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Working Paper
Fiscal Stimulus with Learning-By-Doing
dAlessandro, Antonello; Fella, Giulio; Melosi, Leonardo (2018-05-01)
Using a Bayesian SVAR analysis, we document that an increase in government purchases raises private consumption, the real wage and total factor productivity (TFP) while reducing inflation. Each of these facts is hard to reconcile with both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall ...
Working Paper Series , Paper WP-2018-9

Working Paper
Signaling effects of monetary policy
Melosi, Leonardo (2012)
We develop a DSGE model in which the policy rate signals the central bank's view about macroeconomic developments to incompletely informed price setters. The model is estimated with likelihood methods on a U.S. data set including the Survey of Professional Forecasters as a measure of price setters' expectations. The signaling effects of monetary policy are found to be empirically important and dampen the effects of monetary disturbances on inflation. While the signaling effects enhance the Federal Reserve's ability to stabilize the economy in the face of demand shocks, they play a small role ...
Working Paper Series , Paper WP-2012-05

Working Paper
Identification Using Higher-Order Moments Restrictions
Andrade, Philippe; Ferroni, Filippo; Melosi, Leonardo (2023-08-18)
We exploit inequality restrictions on higher-order moments of the distribution of structural shocks to sharpen their identification. We show that these constraints can be treated as necessary conditions and used to shrink the set of admissible rotations. We illustrate the usefulness of this approach showing, by simulations, how it can dramatically improve the identification of monetary policy shocks when combined with widely used sign-restriction schemes. We then apply our methodology to two empirical questions: the effects of monetary policy shocks in the U.S. and the effects of sovereign ...
Working Paper Series , Paper WP 2023-28

Working Paper
Job-to-Job Mobility and Inflation
Faccini, Renato; Melosi, Leonardo (2023-01-19)
The low rate of inflation observed in the U.S. over the past decade is hard to reconcile with traditional measures of labor market slack. We develop a theory-based indicator of interfirm wage competition that can explain the missing inflation. Key to this result is a drop in the rate of on-the-job search, which lowers the intensity of interfirm wage competition to retain or hire workers. We estimate the on-the-job search rate from aggregate labor-market flows and show that its recent drop is corroborated by survey data. During "the great resignation", the indicator of interfirm wage ...
Working Paper Series , Paper WP 2023-03

Working Paper
Signaling Effects of Monetary Policy
Melosi, Leonardo (2016-09-16)
We develop a dynamic general equilibrium model in which the policy rate signals the central bank?s view about macroeconomic developments to price setters. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters? inflation expectations. This model improves upon existing perfect information models in explaining why, in the data, inflation expectations respond with delays to monetary impulses and remain disanchored for years. In the 1970s, U.S. monetary policy is found to signal persistent inflationary ...
Working Paper Series , Paper WP-2016-14

Working Paper
Long-Run Inflation Expectations
Fisher, Jonas D. M.; Melosi, Leonardo; Rast, Sebastian (2025-03)
Professional forecasters’ long-run inflation expectations overreact to news and exhibit persistent, predictable biases in forecast errors. A model incorporating overconfidence in private information and a persistent expectations bias—which generates persistent forecast errors across most forecasters—accounts for these two features of the data, offering a valuable tool for studying long-run inflation expectations. Our analysis highlights substantial, time-varying heterogeneity in forecasters’ responses to public information, with sensitivity declining across all forecasters when ...
Working Paper Series , Paper WP 2025-03

Newsletter
Some inflation scenarios for the American Rescue Plan Act of 2021
Fisher, Jonas D. M.; Melosi, Leonardo; Bianchi, Francesco (2021-04-13)
The American Rescue Plan Act (ARP) signed into law on March 11, 2021, authorized approximately $1.9 trillion in federal government spending. ARP is widely expected to boost economic growth over the next two to three years—and significantly so early on. The upswing in growth is likely to increase resource pressures and therefore consumer price inflation as well. The potential for this channel to raise inflation substantially has attracted the attention of economic commentators, including Olivier Blanchard and Lawrence Summers. But the magnitudes and persistence of the possible increases in ...
Chicago Fed Letter , Issue 453 , Pages 8

Journal Article
The Macroeconomic Effects of the 2018 Bipartisan Budget Act
Ferroni, Filippo; Campbell, Jeffrey R.; Fisher, Jonas D. M.; Melosi, Leonardo (2019)
The 2018 Bipartisan Budget Act raised government spending caps by $300 billion for fiscal years 2018 and 2019. While spending does not increase immediately, private sector investment and consumption may respond ahead of an anticipated fiscal stimulus. This Economic Perspectives article assesses the strength of this mechanism based on the private sector?s expectations.
Economic Perspectives , Issue 2 , Pages 2-12

Working Paper
Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength
Faccini, Renato; Melosi, Leonardo; Bianchi, Francesco (2020-05-11)
The Covid-19 pandemic found policymakers facing constraints on their ability to react to an exceptionally large negative shock. The current low interest rate environment limits the tools the central bank can use to stabilize the economy, while the large public debt curtails the efficacy of fiscal interventions by inducing expectations of costly fiscal adjustments. Against this background, we study the implications of a coordinated fiscal and monetary strategy aimed at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under this coordinated strategy, the fiscal ...
Working Paper Series , Paper WP 2020-13

Newsletter
The Effects of the “Great Resignation” on Labor Market Slack and Inflation
Faccini, Renato; Melosi, Leonardo; Miles, Russell (2022-02-01)
The fraction of Americans switching their jobs has been increasing at a fast pace in the past 18 months, reaching its highest level on record. According to the U.S. Department of Labor, more than 4.5 million people voluntarily left their jobs in November 2021—the largest figure in the past two decades. This period has been dubbed the Great Resignation. At the same time, wages and salaries have accelerated considerably and by the end of 2021, inflation had hit its highest level since 1982.
Chicago Fed Letter , Issue 465 , Pages 7

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