Ricerc@Sapienza

A prolonged decline in the natural rate of interest across developed countries has increased a likelihood of hitting the effective lower bound (ELB). This leads to questions about the superiority of the inflation targeting regime for current macroeconomic environment. The aim of my research is to investigate different monetary policy regimes within the various spectrum of macroeconomic models, mainly incorporating heterogeneous structure of household sector.

Frequently discussed alternative regimes, namely average inflation targeting (AIT), price level targeting (PLT), and nominal GDP level targeting (nGDPLT) should be examine and compare within DSGE models to better understand their pros and cons in juxtaposition with the inflation targeting regime.

The regimes must be compared in models containing occasionally binding constraint (OBC) to be able to simulate the ELB situation. Furthermore, the regimes should be compared within the wide range of models, i.e. not only considering both closed economy models and open small economy models (hence, my research is devoted rather to SOE models that has not gotten so much attention in similar analysis so far) but it is crucial to investigate the monetary policy rules when taking account numerous extensions. Specifically, I am focused mainly on the incorporation of the heterogeneous agents in terms of wealth distribution and possibility of intertemporal substitution in consumption (e.g. using the versions of TANK or HANK models) or on the role of expectations (e.g. working with heterogeneous expectation models based on Branch and McGough, 2009, Massaro, 2013 or Gabaix, 2019).

A comparison of the regimes under different models with many additional features is the only way how to make the results of the casual analysis of potential change of the monetary policy rule as robust as possible. Moreover, the rational agent assumption in benchmark New Keynesian (NK) models is most questionable part of this sort of analysis.