Essays on Empirical Macroeconomics

This dissertation consists of three independent chapters addressing questions of identification and estimation of shocks’ causal effects in macroeconomics. In the first chapter, I investigate the role of fiscal policy in the recent inflation surge in the United States and Euro Area. Employing a structural VAR with sign restrictions, I document that fiscal shocks were the primary driver of the inflation surge during the post-pandemic period. I show that while fiscal shocks have historically been important determinants of inflation, their dominant role in the recent spike reflects the unprecedented scale of fiscal interventions. I show that a model with monetary and fiscal policy interactions – where Ricardian equivalence fails due to finite planning horizons – can account for fiscal inflation in the recent period. My analysis supports the need to place fiscal policy at the center of the current macroeconomic agenda and calls for a deeper understanding of its transmission mechanisms. The second chapter, coauthored with Maximilian Boeck, revisits the transmission of U.S. monetary policy in the context of increasing globalization. Using a time-varying parameter VAR, we document substantial time-variation in the international spillovers of U.S. monetary policy. Trade integration has amplified the recessionary impacts of U.S. tightening, while financial integration has played a secondary role. A policy implication of this paper is that in a world with increasing spillovers, policies in the rest of the world need careful calibration in response to possibly time-varying output/inflation effects of U.S. policies. The third chapter, coauthored with Gert Peersman and Efrem Castelnuovo, examines the macroeconomic effects of commodity price shocks and the role of systematic monetary policy in shaping their transmission. Using a structural VAR model identified with a combination of instrumental variable techniques and sign restrictions, we show that food and oil price shocks affect global cycles through distinct mechanisms, with systematic monetary policy responses either amplifying or mitigating their impacts. Pro-cyclical policy reactions exacerbate the real and financial effects of food price shocks, whereas counter-cyclical responses mitigate those of oil shocks. Finally, we identify distinct mechanisms through which oil and food shocks affect macroeconomic variables, which could also justify opposing policy responses.