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Andrea Pescatori |

Research Economist

Andrea Pescatori, Research Economist

Andrea Pescatori was formerly a research economist in the Research Department of the Federal Reserve Bank of Cleveland. His major fields of interest are monetary and fiscal policy, macroeconometrics, asset prices, real estate, and international finance. He holds a Ph.D. in economics from Universitat Pompeu Fabra–Barcelona.

  • Fed Publications
  • Other Publications
  • Work in Progress
Title Date Publication Author(s) Type

 

 October, 2011 ; Saeed Zaman; Economic Commentary
Abstract: Models of the macroeconomy have gotten quite sophisticated, thanks to decades of development and advances in computing power. Such models have also become indispensable tools for monetary policymakers, useful both for forecasting and comparing different policy options. Their failure to predict the recent financial crisis does not negate their usefulness, it only points to some areas that can be improved.
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 October, 2011 ; Saeed Zaman; News Item
Abstract: Macroeconomic models have become important tools for monetary policymakers, useful both for forecasting and for comparing different policy options.
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 April, 2011 Federal Reserve Bank of Cleveland, working paper no. 11-11 ; Murat Tasci; Working Papers
Abstract: This paper assesses whether labor market frictions, in the form of searching and matching, can help explain movements in the labor wedge--the gap between the marginal rate of substitution (MRS) and the marginal productivity of labor in a perfectly competitive business cycle model. Results suggest that those frictions are not able to explain fluctuations in the labor wedge, per se. However, the introduction of extensive and intensive margin shows that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the perfectly competitive model. A Frisch elasticity of 2.8, as in most macro models, implies a 20 percent decline in the variability of the labor wedge. A Frisch elasticity closer to micro estimates implies an even higher reduction. Finally, we show that it is possible to measure a strongly procyclical labor wedge as in CKM (2007) even if the actual data generating process does not have any labor wedge but has search frictions that allow for movements in both labor margins.
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 March, 2010 Federal Reserve Bank of Cleveland, Working Paper no. 1003R ; Filippo Occhino; Working Papers
Abstract: We study the macroeconomic implications of the debt overhang distortion. In our model, the distortion arises because investment is noncontractible—when a firm borrows funds, the debt contract cannot specify or depend on the firm’s future level of investment. After the debt contract is signed, the probability that the firm will default on its debt obligation acts like a tax that discourages its new investment, because the marginal benefit of that investment will be reaped by the creditors in the event of default. We show that the distortion moves countercyclically: It increases during recessions, when the risk of default is high. Its dynamics amplify and propagate the effects of shocks to productivity, government spending, volatility, and funding costs. Both the size and the persistence of these effects are quantitatively important. The model replicates important features of the joint dynamics of macro variables and credit risk variables, like default rates, recovery rates and credit spreads.
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 December, 2009 ; Charles T Carlstrom; Economic Commentary
Abstract: This Economic Commentary explains the concerns that are associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. We argue that avoiding expectations of deflation is key and that the monetary authority needs to demonstrate an unequivocal commitment to preventing deflation. We also argue that price-level targeting might be a good device for communicating such a commitment.
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 March, 2008 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: Three explanations have been suggested for the moderation in real GDP and inflation that has occurred in industrialized countries since the 1980s: good luck, better monetary policy, and structural changes in the economy. Recent research finds that better monetary policy explains most of the moderation in inflation, and good luck and the less-intensive use of oil (a structural change) have played a major role in the moderation of GDP.
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 November, 2007 Federal Reserve Bank of Cleveland, Working Paper no. 0717 ; Anton Nakov; Working Papers
Abstract: We assess the extent to which the period of great U.S. macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that the reduced oil share accounted for as much as one-third of the inflation moderation and 13% of the growth moderation, while smaller oil shocks accounted for 11% of the inflation moderation and 7% of the growth moderation. This notwithstanding, better monetary policy explains the bulk of the inflation moderation, while most of the growth moderation is explained by smaller TFP shocks.
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 October, 2007 Federal Reserve Bank of Cleveland, Working Paper no. 0710 ; Anton Nakov; Working Papers
Abstract: An exogenous oil price shock raises inflation and contracts output, similar to a negative productivity shock. In the standard New Keynesian model, however, this does not generate any trade-off between inflation and output gap volatility: under a strict inflation-targeting policy, the output decline is exactly equal to the efficient output contraction in response to the shock. Modeling the oil sector from optimizing first principles rather than assuming an exogenous oil price, we show that the presence of a dominant oil supplier (OPEC) leads to inefficient fluctuations in the oil price markup. The latter reflects a dynamic distortion of the production process, and as a result, stabilizing inflation does not automatically stabilize the distance of output from first-best. Our model is a step away from discussing the effects of exogenous oil price changes and toward analyzing the implications of the underlying shocks that cause the oil price to change in the first place.
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 October, 2007 Federal Reserve Bank of Cleveland, Working Paper no. 0709 ; Working Papers
Abstract: The present paper studies optimal monetary policy when the representative agent assumption is abandoned and financial wealth heterogeneity across households is introduced. Incomplete markets make households incapable of perfectly insuring against interest rate and inflation risk, creating a trade-off between price level and debt-servicing stabilization. We derive a welfare-based loss function for the policymaker, which includes an additional target related to the cross-sectional distribution of household debt. The extent of the deviation from price stability depends on the initial level of debt dispersion. Using U.S. microdata to calibrate the model, we find an optimal inflation volatility equal to almost 20 percent of the actual volatility of the last 15 years. Finally, the paper studies the design of optimal simple implementable rules. Superinertial rules, which imply a hump-shaped interest rate response to shocks, significantly outperform standard rules.
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Title Date Publication Author(s) Type
Monetary Policy Trade-Offs with a Dominant Oil Producer

 

 February, 2010 Journal of Monetary Economics, vol. 42, no. 1, pp. 1-202 ; Journal Article
Abstract: The present paper studies optimal monetary policy when the representative agent assumption is abandoned and financial wealth heterogeneity across households is introduced. Incomplete markets make households incapable of perfectly insuring against interest rate and inflation risk, creating a trade-off between price level and debt-servicing stabilization. We derive a welfare-based loss function for the policymaker, which includes an additional target related to the cross-sectional distribution of household debt. The extent of the deviation from price stability depends on the initial level of debt dispersion. Using U.S. microdata to calibrate the model, we find an optimal inflation volatility equal to almost 20 percent of the actual volatility of the last 15 years. Finally, the paper studies the design of optimal simple implementable rules. Superinertial rules, which imply a hump-shaped interest rate response to shocks, significantly outperform standard rules.
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 January, 2009 Economic Journal, forthcoming ; Anton Nakov; Journal Article
Abstract: We assess the extent to which the great U.S. macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the elastiticy of oil in output. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that oil played an important role in the stabilization, especially of inflation. In particular, the lower elasticity of oil in output explains around one-third of the reduced volatility of inflation, and 18% of the reduced volatility of GDP growth. In turn, smaller oil shocks explain around 17% of the lower inflation volatility, and 11% of the reduced volatility of GDP growth. This notwithstanding, around half of the reduced volatility of inflation is explained by better monetary policy alone, while 57% of the reduced volatility of GDP growth is attributed to smaller TFP shocks.
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 October, 2007 IMF Staff Papers (2007) 54, 306-337 ; A Sy; Working Paper, Other
Abstract: We assess the extent to which the great U.S. macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the elastiticy of oil in output. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that oil played an important role in the stabilization, especially of inflation. In particular, the lower elasticity of oil in output explains around one-third of the reduced volatility of inflation, and 18% of the reduced volatility of GDP growth. In turn, smaller oil shocks explain around 17% of the lower inflation volatility, and 11% of the reduced volatility of GDP growth. This notwithstanding, around half of the reduced volatility of inflation is explained by better monetary policy alone, while 57% of the reduced volatility of GDP growth is attributed to smaller TFP shocks.
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Title Date Publication Author(s) Type

 

 January, 2009 ; Anton Nakov; Unpublished manuscript
Abstract: We model the oil sector from optimizing principles rather than assuming exogenous oil price shocks, and show that the presence of a dominant oil producer leads to a sizable static as well as a dynamic distortion of the production process. Under our calibration, the static distortion costs the United States around 1.6% of GDP per year. In addition, the dynamic distortion, reflected in inefficient fluctuation of the oil-price markup, generates a trade-off between stabilizing inflation and aligning output with its efficient level. Our model is a step away from discussing the effects of exogenous oil-price variations and toward analyzing the implications of the underlying shocks that cause oil prices to change in the first place. (Note: A previous version circulated as “Inflation-Output Gap Trade-off with a Dominant Oil Supplier.”)
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Competition among Exchanges and Enforcement Policy

 

 November, 2007 Unpublished manuscript ; Cecilia Caglio; Unpublished manuscript
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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Credit Friction, Housing Prices and Optimal Monetary Policy Rules

 

 January, 2004 Working Paper 04/42 Universitá Roma ; Caterina Mendicino; Working Paper, Other
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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Fiscal Spillover in a Monetary Union

 

 January, 2004 Unpublished manuscript ; M Pisani; Working Paper, Other
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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 January, 2004 IMF working papers, no. WP04/44 ; A Sy; Working Paper, Other
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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Monetary Externalities in a New Keynesian Model

 

 January, 2003 Mimeo, SSE/UPF ; Caterina Mendicino; Mimeo
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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The Role of Money in a New Keynesian Model: Bayesian Estimation of a Small DSGE Model

 

 January, 2003 Mimeo, SSE/UPF ; Caterina Mendicino; Mimeo
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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Housing Prices and Monetary Policy in a Limited Participation Model

 

 January, 2002 Mimeo, SSE/UPF ; Caterina Mendicino; Mimeo
Abstract: We examine a model where two self-regulatory organizations (SROs) compete for trading volume by setting an enforcement policy and transaction fees. Brokers execute transactions on the behalf of investors but the transaction cash flows are brokers' private information. SROs have access to a monitoring technology and can invest resources to verify brokers misconduct. Relative to a monopolistic case, we show that competition reduces transaction fees but gives rise to a race to the bottom in enforcement policies, at the only advantages of brokers' rent. When investors have imperfect information about the actual SROs monitoring technology, competition may lead to frauds and reduce investors participation.
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