Research

Publications

• Spatial Inequality, Regional Growth and Economic Geography
  with Sebastian Ellingsen and Helen Simpson
  Forthcoming. Oxford Handbook of Income Distribution and Economic Growth
  
  This chapter explores the patterns of spatial income disparities within countries throughout the 20th Century. Following World War II, regional income gaps initially narrowed; however, the rate of convergence slowed in recent decades, with regional divergence evident in some countries. Despite narrowing income gaps, the incomplete nature of regional income convergence has led to persistent relative income disparities. We synthesize recent contributions seeking to explain these patterns, with an emphasis on insights from quantitative economic geography and macroeconomics. Finally, we examine the evidence on the impact of “place-based policies,” focusing on large-scale programs designed to promote regional convergence.
• Monetary Policy and Sentiment-Driven Fluctuations
  Journal of Economic Theory, Vol. 222, December 2024
  
  Sentiments, or beliefs about aggregate demand, can be self-fulfilling in models departing slightly from the complete information benchmark in the New Keynesian framework. Through its effect on aggregate variables, the policy stance determines the degree of complementarity in firms’ production (pricing) decisions and consequently, the precision of endogenous signals that firms receive. As a result, aggregate fluctuations can be driven by both fundamental and non-fundamental shocks. The distribution of non-fundamental shocks is endogenous to policy, introducing a novel trade-off between stabilizing output and inflation. Both strong inflation targeting and nominal flexibilities increase the variance of non-fundamental shocks, which are shown to be suboptimal. Moreover, the Taylor principle is no longer sufficient to rule out indeterminacy. Instead, an interest rate rule that places sufficiently low weight on inflation eliminates non-fundamental volatility and thereby the output-inflation trade-off.
  Coverage: On returning inflation back to target − speech by Catherine L Mann
  Other versions: [Bank of England Staff Working Paper] [Centre for Macroeconomics Discussion Paper] [SSRN]
• Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK
  with Sebastian Diz and Derrick Kanngiesser
  Journal of Monetary Economics, Vol. 147, October 2024
  
  How does household heterogeneity affect the transmission of an energy price shock? What are the implications for monetary policy? We develop a small open economy TANK model that features labor and an energy import good as production inputs (Gas-TANK). Given complementarities in production inputs, higher energy prices reduce the labor share of total income. Due to borrowing constraints, this translates into a drop in aggregate demand. Higher price flexibility insures firm profits from adverse energy price shocks, further depressing labor income and demand. We illustrate how the transmission of shocks in a RANK versus a TANK depends on the degree of complementarity between energy and labor in production and the degree of price rigidities. Optimal monetary policy is less contractionary in a TANK and can even be expansionary when credit constraints are severe. Finally, the contractionary effect of an energy price shock on demand cannot be generalized to alternate supply shocks, as the specific nature of the supply shock affects how resources are redistributed in the economy.
  Coverage: [The path to 2 per cent − speech by Silvana Tenreyro] [Monetary policy in the face of supply shocks − speech by Silvana Tenreyro] [Structural changes in energy markets and implications for inflation and monetary policy − speech by Ida Wolden Bache]
  Other versions: [Bank of England Staff Working Paper] [Centre for Macroeconomics Discussion Paper] [SSRN]
  Code: Macroeconomic Model Database (NK_CDK24)

Working Papers

• Trade Fragmentation, Inflationary Pressures, and Monetary Policy
  with M. Ludovica Ambrosino and Silvana Tenreyro
  
  How does trade fragmentation affect inflationary pressures? What is the response of monetary policy needed to sustain inflation at target? We develop a two-sector, small open-economy model featuring imperfect international risk-sharing and household het- erogeneity that captures both the supply-side and demand-side effects of fragmenta- tion. The impact of fragmentation on inflationary pressures, and the appropriate policy response, depend not only on the direct effect of higher import prices on supply but, crucially, on how aggregate demand adjusts in response to lower real incomes and pro- ductivity. In turn, this depends on the pace of fragmentation (whether it is gradual or front-loaded), as well as several other structural factors elucidated by the model analysis. We compare the outcomes resulting from a central bank following Taylor-type monetary policy rules to a constrained-efficient allocation.
  Coverage: [Bracing for a More Inflationary World, by R. G. Rajan] [Between a Shock and a Hard Place - Trade Fragmentation and Monetary Policy - speech by Swati Dhingra] [ECB Report of the IRC Workstream on Trade Fragmentation: Navigating a fragmenting global trading system]
  Other versions: BIS Working Paper
• Sticky Production and Monetary Policy
  with Sebastian Diz and Derrick Kanngiesser
  
  We study a New Keynesian model where production inputs and pricing decisions are made under information frictions. Firm production is constrained by inputs that are chosen before shocks are realized, based on firms’ expectations of future demand. We show that the assumption of real rigidities versus nominal rigidities is not innocuous, as assuming the presence of either or both affects the passthrough of demand shocks to aggregate output and inflation. When the choice of production inputs is made under imperfect information about demand shocks, the impact on inflation is amplified while the impact on output is dampened. When both production inputs and pricing decisions are made under imperfect information about demand shocks, the pass-through to output is amplified while the impact on inflation is dampened. Additionally, we show that expectations about demand can behave similarly to a supply shock, as these expectations influence the natural level of output and enter the New Keynesian Phillips curve in a manner analogous to a cost-push shock. Empirical evidence suggests that inflation falls following a positive surprise in industrial production, consistent with the model version featuring real rigidities.
• Conquering Distance? Geographical Isolation and Spatial Development
  with Sebastian Ellingsen (draft available upon request)
  
  What is the effect of past market access on spatial development? We study this question by constructing a granular measure of pre-industrial geographical isolation. Despite significant reductions in transportation costs over time, we find that a location’s historical isolation has a persistent effect on its modern spatial development. Specifically, we show that isolated locations were less likely to sustain cities between 1200 and 1800, with a lower GDP per capita between 1900 and 2015. A quantitative spatial model provides a structural interpretation of these findings. Through the lens of the model, we assess the relative importance of different channels of persistence. Both first and second-nature fundamentals are important drivers of the persistent impact of historical geographical isolation. Our results suggest that infrastructure investment undertaken at stages of development when the distribution of economic activity is malleable can have long-run implications.

Work in Progress

• Transportation Networks and Structural Transformation in Regions
  with Sebastian Ellingsen (draft available upon request)
  
  Since 1900, rural regions in Europe experienced more rapid income growth and rapid industrialization than urban regions. Did lower transportation costs enable this rural catchup? We explore this question using historical data from Norway and European regions since 1900. In both cases, we find that improvements in market access accelerated structural transformation out of agriculture in regions that were initially specialized in agriculture. To interpret this pattern, we build a multi-sector dynamic spatial model equilibrium of structural transformation that we take to the data. Through counterfactuals exercises, we find that lower transportation costs accelerated structural transformation in rural locations, but are insufficient to account for the full catchup observed in the data. Our findings suggest alternative mechanisms are important in accounting for rural catchup across European regions.

Policy Writing

Decompositions, forecasts and scenarios from an estimated DSGE model for the UK economy
Bank of England Macro Technical Paper, No. 1, June 2025
with Daniel Albuquerque, Derrick Kanngiesser, David Latto, Simon Lloyd, Sumer Singh, and Jan Žáček

Some Implications of Climate Policy for Monetary Policy
Bank Underground, November 2024
with Francesca Diluiso and Boromeus Wanengkirtyo

Monetary Policy in a Gas-TANK
Bank Underground, August 2024
with Sebastian Diz and Derrick Kanngiesser

Discussions

Carbon Pricing and Firms' Expectations: Evidence from Italy
by Giacomo Mangiante
slides

Optimal Monetary Policy during a Cost-of Living Crisis
by Alan Olivi, Vincent Sterk, and Dajana Xhani
slides

The Aggregate and Distributional Effects of a Carbon Tax
by Christian Proebsting
slides

Pass-Through of Cost-Push Shocks
by Isabel Gödl-Hanisch and Manuel Menkhoff
slides

Looking Through Supply Shocks versus Controlling Inflation Expectations: Understanding the Central Bank Dilemma
by Paul Beaudry, Thomas J. Carter, and Amartya Lahiri
slides

Experience-Based Heterogeneity in Expectations and Monetary Policy
by Lucas Radke and Florian Wicknig
slides

Hitting the Elusive Inflation Target
by Francesco Bianchi, Leonardo Melosi, and Mattias Rottner
slides

This website is used to disseminate my work and the views expressed here do not represent those of the Bank of England or any of its policy committees.