Research
The Effect of New Housing Supply in Structural Models: A Forecasting Performance Evaluation
Job Market Paper
This paper investigates the importance of including data on new housing supply in Dynamic Stochastic General Equilibrium (DSGE) models in forecasting the Great Financial Crisis (GFC), focusing on the U.S. While existing models have added a financial sector and real estate sector, they have largely overlooked housing supply. I develop an extended DSGE model that includes both the financial sector and endogenous housing supply and show that forecasting accuracy significantly improves when data on new houses is included. Robustness checks confirm the importance of these additions to the model. The findings highlight the necessity of combining model extension and housing supply data for accurate forecasting during economic crises. I identify negative housing demand shocks and escalating adjustment costs as primary drivers of the GFC, propagating into the real economy and accelerating through the financial sector. Additionally, this paper addresses the zero lower bound challenge in modeling forward guidance using a regime change approach.
This paper has been published in the ECB-WP series and can be downloaded here
ECB-MC
Collaborating closely with Matteo Ciccarelli and the dedicated team at the DGE-FPM division of the ECB, I am involved in writing a paper detailing the intricacies of their semi-structural model, ECB-MC. This model plays a pivotal role in generating ECB’s projections and conducting crucial policy analyses. The current iteration comprises five distinct models tailored for the major economies within the euro area. My primary responsibility revolves around developing a version that links these five models, empowering the division to analyze cross-country spillovers stemming from a diverse set of shocks. This involves incorporating essential elements like trade and pricing links, as well as common exchange rates and monetary policy across the models. To facilitate wider accessibility and utilization, I ensure that the final model is integrated into their version-control software and workflow, aimed to benefit other divisions within the organization.
Determinacy within Different Pricing Regimes and Multi-Country DSGE Models
Work in progress
For my second single-authored paper, I delve into the new workhorse model in international macroeconomics proposed by Gopinath et al. (2020), focusing on the topic of determinacy in various pricing paradigms such as Dominant Currency Pricing, Producer Currency Pricing, and Local Currency Pricing. Investigating the setup of a three-country DSGE model with international traded goods in the production functions and strategic complementarities in pricing, I uncover equilibria where the Taylor principle does not necessarily hold, contrasting closed economy models. I furthermore investigate the effects of these findings on the transmission of shocks domestically and internationally. I am in the process of estimating the model for the U.S. and the Euro Area to validate these findings against actual data, aiming to enhance our understanding of global interconnections and policy outcomes.
A Structural Model of the Vietnamese Economy for Policy Analysis
Work in progress
In another project together with Michael Binder, Le Van Ha, and Anh H. Le we build a rich three economy DSGE model for Vietnam that also includes the U.S. as the originator of the dominant currency - which all trade is invoiced in - and a rest of the world. All of these interact through trade and are part of the global value chain. We furthermore introduce three different firms in Vietnam to account for the fact that there is considerable heterogeneity on the supply side of the economy, including state owned enterprises, privately owned enterprises, and foreign direct investment enterprises. These firms are subject to asymmetric financial frictions and funding channels and hence effect the propagation of shocks differently. Monetary policy follows an exchange-rate targeting extended Taylor rule that supplements the monetary authorities reserve-requirement target. We have estimated the model, using Bayesian techniques, on U.S. and Vietnamese data and make it available to policy makers in Vietnam to support their decision making. By comparing it to the baseline model of Gopinath et al. (2020) we find that following a simultaneous negative TFP-shock in all three economies, the trough loss in output for Vietnam in our model is about double the magnitude of the baseline model. This suggests that impact and respective policy responses could potentially be notably more sizable than standard analysis would imply.
International Spillover of Forward Guidance: A Story of the U.S. and Euro Area
Work in progress
Together with Anh H. Le I also work on a project investigating international spillovers of forward guidance between the U.S. and the Euro Area. To achieve this, we build a large asymmetric two country model and estimate it applying the structural break estimation method. To account for different lengths of binding zero lower bounds and their effect on the analysis, generalized impulse response functions are calculated. With our rich setup, we are trying to answer two main questions. What are the effects of U.S. forward guidance on advanced economies such as the Euro Area? And how does it affect the banking system in both economies?