Community Research and Development Information Service - CORDIS



Project ID: 647049
Funded under: H2020-EU.1.1.

Periodic Reporting for period 1 - MACROUNCERTINEQ (Uncertainty, Risk and Inequality: The Role of Macroeconomic Policies and Institutions)

Reporting period: 2015-08-01 to 2017-01-31

Summary of the context and overall objectives of the project

Understanding how policy and institutions shape macroeconomic outcomes is a key, long-standing item in policy and academic research agendas. Longer than a century of international data on expansions and contractions, booms and busts, bubbles and depressions have provided a wealth of cross- and within-country variation in aggregate variables which had been used extensively to assess competing theories of the transmission mechanism of policy and structural shocks.

The recent financial crisis, developments in computational power and, most importantly, availability of micro data have challenged this presumption in at least two very significant dimensions. First, uncertainty, volatility and risk play a very significant role in households’ and firms’ individual decisions, in a way that cannot (and should not) be easily dismissed when analysing macroeconomic dynamics. Second, changes in monetary policy, government spending, taxes, fiscal consolidation and institutions could engineer a (potentially unintended) redistribution of resources across society, in a way that may also impact, indirectly, on the same endogenous variables they were meant to stabilize.

The main goal of my research is to fill this important gap in our knowledge of the mechanisms through which economic policies and institutional reforms affect economic activity and inflation. The analyses has been developed to provide an unprecedented quantification of the contribution of popular monetary and fiscal interventions to the uncertainty surrounding the resources available at household and firm level, to the volatility of real activity and financial markets (and the mortgage market in particular) and to income and consumption inequality.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

This ERC consolidator grant project is progressing according to plan. In this first branch of the proposed research agenda, on policy uncertainty, I have completed two working papers, one with Haroon Mumtaz (QMUL) on a novel strategy to identify and estimate the macroeconomic effect of a new measure of economic policy uncertainty (“Policy uncertainty and aggregate fluctuations”) and another working paper with Elias Papaioannou (LBS) and Raphael Corbi (USP) on “Regional Transfers”. Both works are under submission to international leading journal. As for the second ramification of the project, on monetary policy, I have completed a work with James Cloyne (UCDavis) and Clodomiro Ferreira (LBS) on the role of debt in the transmission of monetary policy in the U.S. and U.K., which is currently under submission to a leading international journal
( and for a non-academic tratment). Finally, for the sub-project on the mortgage market and consumption, I have completed a new working paper with Philip Bunn, Jeanne Le Rouix and Kate Reinold (Bank of England) on the consumption response to positive and negative income changes ( and for a non-academic treatment ), which is currently under submission to a leading international journal; and I am currently working to a draft working paper on the role of mortgage fees in the transmission of macroeconomic shocks in joint work with Alessandro Gavazza and Matteo Benetton (both from LSE) and James Cloyne (UCDavis).

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

To influence future economic policy.
Record Number: 198341 / Last updated on: 2017-05-18