Assistant Professor of Economics
London School of Economics
Research Affiliate, Centre for Economic Policy Research
Associate, Centre for Economic Performance
Member, Centre for Macroeconomics
Department of Economics
London School of Economics and Political Science
Tel: +44 207 107 5022
Fax: +44 207 955 6592
Office hour: Thursdays 10.15-12.15 in 32L.1.09
Research interests: Macroeconomics, Monetary Economics.
Power Sharing, Rents, and Commitment, September 2013, (with
Bernardo Guimaraes) - CEPR discussion paper #8855; CEP discussion paper #1123, (earlier version entitled A Model of Equilibrium Institutions)
Abstract: Good government requires some commitment to rules. This paper proposes a model of the equilibrium rules allocating power and resources that emerge under the threat of rebellions. Commitment to protect property rights can only be achieved if power is not as concentrated as incumbents would like it to be, ex post. Power sharing endogenously enables incumbents to commit to otherwise time-inconsistent policies by ensuring more people receive rents under the status quo, and thus want to defend it. But it is precisely because sharing power entails sharing rents that power is too concentrated in equilibrium, leading to inefficiently low investment.
Robustly Optimal Monetary Policy, May 2008 -
CEP discussion paper #840, (earlier version entitled
Resistance to Persistence: Optimal Monetary Policy Commitment)
Abstract: This paper analyses optimal monetary policy in response to shocks using a model that avoids making specific assumptions about the stickiness of prices, and thus the nature of the Phillips curve. Nonetheless, certain robust features of the optimal monetary policy commitment are found. The optimal policy rule is a flexible inflation target which is adhered to in the short run without any accommodation of structural inflation persistence, that is, inflation which it is costly to eliminate. The target is also made more stringent when it has been missed in the past. With discretion on the other hand, the target is loosened to accommodate fully any structural inflation persistence, and any past deviations from the inflation target are ignored. These results apply to a wide range of price stickiness models because the market failure which the policymaker should aim to mitigate arises from imperfect competition, not from price stickiness itself.
Inflation Persistence When Price Stickiness Differs Between
Industries, May 2007 - CEP discussion paper #838
Abstract: There is much evidence that price-adjustment frequencies vary widely across industries. This paper shows that inflation persistence is lower with heterogeneity in price stickiness than without it, taking as given the degree of persistence in variables affecting inflation. Differences in the frequency of price adjustment mean that the pool of firms which responds to any macroeconomic shock is unrepresentative, containing a disproportionately large number of firms from industries with more flexible prices. Consequently, this group of firms is more likely to reverse any initial price change after a shock has dissipated, making inflation persistence much harder to explain.
Debt and Incomplete Financial Markets: A Case for Nominal GDP Targeting, February 2014 - forthcoming in Brookings Papers on Economic Activity, Spring 2014, conference draft; full version with appendices; CEPR discussion paper #9843; CEP discussion paper #1209
Abstract: Financial markets are incomplete, thus for many households borrowing is possible only by accepting a financial contract that specifies a fixed repayment. However, the future income that will repay this debt is uncertain, so risk can be inefficiently distributed. This paper argues that a monetary policy of nominal GDP targeting can improve the functioning of incomplete financial markets when incomplete contracts are written in terms of money. By insulating households' nominal incomes from aggregate real shocks, this policy effectively completes the market by stabilizing the ratio of debt to income. The paper argues that the objective of nominal GDP should receive substantial weight even in an environment with other frictions that have been used to justify a policy of strict inflation targeting.
Sales and Monetary Policy, January 2010, (with
Bernardo Guimaraes) - published in American Economic Review, vol. 101(2), pp. 844-76, April 2011; Online appendix; CEPR discussion paper #6940; CEP discussion paper #887
Abstract: A striking fact about pricing is the prevalence of "sales": large temporary price cuts followed by prices returning exactly to their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers with different price sensitivities. Even if firms can adjust sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility seen in individual prices due to sales does not translate into flexibility of the aggregate price level.
Intrinsic Inflation Persistence, October 2010 - published in
Journal of Monetary Economics, vol. 57(8), pp. 1049-1061, November
2010; Online appendix; CEP discussion paper #837, (earlier version entitled
Structural Inflation Persistence)
Abstract: Empirical evidence suggests that inflation determination is not purely forward looking, but models of price setting have struggled to rationalize this finding without directly assuming backward-looking pricing rules for firms. This paper shows that intrinsic inflation persistence can be explained with no deviation from optimizing, forward-looking behaviour if prices that have remained fixed for longer are more likely to be changed than those set recently. A relationship between the probability of price adjustment and the duration of a price spell is shown to imply a simple "hybrid" Phillips curve including lagged and expected inflation, which is estimated using macroeconomic data.
Monetary Policy under Labour, (with
Timothy Besley) - published in National Institute Economic
Review, vol. 212(1), pp. R15-R33, April (2010)
Abstract: This paper analyses Labour's record on monetary policy and the record of the MPC which it created. The paper begins by discussing the conceptual framework and institutions behind inflation targeting as it operates in the UK. We then discuss the successes that it enjoyed up to 2007 and debate the lessons that are being learned as a consequence of the experience since then. We then raise some of the formidable challenges that UK monetary policy must now face up to including maintaining the credibility of the inflation targeting regime in the face of greater interdependence between monetary and fiscal policy, and between monetary policy and support to the banking system and financial markets.
Last updated: 7th October 2014