Working Papers

Indirect Consumer Inflation Expectations: Theory and Evidence (with Ina Hajdini, Edward Knotek II, Robert Rich, John Leer and Raphael Schoenle) Federal Reserve Bank of Cleveland, Working Paper No. 22-23

Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation (with Ina Hajdini, Edward S. Knotek II, John Leer, Robert Rich and Raphael Schoenle) Federal Reserve Bank of Cleveland, Working Paper No. 22-21

Coverage: Bloomberg, CNN, Brookings

The Geographic Effects of Monetary Policy (with Juan Herreño) (New Draft) Federal Reserve Bank of Cleveland, Working Papers No. 22-15

Export-Led Decay: The Trade Channel in the Gold Standard Era (with Bernardo Candia) (New Draft) Federal Reserve Bank of Cleveland, Working Papers No. 21-11


Work in Progress

Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience (with Hiroshi Toma and Esteban Verdugo)

Inflation expectations are heterogeneous and depend on past individual experiences (Malmendier and Nagel (2016), Malmendier (2021a)). We propose a diagnostic expectations-augmented Kalman filter as a way of representing the heterogeneous inflation expectations-formation process. The difference between inflation expectations of two different individuals lies on the different inflation experiences these two individuals have lived through. This is a learning-from-the-past mechanism. We show that such a model can replicate systematic differences across cohorts in the US. We introduce this mechanism into a New Keynesian model to analyze its macroeconomic implications.

Economic Voting and the Room to Maneuver: evidence from a natural historic experiment (with Juan Herreño and Matias Morales)

We test the extent to which local economic voting responds to the government's "room to maneuver" using data from U.S. elections after two historically important events. First, the abandonment of the gold standard by the UK and other countries, which was outside the incumbent's scope of action and deteriorated the economic conditions of export-oriented counties in the United States. Second, the abandonment of the gold standard by the U.S., which was within the government's scope of action and improved the economic conditions of exporting counties. Exploiting cross-sectional variation in pre-existing destination-specific trade exposures, we find responses of local voting of similar magnitudes regardless of incumbents' responsibility over economic outcomes, implying a strong feedback from economic conditions to electoral outcomes, and a weak role for accountability mechanisms in this setting.

Transmission of International Monetary Policy Shocks on Firms Expectations (with Serafin Frache, Rodrigo Lluberas and Javier Turen)

This paper shows how international shocks can affect the local economy by affecting expectations. Motivated by the presence of a Global Financial Cycle, we study the transmission of monetary policy (MP) shocks in the US on firms expectations about the local economy. We combine data from a long panel survey of firms expectations in Uruguay with granular information about firms' debt position, the share of debt denominated in US dollars and total imports on a monthly basis. We then explore the responses of both expectations and firm decisions after a MP shock in the US. We show that such shock effectively affect firms inflation and cost expectations. This response is heterogeneous on the position and whether that the debt is denominated in US dollars, which group have a higher inflation expectation reaction. We find similar results for importers. We find that this group, which expects higher inflation, increases their current imports, arguably in anticipation to a future rise in the exchange rate as a consequence of the MP shock.

The Price Pass-Through of Local Shocks and the Effectiveness of Fiscal Devaluations (with Juan Herreño)

The effectiveness of local fiscal policies in a monetary union depends on the reaction of prices. We estimate the pass-through of local sale taxes to prices to using data underlying the CPI. We estimate a higher pass-through of sale taxes on tradable goods relative to non-tradable goods. We use a New Keynesian model where regions trade and consume tradable and non-tradable goods to interpret the evidence. In the model, the pass-through of a sale tax depends on the extent of geographical competition for a good. We explore conditions under which fiscal policies are output and welfare-improving.

Other Publications

Understanding Which Prices Affect Inflation Expectations (with Chris Campos and Michael McMain) Economic Commentary (Federal Reserve Bank of Cleveland), no. 2022–06 (April)

In Press: NY Times

Indirect Consumer Inflation Expectations (with Ina Hajdini, Edward Knotek II, Robert Rich, John Leer and Raphael Schoenle) Economic Commentary (Federal Reserve Bank of Cleveland), no. 2022–03 (March)

In Press: WSJ, The Economist