Working Papers

Inflation Expectations and Consumption in the New Keynesian Framework:
The Role of Heterogeneity

JMP; draft soon

Abstract: I disentangle the assumptions underlying the consumption response to changes in inflation expectations within the New Keynesian (NK) framework. The standard positive consumption response hinges on implausibly strong general equilibrium effects and a muted negative expected real income channel, even when inflation expectations are not accompanied by similar expectations of nominal wage growth. I decompose the total consumption response into an intertemporal substitution effect and an income effect, under the empirically supported assumption that inflation expectations do not fully propagate to nominal wage growth expectations. In the Representative Agent NK (RANK) model, the consumption response remains positive due to the profits income channel. However, in a stylized Heterogeneous Agent NK (HANK) model, the total effect can become negative if the profit income channel is dampened and the disconnect between inflation expectations and wage nominal expectations is sufficiently strong.Presented: Directorate General Research Seminar (European Central Bank; Frankfurt), 56th Annual Conference of the Money, Macro and Finance Society (University of Reading; Reading), 28th International Conference on Macroeconomic Analysis and International Finance (University of Crete; Crete), 6th Behavioral Macroeconomics Workshop (Heidelberg University and Bamberg University; Heidelberg), ERMAS 2024 (Babeș-Bolyai University and National Bank of Romania; Cluj-Napoca), 4th Sailing Macro Workshop (Sapienza University of Rome; Ortygia, Siracusa), 3rd Naples School of Economics PhD and Post-Doctoral Workshop (NSE; Naples), Workshop on Households’ Inflation Expectations, Czech National Bank (CNB; Prague)

Average Inflation Targeting: How far to look into the past and the future?

with Jan Zemlicka

Submitted; WP latest draft; ECB WP; NBS WP

Presented: Fall 2022 Midwest Macroeconomics Conference (Southern Methodist University; Dallas), ERMAS 2023 (University of Bucharest and National Bank of Romania; Bucharest), 2023 Expectations in Dynamic Macroeconomic Models Conference (Vienna University of Technology and Austrian National Bank; Vienna), Barcelona Ph.D. Workshop on Expectations in Macroeconomics (Barcelona School of Economics; Barcelona), 2nd Ventotene Workshop in Macroeconomics (Sapienza University of Rome; Ventotene), SASCA Ph.D. Conference in Economics (Ca’ Foscari University of Venice and University of Sassari; Venice).

Welfare considerations of macroprudential policies

with Jan Klacso, Reiner Martin, M. Udara Peiris, and Dimitrios P. Tsomocos

Draft coming soon

Rational expectations, bounded rationality, and aggregate uncertainty in macroeconomic models

Submitted; WP latest draft