Abstract: This paper proposes a novel approach to study the macroeconomic effects of oil prices, exploiting institutional features of OPEC and high-frequency data. Using variation in futures prices around OPEC announcements as an instrument, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production and an increase in inventories. This has consequences for the U.S. economy: activity falls, prices and inflation expectations rise, and the dollar depreciates – providing evidence for a strong channel operating through supply expectations.
International inflation spillovers - the role of different shocks (with Gregor Bäurle and Matthias Gubler) [SNB WP]
Abstract: We analyze how the transmission of international inflation spillovers depends on the nature of the underlying shocks that drive inflation abroad. We find evidence for substantial heterogeneity in the magnitude of spillovers to domestic inflation related to the fundamental source of international price fluctuations and the corresponding monetary policy reactions. Indeed, it turns out that the relative conduct of monetary policy varies depending on the source of these price fluctuations, and so does the role of the exchange rate as a shock absorber. We show this by looking at international inflation spillovers to Switzerland through the lenses of a Bayesian structural dynamic factor model relating a large set of disaggregated prices to key macroeconomic factors. Being a small open economy with an independent monetary policy, Switzerland is a particularly suitable subject for studying the role of monetary policy in the transmission of foreign shocks. However, our results more broadly indicate that inflation spillovers need to be analyzed in a framework allowing for different transmission channels.
Abstract: This thesis studies the link between monetary policy and inequality in the United States. In a first, empirical part of the thesis, I provide some evidence regarding the distributive consequences of monetary policy shocks during the Great Moderation period from a structural VAR. I find that contractionary monetary policy shocks lead to a significant increase in consumption inequality. Furthermore, monetary policy shocks explain a non-negligible part of the variations in inequality at business cycle frequencies. In the second, theoretical part, I propose a DSGE model that can account for these findings. The model is a variant of the New Keynesian model featuring substantial but limited heterogeneity on the part of the households. The tractability of the framework allows me to estimate the model based on data for the United States. The conjectured limited heterogeneity equilibrium turns out to be consistent with the data and the estimated model is able to match the evolution of economic inequality in the data remarkably well. Most importantly, its predictions regarding the redistributive effects of monetary policy shocks are qualitatively in line with the empirical evidence: contractionary monetary policy shocks lead to an increase in consumption inequality and explain non-negligible fractions of its variance. Sensitivity analyses suggest that these findings are extraordinarily robust along a number of dimensions and can in principle be even more pronounced. In particular, the redistributive effects get stronger when the central bank is more dovish, when the degree of nominal rigidities increases, or when the borrowing limit is less restrictive.