This paper brings together two strands of the empirical macro literature: the reduced-form evidence that the yield spread helps in forecasting output and the structural evidence on the difficulties of estimating the effect of monetary policy on output in an intertemporal Euler equation. We show...

In this Paper we concentrate on the hypothesis that the empirical rejections of the Expectations Theory (ET) of the term structure of interest rates can be caused by improper modeling of expectations. Our starting point is an interesting anomaly found by Campbell-Shiller (1987), when by taking a...

This article summarizes our views on the role of an 'aggregation bias' in explaining the PPP Puzzle, in response to the several papers recently written in reaction to our initial contribution. We discuss in particular the criticisms of Imbs, Mumtaz, Ravn and Rey (2002) presented in Chen and...

We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When...

Does the transmission of economic policies and structural shocks vary with the state of the economy? We answer this question using a strategy based on quantile regressions, which account for both endogeneous regressors and state-dependent parameters. An application to U.S. real activity and...

This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt sustainability and (iv) monetary policy. Following a one standard deviation shock, uncertainty about debt sustainability has the largest and most...

Several industrialised countries have had a similar inflation experience in the past 30 years, with inflation high and volatile in the 1970s and the 1980s but low and stable in the most recent period. We explore the dynamics of inflation in these countries via a time-varying factor model. This...

We use a unique dataset on television prices across European countries and regions to investigate the sources of differences in price levels. Our findings are as follows: (i) Quality is a crucial determinant of price differences. Even in an integrated economic zone as Europe, rich economies tend...

The consumption Euler equation is a building block of modern macro theory. Yet, the existing evidence on aggregate data offers very conflicting results for the estimates of the degree of forward-lookingness and interest rate semi-elasticity. The disappointing performance can be rationalized by...