We investigate the synchronization of the Eurozone’s government bond yields at different maturities. For this purpose, we combine principal component analysis with random matrix theory. We find that synchronization depends on yield maturity. Short-term yields are not synchronized. Medium- and long-term yields, instead, were highly synchronized early after the introduction of the Euro. Synchronization then decreased significantly during the Great Recession and the European Debt Crisis, to partially recover after 2015. We interpret our empirical results using portfolio theory, and we point to divergence trades as a source of the self-sustained yield asynchronous dynamics. Our results envisage synchronization as a requirement for the smooth transmission of conventional monetary policy in the Eurozone.

This paper studies how behavioral biases affect the optimal unemployment insurance. I revisit the optimal UI of Landais et al. (2018) and show how the optimal UI formula is modified and leads to novel economic insights. The optimal UI replacement rate is the conventional Baily-Chetty replacement rate, which solves the trade-off between liquidity and job-search incentives, plus a market tightness correction term which shows how welfare is affected by UI through tightness, and plus a behavioral bias correction term, which shows how welfare is affected by UI through job search effort.

Using monthly data from 1978:M1 to 2019:M9, this paper provides empirical evidence concerning the role that monetary policy plays in the US housing market. We first show that shocks to short-run interest rates have significant impacts on house prices and that these effects are persistent. Our findings also provide evidence supporting the claim that too-low-for-too-long interest rates are responsible for the 2002–2006 US housing boom. We further investigate the different channels through which an easing monetary policy fuels the house price boom and find that faster sales and lower inventory levels in the housing market most amplify the policy effects. Lastly, we provide compelling evidence of the asymmetric effects of contractionary and expansionary monetary policies on house prices.

Short-selling constraints are common in financial markets, while physical assets such as housing often lack markets for short-selling altogether. As a result, investment decisions are often restricted by such constraints. This paper studies asset prices in behavioral heterogeneous-belief models with short-selling constraints and arbitrarily many belief types. We provide conditions on beliefs such that short-selling constraints bind for different types, along with analytic expressions for price and demands that allow us to construct fast solution algorithms relevant for a wide range of models. An application studies how an alternative uptick rule, as in the United States, affects price dynamics and wealth distribution in a market with many belief types in evolutionary competition. In a numerical example, we highlight a scenario in which a modified version of the alternative uptick rule, triggered by smaller percentage falls in price, reduces both asset mispricing and wealth inequality relative to the current regulation. As extensions, we show how our method applies to multiple asset markets with short-selling constraints, additional heterogeneities, and price setting by a market maker.

Motivated by the increased importance of trade between industrialized and less-developed countries, we build a two-sector dynamic stochastic general equilibrium model featuring inter-industry trade as well as intra-industry trade to analyze the business cycle dynamics of industrialized countries. We find that import-competing sectors are more sensitive to domestic productivity shocks than exporting sectors, due to their stronger reliance on domestic demand. This generates pressure to adjust relative prices and to reallocate factors of production. It also propagates the international spillover effects of productivity shocks leading to stronger business cycle comovement across countries, relative to a traditional business cycle model that does not feature inter-industry trade.

We test the neutrality of nominal interest rates taking advantage of recent advances in quantitative financial history using the Schmelzing (2022) global nominal interest rate and inflation rate series (across eight centuries), for France, Germany, Holland, Italy, Japan, Spain, the United Kingdom, and the USA. We pay attention to the integration and cointegration properties of the variables and use the bivariate autoregressive methodology proposed by King and Watson (1997). We argue that meaningful long-run neutrality tests can be performed only for three countries—Japan, Spain, and the United Kingdom—and we find no evidence consistent with the neutrality of nominal interest rates.

The literature investigates trade-environment relationship at the firm level, but does not focus on the environmental effect of trade policy uncertainty. In the context of de-globalization and Sino-US trade friction, trade policy uncertainty significantly increases. How does trade policy uncertainty affect firms’ pollution emissions? In this study, we incorporate energy, pollution, and trade policy uncertainty into Melitz’s (2003) framework and construct a theoretical model to reveal the relationship between trade policy uncertainty and pollution emissions. Then, we employ the event that the USA granted permanent normal trade relationship to China as a quasi natural experiment. We use difference-in-difference-in-difference model and the data of Chinese manufacturing firms for empirical analysis. Our results indicate that the decrease in trade policy uncertainty reduces emission intensity of exporting firms, but has no significant impact on emission levels. Given that these firms do not aggravate emission levels under the condition of expanding output scale, we conclude that the decrease in trade policy uncertainty can improve environmental performance. Mechanism analysis shows an interesting finding that the decrease in trade policy uncertainty reduces emission intensity mainly by improving energy efficiency rather than improving abatement technology and optimizing energy structure. In addition, pollution reductions mainly occur in pollution-intensive and capital-intensive industries as well as coastal regions. Altogether, this study contributes to the literature on trade-environment relationship and trade policy uncertainty.

We provide new evidence about US monetary policy using a model that: (i) estimates time-varying monetary policy weights without relying on stylized theoretical assumptions; (ii) allows for endogenous breakdowns in the relationship between interest rates, inflation, and output; and (iii) generates a unique measure of monetary policy activism that accounts for economic instability. The joint incorporation of endogenous time-varying uncertainty about the monetary policy parameters and the stability of the relationship between interest rates, inflation, and output materially reduces the probability of determinate monetary policy. The average probability of determinacy over the period post-1982 to 1997 is below 60% (hence well below seminal estimates of determinacy probabilities that are close to unity). Post-1990, the average probability of determinacy is 75%, falling to approximately 60% when we allow for typical levels of trend inflation.