This paper studies how carbon pricing affects emissions, economic aggregates and inequality. Exploiting institutional features of the European carbon market and high-frequency data, I identify a carbon policy shock. I find that a tighter carbon pricing regime leads to a significant increase in energy prices, a persistent fall in emissions and an uptick in green innovation. This comes at the cost of a temporary fall in economic activity, which is not borne equally across society: poorer households lower their consumption significantly while richer households are barely affected. Not only are the poor more exposed because of their higher energy share, they also experience a larger fall in their income. These indirect effects play a crucial role in the transmission, accounting for over 80 percent of the aggregate effect on consumption. My results suggest that targeted fiscal policy can reduce the economic costs of carbon pricing without compromising emission reductions.
Awards and coverage:
A novel complementarity between capital and income inequality leads to a significant amplification of the effects of aggregate-demand shocks on consumption. We characterize this finding using a simple model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening. After an interest rate shock, consumption inequality is more countercyclical than income inequality, consistent with the available empirical evidence. Procyclical investment also requires a more aggressive Taylor rule in order to attain determinacy, and aggravates the forward guidance puzzle.
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.
Media coverage: AEA Chart of the Week
The top quartile of the income distribution accounts for almost half of the pandemic-related decline in aggregate consumption, with expenditure for this group falling much more than income. In contrast, the bottom quartile of the income distribution has seen the smallest spending cuts and the largest earnings drop but their total incomes have fallen by much less because of the increase in government benefits. The decline in consumers’ spending preceded the introduction of the lockdown, whose partial lifting has triggered a stronger recovery in sectors with a lower contact rate. The largest spending contractions are concentrated in the most affluent regions. These conclusions are based on detailed high-frequency transaction data on spending, earnings and income from a large Fintech company in the United Kingdom.
How do international price fluctuations spill over to country-specific inflation? In this paper, we show that accounting for the drivers of international inflation and their effects on overall economic conditions is crucial to getting a more thorough view of spillover effects. We find substantial heterogeneity in the magnitude of spillovers, depending on the shocks driving inflation abroad. While all identified shocks are inflationary, their effects on activity, interest and exchange rates differ. Looking at the responses of disaggregated prices suggests that these general equilibrium effects are indeed important. We show this by looking at spillovers to Switzerland through the lens of a structural dynamic factor model that relates a large set of disaggregated prices to key macroeconomic factors.
The granular effects of carbon pricing (with Hélène Rey and Jinglun Yao)
Energy prices, inequality and aggregate demand
Monetary policy and house prices
Not intended for publication (pre-PhD)
Monetary Policy and Economic Inequality in the United States [online version]
Abstract and coverage
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.
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