Financial Linkages

    Asymmetric Macro-Financial Linkages

    Working Paper Series 337, Sveriges Riksbank

    The 2008 financial crisis has shown that financial busts can influence the real economy. However, there is less evidence to suggest that the same holds for financial booms. Using a Markov-Switching vector autoregressive model and euro area data, I show that financial booms tend to be less procyclical than financial busts. To identify the sources of asymmetry, I estimate a non-linear DSGE model with a heterogeneous banking sector and an occasionally binding borrowing constraint. The model matches the key features of the data and shows that the borrowers’ balance sheet channel accounts for the asymmetry in the macro-financial linkages. The muted macro-financial transmission during financial booms can be exploited for macroprudential policies. By comparing capital buffer rules with monetary policy ‘leaning-against-the-wind’ rules, I find that countercyclical capital buffers improve welfare.

    Click here for a current version of the paper.

  • Beggar-Thy-Neighbor? The International Effects of ECB Unconventional Monetary Policy Measures

    Beggar-Thy-Neighbor? The International Effects of ECB Unconventional Monetary Policy Measures

    with Fabio Canova (2016). International Journal of Central Banking Vol.12(3), pp.69-120.

    This paper examines the effects of unconventional monetary policy measures by the European Central Bank on nine European countries not adopting the euro with a novel Bayesian mixed-frequency structural vector autoregressive technique. Unconventional monetary policy disturbances generate important domestic fluctuations. The wealth, the risk, and the portfolio rebalancing channels matter for international propagation; the credit channel does not. The responses of foreign output and inflation are independent of the exchange rate regime. International spillovers are larger in countries with more advanced financial systems and a larger share of domestic banks. A comparison with conventional monetary policy disturbances and with announcement surprises is provided.

Work in progress

  • Back to the Real Economy: The Effects of Risk Perception Shocks on the Term Premium and Bank Lending

    Back to the Real Economy: The Effects of Risk Perception Shocks on the Term Premium and Bank Lending

    with Julieta Yung.

    The term premium, the movement in the long end of the yield curve unrelated to the average expected path of short-term rates, is key to understanding risk perceptions over the future economic outlook. We develop a dynamic stochastic general equilibrium framework that can account for important macroeconomic and financial moments, given (i) Epstein-Zin preferences, (ii) a heterogeneous banking sector, and (iii) third-order approximation methods that yield a time-varying term premium that feeds back to the real economy. We find that when households’ risk perception increases, a shock to the valuation of long-term assets increases the term premium, lowers output, and reduces bank lending to the private sector, while increasing lending to the government. We simulate a `bad boom’ scenario, driven by households’ mispriced optimism over the future. Once agents readjust their risk perceptions, the real economy drops into a severe recession, unlike in the `good boom’ scenario, driven by productivity shocks. We expand the toolset available to the monetary policy authority by allowing macroprudential policies to complement the traditional policy rate through: (A) higher bank capital/asset ratios and (B) lower loan-to-value ratios. Our framework suggests that central banks can improve financial stability through macroprudential policies during a bad boom, without hindering growth during a good boom.

    Click here for a preliminary version of the paper.

  • Nested Sampling: A new Monte Carlo Algorithm for the Estimation of DSGE models

    Nested Sampling: A new Monte Carlo Algorithm for the Estimation of DSGE models

    in preparation.

Interests

  • Macro-Finance
  • Macroeconometrics
  • International Economics
  • (Unconventional) Monetary and Macroprudential Policy
  • Bayesian Econometrics