(with Paulo Brito and Giancarlo Marini) (March 2013) This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It demonstrates that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also proves that booms or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices.
(November 2012) Much empirical evidence finds that governments react to fiscal imbalances in a non-linear way, through an increasing marginal response of primary surpluses to changes in debt. This paper shows that non-linear fiscal regimes alter equilibria under active and passive monetary-fiscal policies. The Fisher equation combined with non-linear fiscal policies leads to multiple steady states. Under passive interest rate rules, even if the steady state at which fiscal policy is active is locally saddle-path stable, there exist infinite equilibrium paths originating in the neighborhood of that steady state which converge into a high-debt trap. Under active interest rate rules, even if the steady state at which fiscal policy is active is locally unstable, there exists a saddle connection with the high debt equilibrium along which inflation is uniquely determined.
(with Romina Bafile) (April 2012) Standard New Keynesian models for monetary policy analysis are "cashless". When the nominal interest rate is the central bank's operating instrument, the LM equation is endogenous and, it is argued, can be ignored. The modern theoretical and quantitative debate on the importance of money for monetary policy conduct, however, overlooks firms' money demand. Working in an otherwise canonical New Keynesian setup, we show that macroeconomic dynamics are critically affected by the firms' money demand choice. We prove that equilibrium determinacy may require either an active interest-rate policy, overreacting to inflation, or a passive interest-rate policy, underreacting to inflation, depending on the elasticity of production with respect to cash balances. We then develop a numerical analysis based on U.S. data to evaluate our theoretical results. We find that macroeconomic stability is more likely to occur under an active, but not overly aggressive, monetary-policy stance. (Revise and Resubmit Stage, Pacific Economic Review)
(with Giancarlo Marini) (February 2008) This paper shows that indicators and tests of government solvency should not be used alternatively. We present a simple and intuitive procedure to integrate simultaneously the results from the two approaches to fiscal sustainability. An application to U.S. post-World War II data demonstrates the empirical relevance of the proposed strategy. Our results suggest that U.S. fiscal policy is on a sustainable path, since the warning predictions of tax gap indicators merely reflect cyclical factors.
(with Michele Postigliola), Rivista Italiana degli Economisti, Vol. 17, No. 3, December 2012, pp. 417-440.
(with Giorgio Rodano), Rivista Italiana degli Economisti, Vol. 17, No. 2, August 2012, pp. 225-248.
(with B. Annicchiarico and N. Giammarioli), Research in Economics, Vol. 66, No. 2, June 2012, pp. 111-130.
(with B. Annicchiarico), Economic Notes, Vol. 40, No. 1-2, February / July 2011, pp. 1-27.
(with B. Annicchiarico and G. Marini), International Journal of Economic Theory, Vol. 5, No. 3, September 2009, pp. 315-331.
Monetary Policy and Fiscal Rules
(with B. Annicchiarico and G. Marini), The B.E. Journal of Macroeconomics, Vol. 8, Iss. 1 (Contributions), Article 4, 2008, pp. 1-40.
Inflation Bias after the Euro: Evidence from the UK and Italy
(with G. Marini and P. Scaramozzino), Applied Economics, Vol. 39, No. 4, February 2007, pp. 461-470.
Monetary Rules and Deficit Shocks
(with B. Annicchiarico), Spanish Economic Review, Vol. 9, No. 1, March 2007, pp. 39-57.
Inflation Shocks and Interest Rate Rules
(with B. Annicchiarico), Economics Bulletin, Vol. 5, No. 19, 2006, pp. 1-11.
Atlantic Economic Journal, Vol. 34, No. 4, December 2006, pp. 395-403.
Population Dynamics and Monetary Policy
(with B. Annicchiarico), Journal of Population Economics, Vol. 19, No. 3, July 2006, pp. 627-641.
Economic Inquiry, Vol. 44, No. 3, July 2006, pp. 497-511.
Economic Notes, Vol. 34, No. 3, November 2005, pp. 313-330.
(Publications in Italian Journals)
(with G. Marini and P. Scaramozzino), Civitas et Iustitia, Vol. IV, No. 1, 2006, pp. 75-83.
(with G. Marini), Civitas et Iustitia, Vol. III, No. 1, 2005, pp. 41-69.
(with G. Marini and P. Scaramozzino), Economia Italiana, No. 1, gennaio-aprile 2004, pp. 163-177.
(English version, The Changeover of the Euro and the Behavior of Inflation, Review of Economic Conditions in Italy, No. 1, January-April 2004, pp. 139-153.)