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.
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
We analyze government bond yield movements of the United Kingdom, Sweden and Switzerland, comparing the effectiveness of their asset purchase announcements with that of the Federal Reserve and the European Central Bank on these smaller open economies. We decompose government bond yields into (i) an expectations component, (ii) a global term premium and (iii) a country specific term premium to analyze two-day changes in 10-year yields around announcement dates. We find that, in contrast to the Federal Reserve and the European Central Bank's asset purchases, the programs implemented in these smaller economies have not been able to affect the global term premium. Furthermore, they have had limited, but significant, effect in lowering long-term yields.
Work in Progress |
"Conventional and Non-Conventional Monetary Policy: Between Core and Periphery" with Luca Onorante
This paper explores the effectiveness of government bond and corporate security purchases by a central bank within a calibrated two-country New-Keynesian model featuring a banking sector (an extension of Gertler and Karadi (2011) and Andrade et al. (2016)) and a two-country monetary union. Focusing on the eurozone and motivated by the extended asset purchase programme conducted by the ECB we calibrate key parameters to match Core (Germany, France, Netherlands) and Periphery (Portugal, Italy, Ireland, Greece, Spain) data. We find that corporate security purchases have a stronger impact on inflation and on lift-off time from the Effective Lower Bound than equivalent government bond purchases. Corporate securities are claims on capital used in the firm’s production function. This finding is in line with the ones of Gertler and Karadi (2013) for the U.S. economy.