Working Papers
Abstract: This paper introduces and estimates a tractable two-agent New Keynesian model with endogenous switching between household types. The goal is to assess the optimal timing, size, and targeting of fiscal transfers to low-income households using simple, automatic rules. Two key findings emerge: First, incorporating endogenous dynamics within the household distribution improves the model's fit to the data. Second, a transfer rule that responds to consumption inequality emerges as the most efficient for reducing consumption dispersion and redistributing income. Furthermore, a counterfactual analysis of the COVID-19 recession reveals that while fiscal stimulus payments helped mitigate output losses, their overall impact was limited due to their excessive size and irregular distribution, with a significant portion being saved; smaller and more sustained transfer payments could have led to more favorable economic outcomes.
Presented at: Southern Economic Association 94th Annual Meeting
"Understanding the Inflation–Output Relationship Across Business Cycle Phases", with Roberto A. De Santis, 2025 [New draft coming soon!]
Abstract: We develop and estimate a New Keynesian threshold VAR model to examine the relationship between inflation and output across business cycle states, defined by whether inflation and output are above or below their respective targets set by the central bank. Our findings reveal that (i) the Phillips curve is steeper when inflation and output are above targeted levels, (ii) the output gap’s sensitivity to interest rates is more pronounced when inflation falls below target and diminishes when inflation is above target, although the output gap remains negative, and (iii) the policymaker is strongly committed to achieving its goal by adjusting its reaction function in response to high inflation. Nonlinearities in monetary policy transmission and demand shocks present greater challenges for the central bank during stagflation, while inflationary booms pose fewer difficulties.