Matteo Iacoviello’s research while affiliated with Board of Governors of the Federal Reserve System and other places

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Publications (84)


Lessons from the Co-movement of Inflation around the World
  • Article

June 2024

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2 Reads

FEDS Notes

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Luca Guerrieri

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Matteo Iacoviello

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The aftermath of the COVID-19 pandemic saw a surge in inflation around the world, reflecting rapid increases in the demand for goods, strained supply chains, tight labor markets, and sharp hikes in commodity prices exacerbated by the Russian war on Ukraine. As illustrated in figure 1, this inflation surge was synchronized across advanced and emerging economies, not only for total inflation but also for its core component.



The International Spillovers of Synchronous Monetary Tightening

November 2023

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5 Reads

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4 Citations

International Finance Discussion Paper

Dario Caldara

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Francesco Ferrante

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Matteo Iacoviello

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[...]

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We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.



The Inflationary Effects of Sectoral Reallocation

March 2023

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7 Reads

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19 Citations

Journal of Monetary Economics

The COVID-19 pandemic has led to an unprecedented shift of consumption from services to goods. We study this demand reallocation in a multi-sector model featuring sticky prices, input-output linkages, and labor reallocation costs. Reallocation costs hamper the increase in the supply of goods, causing inflationary pressures. These pressures are amplified by the fact that goods prices are more flexible than services prices. We estimate the model allowing for demand reallocation, sectoral productivity, and aggregate labor supply shocks. The demand reallocation shock explains a large portion of the rise in U.S. inflation in the aftermath of the pandemic.


The Inflationary Effects of Sectoral Reallocation

February 2023

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3 Reads

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12 Citations

International Finance Discussion Paper

The COVID-19 pandemic has led to an unprecedented shift of consumption from services to goods. We study this demand reallocation in a multi-sector model featuring sticky prices, input-output linkages, and labor reallocation costs. Reallocation costs hamper the increase in the supply of goods, causing inflationary pressures. These pressures are amplified by the fact that goods prices are more flexible than services prices. We estimate the model allowing for demand reallocation, sectoral productivity, and aggregate labor supply shocks. The demand reallocation shock explains a large portion of the rise in U.S. inflation in the aftermath of the pandemic.


The Effect of the War in Ukraine on Global Activity and Inflation

May 2022

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129 Reads

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84 Citations

FEDS Notes

Global geopolitical risks have soared since Russia's invasion of Ukraine. Investors, market participants, and policymakers expect that the war will exert a drag on the global economy while pushing up inflation, with a sharp increase in uncertainty and risks of severe adverse outcomes. As an example of these concerns, the April 2022 edition of the International Monetary Fund's World Economic Outlook contains more than 200 mentions of the word "war."


Measuring Geopolitical Risk

April 2022

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337 Reads

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1,497 Citations

American Economic Review

We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment. (JEL C43, E32, F51, F52, G31, H56, N40)


Measuring Geopolitical Risk

March 2022

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73 Reads

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122 Citations

International Finance Discussion Paper

We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.


What Did we Learn from 2 billion jabs? Early Cross-Country Evidence on the Effect of COVID-19 Vaccinations on Deaths, Mobility, and Economic Activity

September 2021

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4 Reads

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2 Citations

FEDS Notes

In the first five months of 2021, about two billion doses of COVID-19 vaccines were administered around the world. The pace of vaccinations varied significantly across countries and over time. In this note, we study the early effects of vaccinations on mortality, stringency of government restrictions on activity, and mobility indicators, using a large sample of advanced and emerging market economies from December 2020 through May 2021.


Citations (64)


... In contrast, most studies in the literature focus on a limited number of shock variables. Among these, , Yang et al. (2023), and Caldara et al. (2024) investigate the relationship between geopolitical risks and inflation, but they ignore the role of global supply chain pressures; Di Giovanni et al. (2022), Diaz et al. (2023) and Ascari et al. (2024) study the effects of global supply chain pressures on inflation, but they ignore the role of geopolitical risks; de Gracia (2003), Cunado andde Gracia (2005), Yilmazkuday (2022), Ha et al. (2023a) and Ha et al. (2023b) investigate the effects of oil prices on inflation, but they ignore the effects of global geopolitical risks and global supply chain pressures. Using all important shock variables in this paper results in explaining the global headline inflation by 78%, the global core inflation by 56%, the global food inflation by 43%, and the global energy inflation by 90%, which is essential to identify different channels of transmission for policy makers. ...

Reference:

Geopolitical risk, supply chains, and global inflation
Do Geopolitical Risks Raise or Lower Inflation?
  • Citing Preprint
  • January 2024

... Trade uncertainty during volatile periods heightens consumer anxiety by threatening price increases and goods shortages. Consequently, when geopolitical tensions and trade uncertainty align, consumer confidence declines further, consistent with the inflationary channel through which GPR impacts sentiment (Caldara et al., 2024). ...

The International Spillovers of Synchronous Monetary Tightening
  • Citing Article
  • November 2023

International Finance Discussion Paper

... Since a recent strand of the literature suggests that national GPRs influence various financial environments (Bossman et al., 2023;Caldara et al., 2024;Elsayed & Helmi, 2021;Sohag et al., 2022), we focus on their impact on commodity futures markets. As in Alam et al. (2022), we conduct our analysis on n=12 country-specific GPR indices (G7 and BRICS) and future prices of the 13 most traded commodities. ...

The international spillovers of synchronous monetary tightening
  • Citing Article
  • November 2023

Journal of Monetary Economics

... Moreover, the recent outbreak of the Russia-Ukraine war has nourished a prominent role for agricultural commodities and has set the spotlight at the extent by which they could constitute safe havens and overall determinants of better risk-adjusted performance in portfolios (Babar, Ahmad, and Yousaf 2023). These crises along with the high inflationary pressures nowadays (Ferrante, Graves, and Iacoviello 2023) have resuscitated interest concerning the necessity of new investment tools which would be able to provide useful solutions in tandem with or in the place of traditional stock indices or precious metals. ...

The Inflationary Effects of Sectoral Reallocation
  • Citing Article
  • March 2023

Journal of Monetary Economics

... The picture was similar on the other side of the Atlantic: Euro Area inflation was 8.4 percent, the highest since its creation. Explanations include shocks to commodity prices (Blanchard and Bernanke, 2023;Gagliardone and Gertler, 2023), sectoral demand changes (Ferrante et al., 2022), fiscal stimulus (Bianchi et al., 2023;di Giovanni et al., 2023b), and supply chain disruptions (di Giovanni et al., 2022(di Giovanni et al., , 2023aComin et al., 2023). As shown in Figure 1, high inflation was not restricted to these two economies: the median small open economy experienced an inflation rate of around 10 percent in 2022. ...

The Inflationary Effects of Sectoral Reallocation
  • Citing Article
  • February 2023

International Finance Discussion Paper

... (d) Seasonal and cyclical features. See Lemos, 2008;Coibion et al., 2015;Petralias and Prodromídis, 2015;Bodnár et al., 2018;Harasztosi and Lindner, 2019;Ferrara et al., 2021;Kouvaras et al., 2021;Caldara et al., 2022;Bernardini and Lin, 2023;Di Giovanni et al., 2023; and the sources cited therein. ...

The Effect of the War in Ukraine on Global Activity and Inflation
  • Citing Article
  • May 2022

FEDS Notes

... Besides current geopolitical conflicts, this growing research can be attributed to the recent approaches of measuring GPR. Most prominently, Caldara and Iacoviello (2022) introduced a consistent index based on the frequency of newspaper articles. In the context of energy use, the literature on GPR has concentrated on renewable energy diffusion in particular. ...

Measuring Geopolitical Risk
  • Citing Article
  • April 2022

American Economic Review

... Sharif et al. [5] characterized COVID-19 as the foremost global geopolitical shock of the 21st century. Caldara et al. [6] define geopolitical risks (GPR) as "risks associated with wars, tensions, terrorism, and international crises that affect international relations." Such events introduce extreme risks to capital markets and profoundly influence investment portfolio decisions. ...

The Global Recovery: Lessons from the Past
  • Citing Article
  • June 2021

FEDS Notes

... As studied byGabriel et al. (2021), not all defaults lead to foreclosure and there is sometimes a time lag between the two events. A default is failure to meet the terms of mortgage contract and a defaulted mortgage is foreclosed when the homeowner's rights are to the property are eliminated. ...

A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession
  • Citing Article
  • May 2020

Review of Financial Studies