Job Market Paper

• Estimating Volatility Shocks  Abstract

  This paper proposes a framework and a model-consistent estimation approach for the analysis of the dynamic consequences of changes in volatility. The proposed model is a Vector Autoregression in which time-varying volatility has a first-order impact on the observable variables. The volatility process is estimated within the model, and therefore, the proposed estimation approach does not rely on proxy measures of aggregate uncertainty as it has been generally done in the literature extant. Estimates of the proposed model using data from the United States show important quantitative and qualitative departures from estimates incorporating non-model-consistent measures of volatility. In particular, an increase in overall volatility similar to the one experienced during the Great Recession is predicted to have a strong negative and persistent impact on key macroeconomic indicators, including output, investment and the unemployment rate, and to worsen financial conditions. Moreover, a decomposition of the estimated volatility time series shows that fiscal volatility shocks are associated with important deflationary pressures, have a strong crowding out effect on investment and increase the cost of borrowing. Finally, the estimated model predicts that volatility has an asymmetric effect on the economy so that only rare shocks matter. Close

Working Papers

• Monetary Policy in the United States. Good Policy strikes back Abstract

  The argument in favor of good policy to explain the Great Moderation is back. In this paper, I am interested in analyzing the role of monetary policy in order to explain business cycle fluctuations in the United States between 1960 and 2012. I build a model with non independent drifting coefficients and stochastic volatility, and I estimate it using novel non-linear Bayesian methods. The main findings of the paper are: 1) there is a substantial evidence of changes in the conduct of monetary policy during the sample period even after controlling for stochastic volatility, contrary to other papers that use similar methods; 2) monetary policy was responsible of the bad inflation episodes of the 1970's and 1980's; 3) better policy is one of the main sources of the stabilization of the economy after 1985. Close

• Are Fiscal Multipliers Larger during Recessions? Abstract

  In this paper, I estimate the evolution of fiscal multipliers in the postwar era, using a time varying parameter vector autorregressive model with stochastic volatility. First, I find that there is significant evidence that the multiplier has changed over time, once we control for changes in volatility, but that there is no empirical support to claim that the fiscal multiplier is bigger during a recession even if we consider different components of government spending. Second, I show that not accounting for stochastic volatility in the model can seriously affect both the size and the uncertainty around the fiscal multiplier. Finally, I show that government spending was extremely ineffective during the Great Recession of 2008, but tax changes and transfer payments played an important role to stabilize the economy. Close