RESEARCH
"Do We Reject Restrictions Identifying Fiscal Shocks? Identification Based on non-Gaussian Innovations."doi
with Skrobotov A.
Journal of Economic Dynamics and Control, 2022, Vol. 138, Article 104358
SSRN
"Prudential policies and systemic risk: the role of interconnections."doi
with Seregina E.
Journal of International Money and Finance, 2022, Vol. 127, Article 102696
SSRN
"How do fiscal adjustments work? An empirical investigation"doi
Journal of Economic Dynamics and Control, 2022, Vol. 137, Article 104347
SSRN
“What Do We Know about Fiscal Multipliers?” doi
with Favero C.
Rethinking Fiscal Policy after the Crisis. Cambridge University Press , 2017. doi P. 443-482.
"Policymaker meetings as heteroscedasticity shifters: Identification and simultaneous inference in unstable SVARs"
with Gafarov B., Polbin A., Skrobotov A.
We propose a novel approach to identification in structural vector autoregressions (SVARs) that uses external instruments for heteroscedasticiy of a structural shock of interest.
This approach does not require lead/lag exogeneity for identification, does not require heteroskedasticity to be persistent, and facilitates interpretation of the structural shocks.
To implement this identification approach in applications, we develop a new method for simultaneous inference of structural impulse responses and other parameters, employing a dependent wild-bootstrap of local projection estimators. This method is robust to an arbitrary number of unit roots and cointegration relationships (including seasonal unit roots), time-varying local means and drifts, and conditional heteroskedasticity of unknown form and can be used with other identification schemes, including Cholesky and the conventional external IV. We show how to construct pointwise and simultaneous confidence bounds for structural impulse responses and how to compute smoothed local projections with the corresponding confidence bounds. Using simulated data from a standard log-linearized DSGE model, we show that the method can reliably recover the true impulse responses in realistic datasets.
As an empirical application, we adopt the proposed method in order to identify monetary policy shock using the dates of Federal Open Market Committee (FOMC) meetings in a standard six-variable VAR. The robustness of our identification and inference methods allows us to construct an instrumental variable for monetary policy shock that dates back to 1965.
The resulting impulse response functions (IRFs) for all variables align with the classical Cholesky identification scheme and are different from the narrative sign restricted Bayesian VAR estimates. In particular, the response to inflation manifests a price puzzle that is indicative of the cost channel of the interest rates.
ARXIV
"Unveiling the Truth: How Well Market-Based Networks Mirror Bank Exposures"
with Craig B., Salakhova D.
We compare networks constructed using five commonly used methods and publicly available daily market data to networks based on reported exposures along several dimensions of the balance sheet, i.e., loans, bonds, equity. Our findings suggest that while the global network structure remains stable, individual exposures are more dynamic. The main message from the regression analysis is that the market-based networks do their job relatively well, however, various market-based networks capture different types of exposures. All the measures reflect common portfolios of bonds and loans. Equity-based measures match better direct and indirect equity, while credit-risk measures capture direct bonds. None of the measures robustly identify direct interbank lending.
ECB , SSRN, SUERF
"The Network Effects of Fiscal Adjustments."
with Briganti E., Favero C.
We study the effects of fiscal consolidations in the United States and their propagation in the production network. We use a narrative approach to identify fiscal adjustments which are exogenous to output fluctuations. Then we apply spatial econometric techniques to separate the total effect of fiscal adjustments into a direct and network component. We find that fiscal adjustments based on increased taxation are more recessionary than those based on spending cuts. Moreover, one quarter of the difference in their total output effect is explained by the stronger network propagation of taxes relative to government spending.
SSRN
"Fiscal Multiplier and the Size of Government Spending Shock. The case of the U.S."
with German N., Skrobotov A.
This paper investigates whether the fiscal multiplier depends negatively on the size of the government spending shock. We build our hypothesis on behavioral arguments and check it empirically using U.S. data. In doing so, we adopt a non-linear Local Projection method. We address possible endogeneity issues by using government military spending and illustrate that our results are non-sensible to these concerns. Finally, we limit our analysis to the government consumption multiplier, as our hypothesis suggests strong non-constancy in this respect. We find a strong negative relationship between the government spending multiplier and the size of the shock. Results are robust to different subsamples, fiscal foresight, business cycle, and different identification schemes.
SSRN
"Design of Fiscal Adjustments: Plans versus Shocks"
with Favero C.
This paper analyzes the measurement of the output effects of fiscal stabilization policies, by assessing the relevance of different methods in determining the heterogeneity of available results and by evaluating comparatively the different approaches proposed in the literature. We compare fiscal plans and fiscal shocks in the U.S. over the period 1978q1-2014q4 by estimating the truncated moving average (MA). We show that plans nest shocks. Our results suggest that the use of shocks instead of plans causes the size and the interpretation of fiscal multipliers to be affected.