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Research
Andrea Pescatori, PhD Candidate
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Abstracts
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Households' Financial Imbalances and
Optimal Monetary Policy (Job Market Paper)
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A widespread result in monetary policy
literature is that the price level should be stabilized and, as corollary,
the nominal interest rate should vary with the Wicksellian determinants of the real interest rate. The
present paper studies how this result is altered when the representative
agent assumption is abandoned and financial wealth heterogeneity across
households is introduced. I derive a welfare-based loss function for the
policy maker which includes an additional target related to the cross-sectional distribution of
household debt. My results differ from standard ones in two respects.
First, thanks to its ability to affect interest payments volatility,
monetary policy has real effects even in a flexible-price cashless-limit
environment. Second, in a setup with nominal rigidities, price stability
is no longer optimal. The extent of deviation from price stability
depends on the initial level of debt dispersion. I use US micro data to
calibrate the model and I find that the departure from price stability is
still relatively small under the baseline calibration. Finally, the paper
also studies the design of an optimal simple implementable rule. I find
that rules that also include a separate target on debt dispersion outperforms standard Taylor rules.
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Credit
Frictions Housing Prices and Optimal Monetary Policy Rules
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We try
to asses the role of housing price movements in the optimal design of
monetary policy rules. Even though the relevance of liquidity constraints
for consumption behavior has been well documented in the empirical and
theoretical literature little attention has been given to credit
frictions at the household level in the monetary business cycle
literature. This paper represents the first attempt of a welfare-based
monetary policy evaluation in a model with heterogeneous agents and
credit constraints at the household level. In order to evaluate optimal
monetary policy we take advantage of the recent advances in computational
economics by following the approach illustrated by Schmitt-Grohe and
Uribe (2003). Our results show that housing price movements should not be
a separate target variable additional to inflation, in an optimally
designed simple monetary policy rule
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Fiscal
Spillover in a Monetary Union
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We analyze the effects of fiscal policy in a currency area. We develop
a two-region model having sticky prices, a common monetary authority and
regional fiscal policies. We break the ricardian equivalence and allow
for keynesian effects of public expenditure introducing rule-of-thumb
agents in each region. Main results are the following.
First, consistently with the empirical evidence, after a public
spending shock in one region private agents demand for imports increases and
the terms of trade appreciates. Second, a countercyclical fiscal rule can
restore the Taylor principle and the uniqueness of the equilibrium. Finally, a
countercyclical fiscal rule contributes to reduce
macroeconomic volatility.
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