Research

Publication

Optimal normalization policy under behavioral expectations

joint with Kostas Mavromatis, Journal of Monetary Economics, Vol. 153, 103786, July 2025. Published Version / Revised draft / Original DNB Working Paper version

Working Papers

Monetary Policy in the Euro Area, when Phillips Curves … are Curves.

joint with Guido Ascari, Emanuel Gasteiger, Alex Grimaud & Gauthier Vermandel. CEPR Discussion Paper / Ungated

Abstract: We study monetary policy where the price and wage Phillips curves exhibit true curvature. To this end, we propose a New Keynesian (NK) model featuring endogenous adjustment of price and wage setting frequencies, moving beyond the quasi-linear structure of the standard nonlinear NK Phillips curves (NKPC). Using euro area data spanning 1999Q1 to 2024Q4, we estimate and simulate the non-linear model. We then study the recent inflation surge and the implications of state-dependent prices and wages for monetary policy in the estimated non-linear model. Unlike conventional models, our framework does not primarily explain inflation dynamics by exogenous supply shocks. Instead, the impact of shocks on inflation depends on their timing, size, and the business cycle. Consequently, the inflation-output stabilization trade-off faced by monetary policy is state-dependent. For example, monetary policy is more effective in curbing inflation, and supply shocks have larger effects during periods of high inflation.

Work in Progress

Assessing the aggregate and distributional implications of large-scale bond purchases in the euro area

Abstract: This paper studies the effects of the ECB’s large-scale bond purchases on euro area economic activity and income inequality, in a New Keynesian model with limited asset market participation. I estimate the model using Bayesian methods and euro area data, considering the occasionally binding constraint on the policy rate and the public sector purchase programme (PSPP) implemented by the ECB in 2015. The results suggest that the PSPP has effectively lifted both output and inflation. In terms of income inequality, the impact was modest overall but exhibited a non-linear profile. In the early years of the program, income inequality widened, reflecting rising asset prices. Subsequently, however, this trend reversed, with gradual and sustained growth in labor income becoming the predominant factor, leading to a decline in income inequality.

Behavioral learning equilibria in a bond market with asset purchases

joint with Cars Hommes

Abstract: This paper studies the effects of central banks' asset purchases on long-term government bond yields, in a model featuring investors who adopt a simple yet optimal AR(1) forecasting rule based on past data. By examining the convergence dynamics of agents towards a specific Behavioral Learning Equilibrium (BLE), we uncover the factors that shape the efficacy of these policies: financial market volatility and short-term interest rates. In periods characterised by low financial stress, agents' learning process leads to stable convergence, with forecasts exhibiting a near-unit root first-order autocorrelation coefficient. As a consequence, quantitative easing (QE) demonstrates significant and persistent effects on bond yields. However, in times of heightened financial volatility, multiple equilibria emerge, leading QE to have effects that vary from high to low persistence.