Research

The Effect of New Housing Supply in Structural Models: A Forecasting Performance Evaluation

Working 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.

Determinacy in Multi-Country DSGE Models: The Role of Pricing Paradigms and Economic Openness

Working Paper

This paper studies determinacy in a three-country New Keynesian DSGE model. Extending Gopinath et al. (2020), I examine how invoicing currencies and openness shape monetary policy effectiveness. Three results emerge. First, there is a robust trade-off such that stronger output gap targeting allows weaker inflation responses without loss of determinacy. Second, pricing paradigms matter. Producer currency pricing (PCP) yields the broadest determinacy regions, local currency pricing (LCP) lies in between, and dominant currency pricing (DCP) is most restrictive for non-issuers of the dominant currency. Third, openness narrows determinacy sets as it amplifies interactions among central banks’ policies, complicating the attainment of determinacy. An application with Bayesian estimates for the U.S. and the euro area confirms these patterns. The results highlight that determinacy depends not only on domestic rules but also on global invoicing structures and trade integration.

This paper has been published in the Dynare Working Paper series and can be downloaded here. It has also been published as Bank of Lithuania Working Paper No. 137/2025 and can be downloaded here.

ECB-MC

Work in progress 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.

A Policy-Relevant Structural Macroeconomic Model for Emerging Market Economies with Illustration for Vietnam

Work in progress

To conduct policy analysis, for advanced economies usually numerous microfounded, institutionally relatively detailed, structural macroeconomic models are available. For emerging market economies, in contrast, there tends to be a lack of models of this type that contain the requisite institutional detail to forecast on par with reduced-form time-series models and carry out credible policy analysis. This paper considers as an example of an emerging market economy Vietnam, and introduces a New Keynesian-Dynamic Stochastic General Equilibrium (NK-DSGE) model that depicts Vietnam as an open economy that interacts with the U.S. and the rest of the world. We incorporate various institutional characteristics that we argue are representative for emerging market economies at least in Asia. These include: (i) international trade occurs within the global value chain and under the dominant currency pricing paradigm; (ii) there is a diverse production sector in the domestic economy that comprises privately-owned, state-owned, and foreign direct investment firms facing asymmetric financial frictions; and (iii) monetary policy in part pursues an exchange-rate target. We document that the estimated model can forecast core macroeconomic variables on par (and, at least partially, better) than a state-of-the-art Bayesian Vector Autoregressive model, and thus argue that our model can be fruitfully used for policy analysis. Among the main implications of our model are that while Vietnam’s output losses stemming from contractionary domestic monetary policy shocks are larger than prior structural models would suggest, the transmission of foreign shocks to the Vietnamese economy is weaker.