Working papers
Working papers
Monetary Policy in Currency Unions with Unequal Countries (with S. De Ferra, K. Mitman and F. Romei)
We investigate how the composition of expenditure shapes the transmission of monetary policy in a currency union. European Monetary Union data reveal three facts: (1) higher inequality countries have larger service expenditure shares; (2) monetary policy has a weaker output impact in these high-service-share, high-inequality countries; and (3) monetary policy induces systematic trade flows between high- and low-service-share countries. We develop a New Keynesian model with non-homothetic preferences and heterogeneous sectoral income that rationalizes these facts. Pro-cyclical inequality, driven by wealthier households' greater income exposure to services, buffers poorer households' consumption to contractionary shocks, dampening overall policy transmission. Our findings suggest that accounting for cross-country differences in consumption and income distributions is essential for understanding common monetary policy.
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.
Inequality, Geographical Specialization and Structural Change
Inequality and Firm Entry - Does the cycle drive the trend(s)?
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