Working Papers

Quantitative Easing Spillovers

  • This paper studies the spillover effects of US QE on emerging market countries. I estimate the spillover effects using Bayesian VAR models for the US economy and a set of emerging market economies. The increase in the Federal Reserve’s securities held outright has significant positive effects on real variables and on asset prices in the US economy, while the emerging market economies experience positive significant effects on real variables, currency appreciation, and higher asset prices. Then I build a two-country Heterogeneous-Agents New Keynesian model with QE shocks. The estimated model produces similar movements to those derived from the BVAR models. In addition, the model reveals that macro aggregates do not react similarly to a QE shock in versions of the model with a representative agent in one or in both countries. The model also predicts that QE tends to increase inequality in both countries initially, but over time inequality is reduced.

Quantitative Easing and Fiscal Policy Effectiveness

  • This paper studies the effects of fiscal policy on aggregate economic activity and inequality when the monetary authority follows conventional and unconventional policies. First I build a three-agent Preferred Habitat New Keynesian (PHANK) model with a banking sector in which QE matters for the determination of output in the short run. I analytically derive the fiscal multiplier and show that it decreases in the presence of countercyclical QE policies, even at the ZLB. However, countercyclical QE tends to decrease consumption inequality between constrained houhseolds and long-term savers, and between short-term savers and long-term savers, but increase consumption inequality between financially constrained households and short-term savers. A calibration of the model for the US economy yields fiscal multipliers close to 3 when the monetary authority pegs the policy rate and the amount of assets held. The QE multipliers at the ZLB are of similar magnitude. The optimal QE policy is supportive of fiscal policy at the ZLB, so any countercyclical rule would not be optimal. I also consider a medium-scale HANK model to further study the distributional effects of fiscal expansions under QE and recompute the fiscal multipliers. In the enhanced model, the government spending multiplier at the ZLB is 1.279. Countercyclical QE reduces consumption inequality, but increases income and wealth inequality.