Working papers
High Non-tradable Consumption, Inequality, and Weak Monetary Policy (with S. De Ferra, K. Mitman and F. Romei)
How does the composition of consumption expenditure influence the transmission of monetary policy across countries in a monetary union? We document three empirical findings using micro and macro data from euro-area countries. First, countries with a higher expenditure share on nontradable consumption exhibit weaker output responses to monetary policy shocks. Second, countries with higher income inequality display larger aggregate expenditure shares on nontradable consumption. Third, within countries, households with higher incomes allocate a larger share of their expenditure to non-tradables. We rationalize these findings through a model of a monetary union with three key features: heterogeneous agents, non-homothetic preferences, and incomplete markets. Inequality is pro-cyclical when richer households earn income from the luxury non-tradable sector. Pro-cyclical inequality weakens monetary policy transmission, rationalizing its mild effects on output in unequal countries with high non-tradable expenditure shares. The model is also consistent with the empirical evidence on trade imbalances and sectoral output responses within the monetary union in response to monetary policy shocks.
Economic Consequences of Large Extraction Declines: Lessons for the Green Transition (with R. Bems, A. Pescatori and M. Stuermer)
Limiting climate change requires a 80 percent reduction in fossil fuel extraction until 2050. What are the macroeconomic consequences for fossil fuel producing countries? We identify 35 episodes of persistent, exogenous declines in extraction based on a new data-set for 13 minerals (oil, gas, coal, metals) and 122 countries since 1950. We use local projections to estimate effects on real output as well as the external and the domestic sectors. Declines in extractive activity lead to persistent negative effects on real GDP and the trade balance. The real exchange rate depreciates but not enough to offset the decline in net exports. Effects on low-income countries are significantly larger than on high-income countries. Results suggest that legacy effects of bad institutions could prevent countries from benefiting from lower resource extraction.
Work in Progress
Inequality, Geographical Specialization and Structural Change
Inequality and Firm Entry - Does the cycle drive the trend(s)?
Policy Publications
IMF World Economic Outlook: Commodity Special Feature: Market Developments and the Macroeconomic Impact of Declines in Fossil Fuel Extraction (with Mehdi Andaloussi, Christian Bogmans, Rachel Brasier, Andrea Pescatori, Ervin Prifti, and Martin Stuermer) IMF World Economic Outlook, April 2023, pp. 30-35