We present a method to determine optimal monetary policy in heterogeneous-agent economies with nominal frictions and aggregate shocks, under various assumptions regarding fiscal policy. We analyze models with either sticky prices or sticky wages. In the sticky-price economy, when fiscal policy is optimally set, optimal monetary policy implements price stability. Inflation volatility remains low when fiscal policy follows empirically relevant rules. The inflation response is more pronounced when the Phillips curve is steep and profits are skewed toward highly productive agents. In the sticky-wage economy, optimal price inflation becomes significantly more volatile, while wage inflation remains small. Under both types of nominal rigidity, agents with lower productivity tend to benefit more from optimal monetary policy.

Interactions in civil society are personal and enduring, and as a result, identity and other-regarding preferences are important motivations. Here we add civil society to markets and states as a third form of governance of the economy, creating the governance triangle. We provide evidence that themes related to civil society have assumed substantially greater importance in economic research since the 1970s. A now-standard principal–agent model of employment in private firms reveals three characteristics of interactions in civil society: the importance of face-to-face interactions, social norms, and the private exercise of power. We show that market failures and other coordination problems can sometimes be more successfully addressed by civil society than by state or market governance. Civil society may have a comparative institutional advantage where conflicts of interest are modest and information available to state and market actors is limited. When based on us-versus-them forms of identity, however, civil society governance may promote preferences antithetical to a liberal and democratic society.

This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply correlation aversion. Greater persistence provides information about future consumption but reduces opportunities to hedge consumption risk. I show that, for recursive preferences that exhibit a preference for early resolution of uncertainty, correlation aversion is equivalent to increasing relative risk aversion. To quantify correlation aversion, I develop the concept of the persistence premium, which measures how much an individual is willing to pay to eliminate persistence in consumption. I provide an approximation of the persistence premium in the spirit of Arrow–Pratt, which provides a quantitative representation of the trade-off between information and hedging. I show that correlation-averse preferences have a variational representation, linking correlation aversion to concerns about model misspecification. I present several applications. I first illustrate how correlation aversion shapes portfolio choices, and then show how the persistence premium can improve the calibration of macro-finance models. In an optimal taxation model, I show that recursive preferences—unlike standard preferences—lead to redistributive tax policies that increase social mobility.

We review recent research and experiences linking inflation and expectations, emphasizing what has been learned since 2020. One clear lesson is that the inflation expectations of most economic agents have been and remain unanchored. The unanchored nature of inflation expectations, in combination with supply shocks, can explain much of the inflation surge and subsequent disinflation when viewed through the lens of an expectations-augmented Phillips curve, both in the U.S. and abroad.

A novel dynamic model for joint estimation of multiple quantiles of a time series conditionally on a set of covariates is presented. The model preserves quantile monotonicity and allows for a clear interpretation of covariate effects across quantiles. Model parameters are estimated using a two-step M-estimator. The resulting estimator is consistent, and its finite sample properties are analysed through simulations. The new model is used to study the impact of different levels of stress in the financial system on GDP growth rate. The analysis shows that worsened financial conditions imply a more pessimistic economic outlook when the financial scenario is already severely distressed, and an overall increased macroeconomic uncertainty. Additionally, past information on GDP growth is found to be critical in studying and predicting economic vulnerability. These findings hold true even when alternative measures of real economic activity are considered.

Despite broad acceptance among economists, carbon taxes face persistent public resistance. We measure the sources and distribution of welfare losses from unexpected European carbon price changes by estimating their impact on consumer prices, labor income, financial wealth, and government transfers. A 1% carbon-policy-induced increase in energy prices leads to an average welfare loss of about 0.5% of a household’s three-year consumption, primarily driven by indirect labor-income effects. Younger, poorer, and less educated households, especially in Southern and Eastern Europe, bear a disproportionate burden. These findings suggest public opposition to carbon taxes could stem from legitimate distributional concerns.

Land reforms are among the most significant institutional changes in developing countries, yet they often fail due to interruptions or reversals. This paper examines the long-term effects of the Chilean land reform (1962-1973) on indigenous self-determination conflict. A major redistribution was fully reversed in the study area after the 1973 military coup. Using a novel plot-level database, we show that expropriated plots are over four times more likely to experience invasions and attacks between 1990 and 2021. Instrumental variable estimates, based on rainfall shocks affecting reform participation, confirm these findings. The failed reform produced grievances both within and beyond indigenous reservations, subsequently reactivated by the counter-reform’s production structure and by recent restitution policies.

We ask how globalization affects governments’ incentives to set labour standards for workers. In a stylized global value chain model, globalization by reducing trade costs or adding countries with complementary skills improves working conditions, whether set by employers or governments. Addition of countries with similar skills has the opposite effect. Equilibrium labour standards are actually stricter than optimal because each country passes some of the costs of its improved labour standards onto other countries (consumers of the final good, for example). Nash equilibrium tariffs make regulation of working conditions redundant, but multilateral reduction of tariffs brings them back into force.