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Andrea Gerali

17 June 2016
WORKING PAPER SERIES - No. 1923
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Abstract
We incorporate financial linkages in EAGLE, a New Keynesian multi-country dynamic general equilibrium model of the euro area (EA) by including financial frictions and country-specific banking sectors. In this new version of the model, termed EAGLE-FLI (Euro Area and GLobal Economy with Financial LInkages), banks collect deposits from domestic households and cross- country interbank market and raise capital to finance loans issued to domestic households and firms. In order to borrow from local (regional) banks, households use domestic real estate as collateral whereas firms use both domestic real estate and physical capital. These features
JEL Code
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications
10 August 2016
OCCASIONAL PAPER SERIES - No. 175
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Abstract
This paper revisits the empirical relationship between unemployment and output, and its evolution following the financial crisis of 2008, with the aim of drawing potential consequences for labour market modelling strategies in place within the European System of Central Banks (ESCB). First, the negative correlation between output and unemployment (Okun’s law) at cyclical frequencies is found to be a robust feature of macro data across time, countries and identification schemes. Focusing on the euro area, the financial distress seems to have altered the dynamics of output and unemployment mainly at lower frequencies, interpreted as trend developments by the statistical filters used in the analysis. Looking at the implications for modelling strategies, we propose an extension of the standard labour search and matching model in which financial frictions impinge directly on the labour market rather than on the capital market, opening the way to protracted and lagged response of employment after a “financial” crisis. In terms of policy implications, the importance of the interplay between financial and labour market frictions in trend developments should be read as strong support for an ambitious structural reform agenda in Europe, so as to make our labour (and goods) markets more flexible and resilient.
JEL Code
E10 : Macroeconomics and Monetary Economics→General Aggregative Models→General
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
J64 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Unemployment: Models, Duration, Incidence, and Job Search
25 January 2017
WORKING PAPER SERIES - No. 1994
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Abstract
The paper studies how a prolonged period of subdued price developments may induce a de-anchoring of inflation expectations from the central bank's objective. This is shown within a framework where agents form expectations using adaptive learning, choosing among a set of alternative forecasting models. The analysis is accompanied by empirical evidence on the properties of inflation expectations in the euro area. Our results also suggest that monetary policy may lose effectiveness if delayed too much, as expectations are allowed to drift away from target for too long.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
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Task force on low inflation (LIFT)