Working Papers

• Inflation and Real Activity over the Business Cycle, with Francesco Bianchi and Dongho Song. February 2025.
  Revise and Resubmit at the Review of Economic Studies.
  

  We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and theoretically how to reconcile these differences.

• Risk-Adjusted Optimal Policy for Scenario Analysis, with Isabel Cairó, Christopher Gust, James Hebden, Ed Herbst and Scott Konzem. May 2025.
  

  Policy institutions often address uncertainty around a baseline outlook through a limited set of alternative scenarios, rather than specifying a complete predictive distribution.  This paper examines optimal policy prescriptions within this setting with a focus on the effect of uncertainty about the outlook.  We propose a framework where policymakers form beliefs about the likelihood of a baseline economic path and alternative scenarios, updating these beliefs over time using Bayes’ rule.  This “risk-adjusted optimal policy” allows policymakers to set policy rationally while learning which scenario is unfolding.  We apply this framework to the U.S. economy at the end of 2024, considering risks of higher inflation and recession around a baseline projection.

Work in Progress

• Is There a Forward Guidance Puzzle? with Francesco Bianchi and Leonardo Melosi. Draft coming soon. NBER SI 2024 Slides.
• Policymakers’ Misperceptions about r* and Multiple Equilibria with Elmar Mertens.

Publications

• U.S. Monetary Policy and Indeterminacy, Journal of Applied Econometrics, 2025, 40(2), pp. 195-213.
• A Generalized Approach to Indeterminacy in Linear Rational Expectations Models, with Francesco Bianchi, Quantitative Economics, 2021, 12(3), pp. 843-868. Codes: Lubik Schorfheide (2004) example.
• Some International Evidence for Keynesian Economics without the Phillips Curve, with Roger E. A. Farmer, The Manchester School, 2019, 89(S1), pp.1-22.
• Keynesian Economics Without the Phillips Curve, with Roger E. A. Farmer, Journal of Economic Dynamics and Control, April 2018, 89, pp. 137-150. 
  
• Solving and Estimating Indeterminate DSGE Models, with Roger E. A. Farmer and Vadim Khramov, Journal of Economic Dynamics and Control, 2015, 54, pp. 17-36.

Policy

• Monetary Policy, Uncertainty, and Communications, with Vaishali Garga, Ed Herbst, Alisdair McKay and Matthias Paustian. August 2025.
  Prepared for the Federal Reserve’s 2025 review of its monetary policy strategy, tools, and communications.

  We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary policy strategy. Alternative scenarios can illustrate salient risks and how monetary policy might respond if those risks were to materialize. However, using alternative scenarios in policy deliberations and communications requires important implementation choices.