Research Papers

Forecasting inflation in the euro area: countries matter! (2019), with C. Pacella, Temi di Discussione (Working Papers) 1224, Bank of Italy , (R&R Empirical Economics)

We construct a Bayesian vector autoregressive model with three layers of information: the key drivers of inflation, cross-country dynamic interactions, and country-specific variables. The model provides good forecasting accuracy with respect to the popular benchmarks used in the literature. We perform a step-by-step analysis to shed light on which layer of information is more crucial for accurately forecasting euro area inflation. Our empirical analysis reveals the importance of including the key drivers of inflation and taking into account the multi-country dimension of the euro area. The results show that the complete model performs better overall in forecasting inflation excluding energy and unprocessed food, while a model based only on aggregate euro area variables works better for headline inflation.

“Cyclical Behavior of Markups: Theory and Firm-level Evidence”

Using confidential firm-level data from the National Bank of Belgium, I document the heterogeneous response of firms’ markups to the 2008 financial crisis. Overall, markups increased in the aftermath of the crisis and the effect was larger for highly financially constrained firms. I show that standard heterogeneous-firm models, featuring monopolistic competition and variable markups, are unable to replicate these patterns. I then introduce endogenous demand shifters which respond to firm investment in market share (e.g. quality). I show that the interaction of an increase in the cost of procuring inputs combined with an endogenous quality downgrading can rationalize the observed changes in firm-level markups.

“Inflation expectations and non-standard monetary policies”

In this paper, I analyze the impact of key European Central Bank’s unconventional monetary policy announcements on inflation expectations, measured by Euro Area five-year Inflation Linked Swap rates five years ahead, since the aftermath of the crisis. I control for market liquidity and uncertainty measures, change in oil price shock and macroeconomic news. The results show that the impact of the European Central Bank’s announcements has been positive during the period under observation. Along the line of the expansionary monetary policy measures implemented, the agents have been revising upwards their long term inflation expectations. This means that the unconventional monetary policy measures were effective.


Policy Papers and Columns

What’s the ECB doing in response to the COVID-19 crisis? (2020), with S. Belz, J. Cheng, D. Wessel and D. Gros, post on Brookings and CEPS

Global Currencies During a Crisis: Swap Line Use Reveals the Crucial Ones (2020), with D. Gros, Monetary Policy Papers June 2020, European Parliament’s Committee on Economic and Monetary Affairs, PE 648.809 – May 2020

Reaching a Wider Audience: Is the ECB Trending? (2020), with D. Gros, Monetary Policy Papers February 2020, European Parliament’s Committee on Economic and Monetary Affairs, PE 642.372 – January 2020. [Presented at the Preparatory Meeting ]

The Two-pillar Strategy of the ECB: Ready for a Review  (2019), with D. Gros, Monetary Policy Papers December 2020, European Parliament’s Committee on Economic and Monetary Affairs, PE 642.362 – November 2019

The ECB is running out of policy space: Can fiscal policy help? (2019), with D. Gros, CEPS Policy Insights, No 2019-17 / December 2019 [VOX column]