Macroeconomics; Asset Pricing; Monetary Economics; Computational Methods.
Agenda: Discount-rate variation in production economies. Term structure modeling in dynamic equilibrium models. Macroeconomic relevance of term structure data, incl. equity and bond strips. Optimal policy in macro models with risk or financial frictions. Role of nominal rigidities in explaining asset prices. Interactions between monetary and macroprudential policies. Computational methods in macro-finance equilibrium models.
Welfare Implications of Asset Pricing Facts: Should Central Banks Fill Gaps or Remove Volatility? [Link]
Measures from asset markets about the welfare cost of fluctuations are the few pieces of evidence about welfare we have. Macroeconomists who study the benefits of stabilization policies should also use that evidence to test their models. I build a New Keynesian model with external habits that explains the evidence about welfare costs of fluctuations, but that is observationally equivalent in its quantity implications to a textbook New Keynesian model. The standard optimal stabilization policy turns on its head.
Presentations: FRB Cleveland (2019), EFA 2018, SED 2016, Deutsche Bundesbank (2016).
Nominal Rigidities and the Term Structures of Equity and Bond Returns (or Macro-Finance Separation by Force of Habit) (with David Lopez-Salido and Francisco Vazquez-Grande) [Link]
What are the macroeconomic drivers of asset prices? A downward-sloping term structure of equity and upward-sloping term structures of interest rates (ie, hard-to-explain key evidence) arise endogenously in a general-equilibrium model with nominal rigidities and nonlinear habits in consumption. We also show how to unite nonlinear habits and a production economy without compromising the ability of the model to fit macroeconomic variables.
Presentations: EFA 2015; SED 2015; Econometric Society 2015 World Congress; EEA 2015; Federal Reserve Board (2015); European Central Bank (2015); Banque de France (2015); Midwest Macro meetings 2016, 25th Rome MBF Conference (2016).
Risk-Adjusted Linearizations of Dynamic Equilibrium Models (with David Lopez-Salido and Francisco Vazquez-Grande) [Link]
A linear approximation technique to solve for the equilibrium allocation and to price assets in closed form when we care about risk (e.g., Campbell-Cochrane habits, risk-sensitive preferences, stochastic volatility, disaster risk, ...). If you want to study time-varying risk premia and the effect of risk on the economy this approximation (aka a first-order perturbation around the risky steady state) is in many ways better than a third-order perturbation around the deterministic steady state.
Presentations: CEPR MMCN research conference 2017; EEA 2018; Econometric Society 2016 North American Summer meeting; EEA 2016; Society for Computational Economics meeting 2016; Society for Nonlinear Dynamics and Econometrics meeting 2017; Banque de France (2016); Federal Reserve Board (2017).
The Term Structure of the Welfare Cost of Uncertainty [Link]
The marginal welfare cost of economic uncertainty has a term structure that is a simple transformation of the term structures of the equity premium and interest rates. I extract 20 years of evidence from index option markets to infer a downward-sloping, volatile and countercyclical term structure of welfare costs.
Presentations: EFA 2014; Warsaw International Economic meeting 2013; ESRC European Workshop in Macroeconomics, London School of Economics (2013); 2013 meeting of Swiss Economists Abroad; 2012 Vigo Workshop on Dynamic Macroeconomics; Cantabria Campus Nobel workshop 2012; Federal Reserve Board (2013); Banque de France (2013); Swiss National Bank (2012); University of Lugano (2012).
Reassessing the Role of Stock Prices in the Conduct of Monetary Policy [Link]
On the fragility of some numerical procedures to solve for optimal Taylor-type rules.
Asset Prices and Unemployment Fluctuations (with Patrick J. Kehoe, Virgiliu Midrigan, and Elena Pastorino) [Link]
Discount-rate variation generated by slow-moving habits and amplified by human capital accumulation can generate the observed responses of unemployment to productivity changes. Job creation is a type of investment made by firms, who decide how many resources to invest in hiring new workers. When investing in new job vacancies, firms respond to incentives driven by the cyclical evolution of expected future payoffs from filled vacancies and, importantly, of the required return for bearing the associated risk.
Presentations: AEA 2020, EFA 2019, Chicago (2019), UPenn (2019), NBER SI 2019, Minnesota Workshop in Macro Theory (2019), BdP Conference on Monetary Economics 2019, BdF (2019), SED 2018, NBER SI EFG 2018, FRB Minneapolis (2017), U Amsterdam (2018), NYU (2018), IV Winter Macroeconomics Workshop in Bellaterra (2018).
A Model of Optimal Macroprudential and Monetary Policies
Presentations: EEA 2017.
"A theory of macroprudential policies in the presence of nominal rigidities", by Emmanuel Farhi and Ivan Werning, Banque de France-Toulouse School of Economics prize ceremony, February 2015. [Link]
"Financial intermediation and capital misallocation”, by Hengjie Ai, Kai Li and Fang Yang, EFA 2015, August 2015. [Link]
"Cross-border banking, macroprudential policy and monetary policy in a monetary union", by Matthieu Darracq-Pariès, Christoffer Kok and Elena Rancoita, 2017 ECB/MNB research conference. [Link]