Guido Ascari
Guido Ascari is currently Professor of Economics at the University of Oxford and Professor of Economics at the University of Pavia. He holds a PhD from Warwick University and a Research Doctorate from the University of Pavia. His main research interest are: monetary economics, DSGE models of business cycle fluctuations, monetary and fiscal policy interaction, inflation dynamics, and expectations driven fluctuations. He has been Research Fellow of the Bank of Finland (2015-2018), Deutsche Bundesbank Foundation guest professor at the Freie Universitat Berlin and held visiting positions in many academic and Central Bank institutions, such as: Bank of International Settlements, Banque de France, Bundesbank, Federal Reserve Bank of New York.
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Positive trend inflation and determinacy in a medium-sized new keynesian model
June 2020|Scholarly edition© 2020, European Central Bank. All rights reserved. This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops significantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates. -
CONTROLLING INFLATION WITH TIMID MONETARY-FISCAL REGIME CHANGES
May 2020|Journal article|INTERNATIONAL ECONOMIC REVIEW -
Empirical evidence on the Euler equation for consumption in the US
December 2019|Journal article|Journal of Monetary Economics© 2019 Recently developed econometric methods, that are robust to weak instruments and exploit information in possible structural changes, are applied to study the Euler equation for consumption using aggregate US post-war data. Several extensions to the baseline Euler equation model are investigated. The results are insensitive to using linear versus nonlinear specifications, different instruments or different consumption data, but they are very sensitive to asset returns. With risk-free returns, the elasticity of intertemporal substitution is tightly estimated around zero, while with stock market returns, it is significantly positive but very imprecisely estimated. There is no evidence of parameter instability. -
Walk on the Wild Side: Temporarily Unstable Paths and Multiplicative Sunspots
May 2019|Journal article|AMERICAN ECONOMIC REVIEW
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Department of Economics Discussion Paper Series
Sticky prices and the transmission mechanism of monetary policy: A minimal test of New Keynesian models
March 2019|Working paper|Department of Economics Discussion Paper SeriesThis paper proposes a minimal test of two basic empirical predictions that ag-gregate data should exhibit if sticky prices were the key transmission mechanism of monetary policy, as implied by the benchmark DSGE-New Keynesian models. First, large monetary policy shocks should yield proportionally larger initial re-sponses of the price level and smaller real effects on output. Second, in a high trend inflation regime, prices should be more flexible, and thus the real effects of monetary policy shocks should be smaller and the response of the price level larger. Our analysis provides some statistically significant evidence in favor of a sticky price theory of the transmission mechanism of monetary policy shocks.Sticky prices, local projections, smooth transition function, time-dependent pricing, state-dependent pricing -
Department of Economics Discussion Paper Series
Business Cycles, Investment Shocks, and the "Barro-King Curse"
December 2016|Working paper|Department of Economics Discussion Paper SeriesRecent empirical evidence identfies investment shocks as key driving forces behind business cycle fluctuations. However, existing New Keynesian models emphasizing these shocks counterfactually imply a negative unconditional correlation between consumption growth and investment growth, a weak positive unconditional correlation between consumption growth and output growth and anomalous profiles of cross-correlations involving consumption growth. These anomalies arise because of a short-run contractionary effect a positive investment shock on consumption. Such counterfactual co-movements are typical of the "Barro-King curse" (Barro and King 1984), wherein models with a real business cycle core must rely on technology shocks to account for the observed co-movement among output, consumption, investment, and hours. We show that two realistic additions to an otherwise standard medium scale New Keynesian model - namely, roundabout production and real per capita output growth stemming from trend growth in neutral and investment-specific technologies - can break the Barro-King curse and provide a more accurate account of unconditional business cycle comovements more generally. These two features substantially magnify the effects of neutral technology and investment shocks on aggregate fluctuations and generate a rise of consumption on impact of a positive investment shock.Investment shocks, Business cycle comovements, Standard household preferences, Monopolistic competition, Wage and price contracting, Intermediate inputs, Trend output growth, Trend inflation -
Department of Economics Discussion Paper Series
Monetary and Fiscal Policy Interactions: Leeper (1991) Redux
March 2016|Working paper|Department of Economics Discussion Paper SeriesAbstract: A natural generalisation of the original Leeper (1991) taxonomy leads to the concepts of globally active (or passive) and globally switching policies to explain the determinacy properties of a model where both monetary and fiscal policies may switch according to a Markov process. Monetary and fiscal policies need to be globally balanced to guarantee a unique equilibrium: globally active monetary policies need to be coupled with globally passive fiscal policies, and switching monetary policies with switching fiscal policies. This new taxonomy also links the determinacy analysis to the model dynamics because it qualifies under which conditions expectations and wealth effectsarise in the Markov-switching model.Monetary Policy and Fiscal Policy Interaction, Markov Switching, Non-linear models. -
Department of Economics Discussion Paper Series
Rational Sunspots
March 2016|Working paper|Department of Economics Discussion Paper SeriesAbstract The instability of macroeconomic variables is usually ruled out by rational expectations. We propose a generalization of the rational expectations framework to estimate possible temporary unstable paths. Our approach yields drifting parameters and stochastic volatility. The methodology allows the data to choose between different possible alternatives: determinacy, indeterminacy and instability. We apply our methodology to US inflation dynamics in the ‘70s through the lens of a simple New Keynesian model. When unstable RE paths are allowed, the data unambiguously select them to explain the stagflation period in the ‘70s.Thus, our methodology suggests that US inflation dynamics in the ‘70s is better described by unstable rational equilibrium paths.Rational Expectations, Sunspots, Instability, Indeterminacy, Inflation, Monetary Policy. -
Department of Economics Discussion Paper Series
On the Welfare and Cyclical Implications of Moderate Trend Inflation
November 2015|Working paper|Department of Economics Discussion Paper SeriesAbstract We offer a comprehensive evaluation of the welfare and cyclical implications of moderate trend inflation. In an extended version of a medium-scale New Keynesian model, recent proposals to increase trend inflation from 2 to 4 percent would generate a consumption-equivalent welfare loss of 3.7 percent based on the non-stochastic steady state and of 6.9 percent based on the stochastic mean. Welfare costs of this magnitude are driven by four main factors: i) multiperiod nominal wage contracting, ii) trend growth in investment-specific and neutral technology, iii) roundaboutness in the U.S. production structure, and iv) and the interaction between trend inflation and shocks to the marginal efficiency of investment (MEI), insofar that this type of shock is sufficiently persistent. Moreover, moderate trend inflation has important cyclical implications. It interacts much more strongly with MEI shocks than with either productivity or monetary shocks.Wage and price contracting, trend inflation, trend growth in technology, roundabout production, investment shocks, inflation costs, business cycles.