The Case for a Positive Inflation Target in the Euro Area: Evidence from France, Germany and Italy , with Erwan Gautier, Sergio Santoro and Henning Weber, July 2021

Using the micro price data underlying the construction of the HICP in France Germanc and Italy, we show that price stickiness alone justifies targeting significantly positive rates of inflation. The optimal inflation rates ranges between 1.1% and 1.7% for the three country average and the welfare costs of targeting an inflation rate of zero are substantial: they range between 2.1% and 4.5% of consumption.

Falling Natural Rates, Rising Housing Price Volatility and the Optimal Inflation Target, with Oliver Pfaeuti and Timo Reinelt, January 2021

Shows how lower natural rates of interest trigger increased housing price volatility and increased volatility of the natural rate. In the presence of a lower bound constraint, this complicates the stabilization problem of monetary policy and justifies targeting higher inflation rates.


Estimating the Optimal Inflation Target from Trends in Relative Prices, with Henning Weber, NEW VERSION: September 2021
We derive closed-form expressions for the optimal inflation target under Calvo and menu-cost frictions and show how the target can be estimated from trends in relative prices over the product lifetime. The trends in relative prices present in U.K. micro price data imply an optimal U.K. inflation target of 2.6%.

Stock Prices Cycles and Business Cycles, with Sebastian Merkel, June 2019

We present a simple RBC model that jointly replicates the behavior of stock prices and business cycles. The model predicts that low interest rates make stock price boom-bust cycles more likely and that these cycles are triggered by a sequence of positive productivity surprises.