Research
Research
Publications
Unwinding Quantitative Easing: State Dependency and Household Heterogeneity (with Cristiano Cantore)
European Economic Review, Volume 170, November 2024, 104865
[Published article] [Online Appendix] [Banque de France WP (2024)] [Bank of England SWP (2023)] [Codes]
This paper studies the asymmetry in the macroeconomic effects of central bank asset market operations induced by state dependency and the associated role of household heterogeneity. We build a New Keynesian model with borrowers and savers in which quantitative easing and tightening operate through portfolio rebalancing between short-term and long-term government bonds. We highlight the significance of an occasionally binding zero lower bound in explaining a weaker aggregate impact of asset sales relative to asset purchases. In this context, when close to the lower bound, raising the nominal interest rate prior to unwinding quantitative easing mitigates the economic costs of monetary policy normalization. Furthermore, our results imply that household heterogeneity in combination with state dependency amplifies the revealed asymmetry, while household heterogeneity alone does not enhance the aggregate effects of asset market operations.
Working Papers
On the Distributional Effects of Conventional Monetary Policy and Forward Guidance (with Giacomo Mangiante) - submitted
[Banque de France WP (2025)] [Draft]
This paper investigates the distributional effects of conventional monetary policy and forward guidance. Adopting a structural VAR model, we estimate their impact on macroeconomic aggregates and consumption inequality in the United States. While aggregate real and financial variables respond similarly to both policy tools, their effects on consumption inequality diverge. Conventional monetary policy shocks lead to countercyclical inequality, whereas forward guidance announcements result in a procyclical response, driven by heterogeneous reactions across the household spending distribution. We rationalize these differences both empirically and within a tractable New Keynesian model with household heterogeneity and government redistribution. A fiscal adjustment that differs in timing and magnitude induces a sharper decline in consumption among financially constrained households under conventional monetary policy but has a more muted impact under forward guidance, shaping the cyclical dynamics of inequality. These findings highlight the importance of considering the distributional consequences of different monetary policy tools and the critical role of fiscal policy in mitigating these effects.
Sticky Information, Heterogeneity, and Aggregate Demand
[Draft]
This paper examines how household heterogeneity and information rigidities interact to shape the transmission of monetary policy to aggregate demand. Using U.S. survey data, I document significant differences in the frequency of information updating across income groups, with lower-income households revising their expectations considerably less often. Motivated by this evidence, I develop a two-agent New Keynesian model with heterogeneous households, in which part of the population acquires information only infrequently. The model reveals two offsetting forces in the aggregate consumption response to monetary policy: constrained agents amplify the policy effects by reacting strongly to income changes, while slow information diffusion dampens the aggregate response, crucially limiting the scope for amplification. Importantly, these frictions interact asymmetrically, with household heterogeneity becoming more influential when combined with information frictions, whereas the dampening effect of limited information is stronger in the absence of heterogeneity. I further introduce a simple analytical solution that yields closed-form expressions for aggregate demand. These findings highlight how household behavior and information frictions jointly shape the effectiveness of monetary policy and underscore the importance of accounting for their interaction in heterogeneous-agent frameworks.
Work in Progress
Asymmetric Transmission of Monetary Policy: The Role of Household Liquidity and Macroeconomic Conditions
Discussions
Is the financial market driving income distribution? – An analysis of the linkage between income and wealth in Europe, by Ilja Kristian Kavonius and Veli-Matti Törmälehto
IARIW-Bank of Italy Conference on "Central Banks, Financial Markets, and Inequality", Naples, March 2023
Monetary Policy and Distribution: An agent-based perspective, by Hannah Engljähringer
YSI Pre-Conference @ IARIW-Bank of Italy Conference, Naples, March 2023
Heterogeneous information, subjective model beliefs, and the time-varying transmission of shocks, by Alistair Macaulay
RGS Doctoral Conference in Economics (virtual), February 2022