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PUBLISHED & WORKING PAPERS
Journal of International Money and Finance, Vol. 142, April 2024, 103017 | IMF Working Paper | NBER Working Paper
"Weighted Median Inflation Around the World: A Measure of Core Inflation" with Laurence M. Ball, Carlos Carvalho and Luca Antonio Ricci
The standard measure of core or underlying inflation is the inflation rate excluding food and energy prices. This paper constructs an alternative measure, the weighted median inflation rate, for 38 advanced and emerging economies using subclass level disaggregation of the CPI over 1990-2021, and compares the properties of this measure to those of standard core. For quarterly data, we find that the weighted median is less volatile than standard core, more closely related to economic slack, and more closely related to headline inflation over the next year. The weighted median also has a drawback: in most countries, it has a lower average level than headline inflation. We therefore also consider a measure of core inflation that eliminates this bias, which is based on the percentile of sectoral inflation rates that matches the sample average of headline CPI inflation.
Economía, the Journal of LACEA, Vol. 23(1) 50-73 | IMF Working Paper
"Assessing Chile's Pension System: Challenges and Reform Options" with Samuel Pienknagura (IMF)
Chile’s pension system came under close scrutiny in recent years. This paper takes stock of the adequacy of the system and highlights its challenges. Chile’s defined contribution system was quite influential when introduced, and was taken as an example by other countries. However, it is now delivering low replacement rates relative to OECD peers, as its parameters did not adapt over time to changing demographics and global returns, while informality persists in the labor market. In the absence of reforms, the system’s inability to deliver adequate outcomes for a large share of participants will continue to magnify, as demographic trends and low global interest rates will continue to reduce replacement rates. In addition, recent legislation allowing for pension savings withdrawals to counter the effects from the COVID-19 pandemic, is projected to further reduce replacement rates and increase fiscal costs. A substantial improvement in replacement rates is feasible, via a reform that raises contribution rates and the retirement age, coupled with policies that increases workers’ contribution density.
Working Paper |
"Fiscal Cyclicality and the Information Channel of Government Spending Shocks" with Siming Liu and Shengliang Ou
This paper develops an open economy model with asymmetric information to account for the heterogeneity in the transmission of government spending policy. Using a panel of 41 countries, we document that in countries with a countercyclical fiscal policy, an increase in government purchases stimulates consumption and depreciates the real exchange rate. If fiscal policies are procyclical, the consumption crowding-in is weaker, and the real exchange rate appreciates. The calibrated model with the signaling channel of fiscal policy replicates well the observed responses to spending shocks. In particular, a change in government spending reveals its view about the state of the economy, thus inducing price setters' misaligned beliefs on economic fluctuations. The evidence from commercial forecasts supports our information channel.
IMF Working Paper |
"Getting to Know GMMET: The Global Macroeconomic Model for the Energy Transition" with Benjamin Carton, Dirk Muir and Simon Voigts
This paper presents GMMET, the Global Macroeconomic Model for the Energy Transition, and provides documentation of the model structure, data sources and model properties. GMMET is a large-scale, dynamic, non-linear, microfounded multicountry model whose purpose is to analyze the short- and medium-term macroeconomic impact of curbing greenhouse gas (GHG) emissions. The model provides a detailed description of GHG-emitting activities (related to both fossil fuel and non-fossil-fuel processes) and their interaction with the rest of the economy. To better capture real world obstacles of the energy transition, GMMET features a granular modelling of electricity generation (capturing the intermittency of renewables), transportation (capturing network externalities between charging stations and electric vehicle adoption), and fossil fuel mining (replicating estimated supply elasticities at various time horizons). The model also features a rich set of policy tools for the energy transition, including taxation of GHG emissions, various subsidies, and regulations.
Job Market Paper |
Household Heterogeneity and the Transmission of Monetary Policy
Does a benchmark Heterogeneous Agent New Keynesian (HANK) model fit the heterogeneous response of monetary policy shocks observed in the data? The benchmark HANK model from Kaplan et al. (2018) implies that wealthier households benefit from a greater increase in their income than poorer households from an expansionary monetary policy shock. However, this prediction is at odds with the empirical evidence. Using data on U.S. households from the Consumer Expenditure Survey I find that households across the wealth distribution have comparable income responses to an expansionary monetary policy shock, while consumption increases the most for low wealth households. Motivated by these discrepancies I innovate on the profit distribution scheme, from the bonus-based scheme (profits are distributed in proportion to labour productivity as assumed in Kaplan et al. (2018)) to a dividend-based scheme(profits are distributed in proportion to illiquid asset holdings). This innovation brings the distributional response from a monetary policy shock closer to the empirical evidence, however, a mixed scheme is required to ensure the response of aggregate investment is reasonable as it is highly dependent on the income of the wealthy hand-to-mouth households.
Working Paper |
Optimal Monetary Rules with Downward Nominal Wage Rigidity
At the individual and country-level nominal wages have been found to be downwardly rigid, such that they are more likely to increase than decrease. This has strong implications for optimal monetary policy in the standard New-Keynesian model, which typically assumes flexible wages or symmetric nominal wage rigidities. This constraint causes the optimal monetary policy to react asymmetrically to symmetric shocks. Furthermore, motivated by the welfare loss generated by using a standard Taylor rule, this paper searches for a new optimal simple rule that can replicate the optimal monetary policy in this framework. As an extension I solve a non-linear model that internalises this constraint at all periods in time, which dampens wage increases in a model where agents can flexibly increase their wage, thus creating an endogenous rigidity. This work adds to the literature by introducing the downward nominal wage rigidity (DNWR) constraint of Schmitt-Grohé and Uribe (2016) into a standard New-Keynesian model and finds an optimal simple rule that places a high weight on the unemployment gap. Moreover, as with other work on DNWR, this paper finds support for ‘greasing the wheels’ - positive trend inflation that helps to deflate real wage increases.
Dormant:
Working Paper |
"Quantitative Easing and Long-Term Yields in Small Open Economies" with Antonio Diez de los Rios and Maral Shamloo
Work in Progress |
"Conventional and Non-Conventional Monetary Policy: Between Core and Periphery" with Luca Onorante
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