Research
Published Papers
Nonlinear Unemployment Effects of the Inflation Tax, with Garth Baughman, Stan Rabinovich and Hugo van Buggenum, European Economic Review (2022)
This paper examines the nonlinear and state-dependent effects of trend inflation on unemployment, output, and welfare. Using a monetary model with search frictions in labor and goods markets, we show that inflation amplifies unemployment’s sensitivity to shocks and increases unemployment volatility. Empirical validation with OECD data reveals that trend inflation is positively correlated with higher unemployment levels and volatility, with this relationship being more pronounced during periods of high unemployment.
A Model of Endogenous Financial Inclusion: Implications for Inequality and Monetary Policy, with Pedro Gomis-Porqueras, Journal of Money, Credit and Banking (2021)
In this paper, we examine how financial inclusion affects inequality and welfare through a monetary model where access to credit markets is endogenous. Calibrated to India, our model explains a significant share of consumption inequality and shows that direct transfers to bank account holders are the most effective policy for reducing inequality and improving welfare.
Working Papers
Racial Unemployment Gap and the Disparate Impact of the Inflation Tax, with Garth Baughman and Hugo van Buggenum (revise and resubmit at the Journal of Economic Dynamics and Control)
In this paper, we analyze the racial unemployment gap between Black and white workers in the United States using a monetary labor search model with two worker groups. Our calibrated model shows that the racial unemployment gap widens during downturns and reacts more strongly to shocks when aggregate unemployment is high. We also find that higher trend inflation exacerbates both the level of the gap and its sensitivity to shocks.
Asset Safety and Liquidity over the Business Cycle, with Pedro Gomis-Porqueras, Stan Rabinovich and Hugo van Buggenum
In this paper, we develop a micro-founded model that explains the positive correlation between safety and liquidity premia on U.S. Treasury bonds and unemployment over the business cycle. Our model shows how variations in the issuance and default-risk of corporate bonds lead to time-varying safety and liquidity premia. Calibrated to the U.S. economy, the model generates realistic fluctuations in these premia in response to productivity shocks, highlighting the interactions between safety and liquidity components of Treasury yield spreads and the importance of endogenous liquidity as a transmission mechanism.
Intermediation and Monetary Policy in a Dollarized Economy, with Pedro Gomis-Porqueras and Sébastien Lotz (new draft coming soon)
We revisit the issue of dollarization by focusing on the co-existence of domestic and foreign currency denominated bank accounts and the challenge this poses to monetary policy.
Informality, Frictional Markets and Monetary Policy
(Winner of the Young Researchers’ prize at the Economics of Informality conference 2020, organized by Universidad del Rosario and the Central Bank of Colombia)
In this paper, I explore the long-run effects of monetary policy in economies with a large informal sector. Using a monetary model calibrated to Brazil, I show that higher trend inflation can reduce informality by taxing cash-intensive informal activities but at the cost of increased unemployment. However, when inflation-generated revenues are used to lower taxes on formal firms, both informality and unemployment decline, and the formal sector expands.
Terms of Trade Shocks and Labor Market Dynamics in Commodity-Exporting Economies
In this paper I investigate the relationship between commodity terms of trade shocks and the dynamics of the labor market in commodity-exporting economies. I show that labor search and matching frictions contribute to the dampening of terms of trade shocks which helps explain the Terms of Trade disconnect discussed in the literature. I also show numerically that the fundamental surplus fraction matters for the transmission of the shocks to unemployment.
Work in Progress
Informality, Dollarization and Optimal Policy, with Tsuyoshi Nakano and Stan Rabinovich.
We study optimal Ramsey policy in terms of inflation and a consumption tax in a monetary search model with tax evasion and two competing currencies: a domestic currency and a foreign one. We characterize the Ramsey equilibrium and calibrate the model to a set of countries. We show that using only variations in institutional quality, a proxy for state capacity to enforce taxes, the calibrated model is able to replicate several features of cross-country data.
Monetary Policy and the Unbanked: Consequences for Stabilization, with Pedro Gomis-Porqueras and Christopher Waller. (Slides)
We study stabilization policy in a monetary DSGE model where a proportion of the population doesn’t have access to bank accounts. The Central Bank implements monetary policy through a standing facility and commits to partially reverse its short-run interventions to maintain the long-run inflation target. We characterize the state-dependent optimal stabilization policy and discuss its general equilibrium effects on the unbanked.
Optimal Monetary Policy under Downward Nominal Wage Rigidity with Lukas Altermatt and Stan Rabinovich
We study the welfare implications of long run inflation in a standard monetary search model augmented with downward nominal wage rigidity. We explore the trade-off between the real balance effect of inflation and its role in relaxing the downward constraint on nominal wages.