Working Papers

Monetary Regimes and Real Exchange Rates: Long-Run Evidence at the Product Level

(with Jason Kim and Marco Mello)

  May 2024

Compiling a novel dataset of prices for products sold in sixteen European countries starting in 1972, we establish that monetary-regime breaks, from peg to floating regimes, increase not only the volatility of nominal exchange rates, but also the volatility of product-level real exchange rates. Our result holds for any type of products—tradables versus nontradables—although the volatility of the real exchange rates of tradables responds less to breaks than the volatility of the real exchange rates of nontradables. Overall, the law of one price is less likely to hold under floating regimes for both tradables and nontradables.

The Macro Neutrality of Exchange-Rate Regimes in the presence of Exporter-Importer Firms

  2022 Best JMP Award – Special Mention of Merit

EEA and UniCredit Foundation

I characterize exchange-rate regime breaks for thirty countries between 1960 and 2019, and I establish that while they affect the volatilities of nominal and real exchange rates they do not change the volatilities of other real macroeconomic variables (output, consumption, investment, and net exports). This is true even in countries in which exports and imports represent a large component of gross domestic product. I propose a model with exporter-importer firms which matches the behavior of nominal and real exchange rates and real macroeconomic variables across exchange-rate regimes, even for economies in which the sum of exports and imports exceeds gross domestic product. 

Mr. Keynes and the “Classics”; A Suggested Reconciliation

(with Gauti B. Eggertsson)

NBER Working Paper, August 2021

This paper proposes a resolution to the empirical and theoretical controversy between the Keynesians and the monetarists (“classics”). Keynesians argued that increasing money supply beyond a certain point had no impact on economic aggregates, while the monetarists argued that increasing money supply was always effective. The controversy dates to Keynes’s book The General Theory of Employment, Interest and Money (1936)—famously formalized in Hicks’s article “Mr. Keynes and the “Classics”; A Suggested Interpretation” (1937)—and became the subject of several empirical and theoretical studies even if never reaching a definite conclusion. We first reevaluate previous empirical work relating money demand and long-term interest rates and overturn existing empirical findings using more recent data. We then resolve the controversy, reconciling the Keynesian and monetarist perspectives under different assumptions about the underlying policy regime. We do so by applying the tools of macroeconomics developed in the past fifty years, leveraging the Lucas critique (Lucas, 1976) to reinterpret existing empirical work, the microfoundations of modern macroeconomics to obtain structural interpretation, and the application of game theory to model the government’s policy regime (Kydland and Prescott, 1977, Barro and Gordon 1983a,b).


The Mussa Puzzle: A Generalization

European Economic Review, 149, October 2022

One of the most compelling pieces of evidence for monetary non-neutrality is the Mussa puzzle: the break in the monetary regime when the Bretton Woods system broke down increased the volatility of not only the nominal exchange rate but the real exchange rate. Using data covering forty-four countries from 1954 to 2019, I find that the Mussa puzzle is generalizable: any break in a monetary regime that changes the volatility of the nominal exchange rate also changes the volatility of the real exchange rate. This provides further evidence of monetary non-neutrality.