Research

Myopic behavior in macroeconomic models: Empirical evidence from the US (with S. Hohberger, B. Pataracchia, and M.Ratto) (link to paper) (submitted)

We explore the empirical implications of myopic behaviour as a form of bounded rationality in an estimated medium-scale macroeconomic dynamic stochastic general equilibrium (DSGE) model and provide a comprehensive and agnostic analysis of the macroeconomic implications when households and firms beliefs deviate from rational expectations as in Gabaix (2020). The estimation on US data proposes a strong preference towards cognitive discounting. Our analysis suggests a (i) significant improvement of the overall model fit and forecast performance, (ii) more stimulative fiscal policy, (iii) uncertainty-like demand shocks where private consumption and investment co-move, and (iv) less powerful monetary policy. Notably, our empirical results support the presence of rational price setters.

Expectation-driven Wealth Effects (ECB Young Economists' Competition Finalist, ERMAS Association Prize best paper) (link to paper) (video presentation) (submitted)

Departures from full-information rational expectation models give rise to equity-wealth effects that generate inefficient cyclical fluctuations. I propose a theory in which belief-driven asset price cycles influence investors’ perceived real wealth and subsequently aggregate demand via the equity-wealth channel. Optimal monetary policy sets interest rates depending on the stance of the stock market and isolates the real economy from financial cycles. A quantitative model estimated on US data reveals that i) increasing interest rates by 0.12% for every 100% rise in stock prices accomplishes this goal ii) responding non-linearly only when capital gains exceed 7% delivers similar welfare benefits.

Working Papers

Heterogeneous Expectations and Stock Market Cycles (with Pau Belda and Janko Heineken) (link to draft)

We present a model of heterogeneous expectations. In the short run, agents learn about prices with different intensities due to their distinct levels of confidence regarding the signal-to-noise content of price news. Beliefs fluctuate around idiosyncratic means, which set agents’ different views about the asset’s long-run value. The model micro-founds the heterogeneous extrapolation and the persistent and procyclical disagreement present in survey data. The subjective belief system is embedded in an otherwise standard asset pricing framework, which can then quantitatively account for the dynamics of prices and trading. In the model, learning from prices leads to disagreement and trading, which reshuffles the distribution of wealth between lower- and higher propensity-to-invest agents, affecting aggregate demand and prices. This feedback loop complements the expectations-price spiral typical of models with extrapolation, placing heterogeneity and trading as key drivers of price cycles.

Sentimental Discount Rate Shocks (link to draft, Updated Draft 2024)

This paper provides empirical evidence that the price-dividend ratio variability is explained in a large proportion by shocks affecting the subjective distribution of capital gain expectations: sentimental discount rate shocks affecting average beliefs explain at least 30% and disagreement shocks up to 20% of the variability of stock prices. The results from an estimated FAVAR model including the distribution of survey expectations show that in contrast to discount rate shocks, sentiment shocks produce a hump-shape response in the P/D ratio and introduce additional persistence into the impulse-response functions. These shocks played an essential role during the 2002 dot-com bubble by driving the boom and subsequent bust in asset prices. These findings add to the empirical support for asset pricing models that incorporate subjective beliefs that are consistent with the dynamics of expectations from survey data. Finally, I provide a heterogeneous subjective beliefs asset pricing model that rationalizes the above findings and can reproduce the dynamic effects of sentiment and disagreement shocks.

Work in progress

Foundations of Disagreement ( with Albert Marcet and Renbin Zhang)
Heterogenous Expectations and Wealth Inequality (with Pau Belda and Janko Heineken)
Solving Models with Heterogeneous Subjective Beliefs via D-PEA (with Pau Belda)
Diverging Growth Trends, Current Accounts and Real Exchange Rates (with Robert Kollmann, Philipp Pfeiffer, Marco Ratto and Werner Roeger )
The Expectation Channel of Monetary Policy Shocks
Heterogeneous Expectations, Learning and Inflation Dynamics
Evaluating Optimal Monetary Rules (with Luca Onorante and Marco Ratto)

Contributions to European Economic Policy

Ph.D Thesis: Essays in Asset Pricing, Monetary Policy and Expectations

Pre-doctoral publications:

"Eastern Europe In The World Economy: A Global Var Analysis", Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-26, September 2015 (with Moisa Altar and Adam-Nelu Altar Samuel)
"The Systematic Component of Monetary Policy in Open Economy SVARs", Central Bank Journal of Law and Finance, vol. 4, no. 2, 2017 (with Moisa Altar and Onundur Pall Ragnarsson)

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