The Role of Financial Imperfections

THE ERC PROJECT OF TOMMASO MONACELLI ALSO ANALYSES THE EFFECTIVENESS OF PUBLIC SPENDING IN CONTRASTING A PHASE OF RECESSION

The 2008 financial crisis has sparked a debate on fiscal expansion as an effective way to counter recession. The fiscal multiplier is a feature of Tommaso Monacelli’s (Department of Economics) project Financial Imperfections and Macroeconomic Implications (FINIMPMACRO) hosted by IGIER - Innocenzo Gasparini Institute for Economic Research, funded by an ERC Starting Grant. “We show that, in recession time, the benefits outweigh the costs. In an economy characterized by credit market imperfections, the increasing of public debt is an indirect way to transfer resources to agents who have hardly any access to credit”.
 
Another line of research investigates the accumulation of private debt and its role in the transmission of shocks in the presence of financial imperfections. “The accumulation of debt is the linking thread between economic booms and crises. When the economic stability creates confidence, household and corporate saving rates tend to decline”.
 
Monacelli has empirically documented the transmission of financial stress to salaries and job creation. He also addressed the desirability of a monetary union. “We prove wrong the idea that a flexible exchange rate system is always preferable to a fixed one. In fact, it depends on the degree of central bank credibility”.

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Putting a Halt to the Spread of Infections
Wellbeing and Fertility, a Two-Way Relationship
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A Help for Those who make Predictions
When a Government is Guided by Values
 

 

by Claudio Todesco