Luca Dedola
Research
- Division
- Current Position
-
Senior Adviser
- Other current responsibilities
Adviser in DG-Research, Monetary Policy Research Division
- Education
PhD Economics, University of Rochester, 2000
- Professional experience
Principal Economist, Monetary Policy Research Division, DG-Research, 2006-2011
Senior Economist, Monetary Policy Research Division, DG-Research, 2003-2006
Visiting Scholar, Dept. of Economics, University of Pennsylvania, 2002-2003
Economist and Senior Economist, Economics and Research Department, Bank of Italy, 1997-2003
- 1 May 1999
- WORKING PAPER SERIES - No. 4Details
- Abstract
- Skeptic views on EMU are usually cast around three arguments. First, the EU does not satisfy 'Optimum Currency Area' (OCA) conditions. Second, heterogeneous economic and financial structures will produce differences in monetary transmission. Third, the shift from domestic to area-wide considerations may give rise to conflicts in the decision making of the European Central Bank (ECB).
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F02 : International Economics→General→International Economic Order
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
Related- 1 May 1999
- WORKING PAPER SERIES
- 1 September 2002
- WORKING PAPER SERIES - No. 176Details
- Abstract
- This paper builds a baseline two-country model of real and monetary transmission under optimal international proce discrimination. Distributing traded goods to consumers reuires nontradables; because of distributive trade, the proce elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retial proces across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal repreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exhange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky.
- JEL Code
- F3 : International Economics→International Finance
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance - Network
- International research forum on monetary policy
- 27 February 2004
- WORKING PAPER SERIES - No. 308Details
- Abstract
- A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to effcient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that incomplete asset markets and a low price elasticity of tradables can account quantitatively for these properties of real exchange rates. The low price elasticity stems from distribution services, intensive in local inputs, which drive a wedge between producer and consumer prices and lower the impact of terms-of-trade changes on optimal agents' decisions. Two very different patterns of the international transmission of productivity improvements generate the observed degree of risk-sharing: one associated with a strengthening, the other with a deterioration of the terms of trade and real exchange rate. Evidence on the effect of technology shocks to U.S. manufacturing, identified through long-run restrictions, is found in support of the first transmission pattern, questioning the presumption that terms-of-trade movements foster international risk-pooling.
- JEL Code
- F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 28 December 2006
- WORKING PAPER SERIES - No. 705Details
- Abstract
- This paper estimates the effects of technology shocks in VAR models of the U.S., identified by imposing restrictions on the sign of impulse responses. These restrictions are consistent with the implications of a popular class of DSGE models, with both real and nominal frictions, and with sufficiently wide ranges for their parameterers. This identification strategy thus substitutes theoretically-motivated restrictions for the atheoretical assumptions on the time-series properties of the data that are key to long-run restrictions. Stochastic technology improvements persistently increase real wages, consumption, investment and output in the data; hours worked are very likely to increase, displaying a hump-shaped pattern. Contrary to most of the related VAR evidence, results are not sensitive to a number of specification assumptions, including those on the stationarity properties of variables.
- JEL Code
- C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
- 25 January 2007
- WORKING PAPER SERIES - No. 719Details
- Abstract
- This paper investigates the role of three likely factors in driving the steady deterioration of the US external balance: US technology developments, changes in the US government fiscal position and the Fed's monetary policy. Estimating several Vector Autoregressions on US data over the period 1982:2 to 2005:4 we identify five structural shocks: a multi-factor productivity shock; an investment-specific technology shock; a monetary policy shock; and a fiscal revenue and spending shock. Together these shocks can account for the deterioration and subsequent reversal of the trade balance in the 1980s. Productivity improvements and fiscal and monetary policy easing also play an important role in the increase of the external deficit since 2000, but these structural shocks can not explain why the trade balance deteriorated in the second half of the 1990s.
- JEL Code
- F3 : International Economics→International Finance
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 15 December 2016
- WORKING PAPER SERIES - No. 1988Details
- Abstract
- The euro area has been experiencing a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy - Network
- Discussion papers
- 2 May 2017
- WORKING PAPER SERIES - No. 2050Details
- Abstract
- This paper studies the international spillovers of US monetary policy shocks on a number of macroeconomic and financial variables in 36 advanced and emerging economies. In most countries, a surprise US monetary tightening leads to depreciation against the dollar; industrial production and real GDP fall, unemployment rises. Inflation declines especially in advanced economies. At the same time, there is significant heterogeneity across countries in the response of asset prices, and portfolio and banking cross-border flows. However, no clear-cut systematic relation emerges between country responses and likely relevant country characteristics, such as their income level, dollar exchange rate flexibility, financial openness, trade openness vs. the US, dollar exposure in foreign assets and liabilities, and incidence of commodity exports.
- JEL Code
- F3 : International Economics→International Finance
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 14 November 2018
- WORKING PAPER SERIES - No. 2197Details
- Abstract
- We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-à-vis the US dollar by a 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 : International Economics→International Finance - Network
- Research Task Force (RTF)
- 13 May 2020
- WORKING PAPER SERIES - No. 2407Details
- Abstract
- This paper estimates and compares the international transmission of European Central Bank (ECB) and Federal Reserve System monetary policy in a unified and methodologically consistent framework. It identifies pure monetary policy shocks by purging them of the bias stemming from contemporaneous central bank information effects. The results suggest that there is a hierarchy in the global spillovers from ECB and Federal Reserve monetary policy: while the spillovers to consumer prices are relatively small in both directions, Federal Reserve monetary policy shocks have a larger impact on euro area financial markets and real activity. Federal Reserve monetary policy also has a significantly larger impact than ECB monetary policy on real and financial variables in the rest of the world.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F3 : International Economics→International Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission - Network
- Research Task Force (RTF)
- 20 October 2020
- RESEARCH BULLETIN - No. 76Details
- Abstract
- What does quantitative easing (QE) really mean for the exchange rate? This article explains how the relevant effects can be estimated using a statistical methodology derived from theory. The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance, reflecting the “signalling channel” of monetary policy, also affect how the USD/EUR exchange rate responds to QE.
- JEL Code
- F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 15 April 2021
- RESEARCH BULLETIN - No. 83Details
- Abstract
- ECB and Federal Reserve monetary policy both spill over to other countries. But these spillovers are asymmetric. Federal Reserve monetary policy shocks have a significant impact on economic activity in the euro area and the rest of the world, mainly by affecting financial conditions globally. Conversely, ECB monetary policy shocks have little impact on the US economy and on global financial conditions, but still significantly affect global trade and economic activity, especially in emerging markets.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F3 : International Economics→International Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
- Journal of the European Economic Association 12 (2014), 153-176The International Dimension of Productivity and Demand Shocks in the US Economy
- Journal of Monetary Economics 60 (2013), 66–85Global implications of self-oriented national unconventional policies
- Economic Policy 27 (2012), 319-359Financial frictions, financial integration and the international propagation of shocks
- Handbook of Monetary Economics, Vol. III, North-Holland 2010Optimal monetary policy in open economies
- Review of Economic Studies 75 (2008), 443-473.International Risk-Sharing and the Transmission of Productivity Shocks
- Journal of Monetary Economics 55 (2008), 1113–1128High Exchange-Rate Volatility and Low Pass-Through
- Journal of Monetary Economics 54 (2007), 512-49What Does a Technology Shock Do? A VAR Analysis with Model Based Sign Restrictions
- Journal of International Economics 67 (2005), 129-55A Macroeconomic Model of International Price Discrimination
- European Economic Review 49 (2005), 1543-69The Monetary Transmission Mechanism: Evidence from the Industries of Five OECD countries