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Research

My research interests are centered around Monetary Economics and International Macroeconomics, mainly having worked with models from the New Keynesian tradition, and lately exploring the role of houeshold heterogeneity in conducting monetary and fiscal policies.

Most recently, I worked on macro policies in the presence of labor market frictions. In our latest CEPR working paper, we showed how the interaction of capital-skill complementarity and asymmetric labor market frictions can lead to rising wage inequality after monetary or fiscal stimulus. My work during my Bank of England internship proposed a new channel in explaining the puzzle of weak wage recovery after the financial crisis by highlighting how wage bargaining can substitute for precautionary savings after a credit crunch in a heterogeneous agent setting with incomplete markets and  labor market frictions.

Previously, my focus was on liquidity trap situations where monetary policy is constrained by the zero lower bound. Questions involve the role of fiscal policy as a demand management tool in such an environment, as well as the potential merits of “helicopter money”. In my MA thesis I have explored the case for alternative monetary strategies to avoid liquidity traps, like nominal GDP level targeting. As an economist in the Hungarian central bank, I have also researched the increased role for forward guidance in monetary policy.

In the open economy context I did some work on monetary policy in emerging market economies. One of my BA theses focused on the effects of currency mismatches in these countries, in particular how exchange rate movements influence central bank decisions under such conditions. My first-year paper at the EUI analysed the same question in the context of a small New Keynesian model with incomplete markets to determine which exchange rate regime is most beneficial under currency mismatch in the face of sudden stops of capital inflows. Currently I am working on a version of this model with heterogeneous households.

I am very much interested in the economics of monetary unions, and the euro in particular. In my other BA thesis I explored the narrative of the euro crisis as a balance-of-payments crisis and sudden stops within the EMU as a potential source for asymmetric shocks. Currently I work on the design of an optimal monetary and fiscal policy mix in a currency union taking into account household heterogeneity: what sort of fiscal risk sharing is desirable and how does it affect current account rebalancing? Potential future directions involve appending the model with the possibility of a liquidity trap.

As a side track, recently I also took up an interest in the theory of endogenous money, i.e. the notion that the modern banking system is not (only) a financial intermediary of loanable funds but rather finances loans with money created out of thin air. This has significant implications on how pro-cyclical the financial sector is, how to include it in macro models, and also raises the question whether full reserve banking would be a more desirable policy.

I like to see my research topics also in the historical context which is why, rather as a hobby, I am interested in the history of different schools of macro thought, the Great Depression, or international monetary systems like the Gold Standard and Bretton Woods.