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. 

Working Papers

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 macro 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 macro 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 Reinterpretation (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”) applying the tools developed in macroeconomics over the past fifty years. The controversy dates to Keynes’ General Theory of Employment, Interest and Money (1936)—famously formalized in Hicks’ (1937) article where the IS-LM model is first stated—and has been a subject of several empirical studies although never resulting in a definitive conclusion. We first re-evaluate previous empirical work with more recent data, overturning existing empirical findings. We then resolve the controversy by leveraging the Lucas critique, the microfoundations of macroeconomics, and the application of game theory to model government behavior.