Should monetary policy be more aggressive or more cautious when facing uncertainty on the relationship between macroeconomic variables? This paper's answer is: “it depends” on the degree of persistence of the shocks that hit the economy. The paper studies optimal monetary policy in a basic...

Inflation in the euro area has been falling steadily since early 2013 and at the end of 2014 turned negative. Part of the decline has been due to oil prices, but the weakness of aggregate demand has also played a significant role. This paper uses a VAR model to quantify the contribution of oil...

The fall in US labor force participation during the Great Recession stands in sharp contrast with its parallel increase in the euro area. In addition to structural forces, cyclical factors are shown to account for this phenomenon, with the participation rate being procyclical in the US from the...

This paper evaluates the macroeconomic effects of a monetary and fiscal policy mix implemented in a two-region monetary union in response to the COVID-19 shock. The pandemic is modelled as a mix of recessionary demand and supply shocks affecting both regions simultaneously and symmetrically,...

A New Keynesian model calibrated to the euro area is used to evaluate the stabilization properties of alternative monetary policy strategies when the natural interest rate is low (‘new normal’) and the probability of reaching the effective lower bound (ELB) is non-negligible. Price level...

Macroeconomic conditions are among the key determinants of the inflation outlook. This paper studies how business cycles affect the conditional distribution of euro-area inflation forecasts. Using a quantile regression approach, I estimate the conditional distribution of inflation to assess the...

We use a general equilibrium model to show that a decrease in workers’ bargaining power amplifies the relative contribution to the output gap of adjustments along the extensive margin of labour utilization. This mechanism reduces the cyclical movements of marginal cost (and inflation) relative...

Long-term inflation expectations in the euro area reached historically low levels at the end of 2019, suggesting a possible de-anchoring from the European Central Bank’s “below, but close to, 2 per cent” inflation aim. The decline in long-term inflation expectations exerted a downward...

The applied literature on adaptive learning has mostly focused on small, linear models, with homogenous expectations. In non-linear models heterogeneous expectations prevail and the process through which agents select (and change) a forecasting model becomes a necessary ingredient of the...

he paper assesses the effects of increasing competition in the service sector in Italy which, based on cross-country comparisons, is the OECD country with the highest markups in non-manufacturing industries. We propose a two-region (Italy and the rest of the euro area) dynamic general...