Research
Working papers
- Marginal Propensities to Consume with Mental Accounting [April 24]
SSRN
The empirical literature studying marginal propensities to consume (MPCs) has identified a set of puzzles that are difficult to reconcile with traditional theories of consumption behaviour. This paper proposes a model of dissaving-averse households, a behavioural feature consistent with mental accounting, that addresses several of these puzzles jointly. The model generates high MPCs out of income gains, low MPCs out of income news, low MPCs out of wealth and asymmetric MPCs, i.e. stronger consumption responses to income losses than to income gains, for highliquidity households. In support of this prediction, I provide empirical evidence for the existence of pervasive MPC asymmetries. I show through the lens of a quantitative life-cycle model with mental accounting preferences that asymmetric MPCs dampen the effectiveness of redistributive fiscal policy. - The Macroeconomic Implications of Coholding, with Michael Boutros [July 24]
Bank of Canada Staff Working Paper version
In the U.S., over 25% of households are coholders who simultaneously borrow on credit cards and hold cash. This generates rich marginal distributions of gross positions that underpin the distribution of net wealth often used to calibrate macroeconomic models. We show that, beyond constructing net wealth, gross positions of liquid assets and debt are important determinants of how households consume, save, and repay debt in response to income shocks. We build a model that generates aggregate distributions and household behavior in line with the data, and use it to study the implications of coholding for fiscal and monetary policy. - Domestic Inequality and Global Imbalances, with Jan Mazza [August 24]
This paper studies how the within-country distribution of income affects the current account. We document that higher income inequality, especially in advanced economies, is associated with higher current account balances. We identify permanent as opposed to transitory income inequality and domestic savings as opposed to investment as the underlying determinants. Building on the empirical analysis, we develop a two-country heterogeneous agent model and show that, all else equal, capital flows from unequal to equal countries. Nonhomothetic preferences generate increasing saving rates across the distribution of permanent income which translate into current account surpluses under international capital mobility. We use the model to study the effects of redistributive policies, financial liberalisation and cross-border financial integration.
Work in progress
- Income Inequality and the Rise of Risky Capital
- Central Bank Communication and Media Coverage, with Fiorella De Fiore, Alexis Maurin and Damiano Sandri
- Equity Duration and Monetary Policy Transmission, with Johannes Graeb
Publications
- The Reliability of Equilibrium Exchange Rate Models: A Forecasting Perspective,
with Michele Ca’Zorzi, Adam Cap and Michal Rubaszek
International Journal of Central Banking (2022)
ECB Working paper version, Replication files, Slides for ISF21
Coverage: Econbrowser, Macrohive
In this paper we evaluate the predictive power of the three most popular equilibrium exchange rate concepts: Purchasing Power Parity (PPP), Behavioral Equilibrium Exchange Rate (BEER) and the Macroeconomic Balance (MB) approach. We show that there is a clear trade-off between storytelling and forecast accuracy. The PPP model offers little economic insight, but has good predictive power. The BEER framework, which links exchange rates to fundamentals, does not deliver forecasts of better quality than PPP. The MB approach has the richest economic interpretation, but performs poorly in forecasting terms. Sensitivity analysis confirms that changing the composition of fundamentals in the BEER model or modifying key underlying assumptions in the MB model does not generally enhance their predictive power.
Policy work
