**Current works and working papers**

**“On the optimal design of a Financial Stability Fund“**(with Arpad Abraham, Eva Carceles-Poveda and Yan Liu) June 2019.

Financial Stability Fund set by a union of sovereign countries can improve countries’ ability to share risks, borrow and lend, with respect to the standard instrument used to smooth fluctuations: sovereign debt financing. Efficiency gains arise from the ability of the fund to offer long-term contingent financial contracts, subject to limited enforcement (LE) and moral hazard (MH) constraints. In contrast, standard sovereign debt contracts are uncontingent and subject to untimely debt roll-overs and default risk. *Read more*

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**Introducing an Austrian Backpack in Spain**” (with Joao Broguiera de Sousa and Julian Diaz-Saavedra), May 2019.

In an overlapping generations economy with incomplete insurance markets, the introduction of an employment fund – akin to the one introduced in Austria in 2003, also known as ‘Austrian backpack’– can enhance production efficiency and social welfare. It complements the two classical systems of public insurance: pay-as-you-go pensions and unemployment insurance (UI). *Read more*

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**On the Design of a European Unemployment Insurance System**” (with Arpad Abraham, Joao Brogueira de Sousa and Lukas Mayr), April 2019.

We study the introduction, and possible design, of a European Unemployment Insurance System (EUIS) using a multi-country dynamic general equilibrium model with labour market frictions. Our calibration provides a novel diagnosis of European labour markets, revealing the key parameters – in particular, job-separation and job-arrival rates – that explain their different performance in terms of unemployment (or employment) and its persistence. *Read more*

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**Breaking the Spell with**” (with Gaetano Gaballo), April 2019.*Credit-Easing*: Self-Confirming Credit Crises in Competitive Search Economies

We develop a theory of self-confirming crises in which lenders charge high interest rates because they wrongly believe that lower rates would further increase their losses. *Read more*

**The EMU after the Euro Crisis: Lessons and Possibilities**– Findings and proposals from the Horizon 2020 ADEMU project (edited with Thomas Cooley), VoxEU.org Book, 2018.

This eBook provides an overview of the findings and proposals of the Horizon 2020 ADEMU research project (June 2015 to May 2018), which aimed at reassessing the fiscal and monetary framework of the European Economic and Monetary Union in the wake of the euro crisis.

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**Commitment and Competition**” (with Thomas Cooley and Vincenzo Quadrini), May 2018.

Two core principles of economics are that welfare can be enhanced with stronger commitment to individual arrangements (contracts) and with more competition. However, in the presence of search frictions, commitment may deter entry with consequent reduction in the reallocation of human resources. We study these tradeoffs when there are different degrees of commitment in a model with on-the-job search. *Read more*

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**The Envelope Theorem, Euler and Bellman Equations, without Differentiability**” (with Jan Werner) April 2017.

We extend the envelope theorem, the Euler equation, and the Bellman equation to dynamic constrained optimization problems where binding constraints can give rise to nondifferentiable value functions and multiplicity of Lagrange multipliers. The envelope theorem – an extension of Milgrom and Segal’s (2002) theorem – establishes a relation between the Euler and the Bellman equation. We show that solutions and multipliers of the Bellman equation may fail to satisfy the respective Euler equations, in contrast with solutions and multipliers of the infinite-horizon problem. *Read more*

**Published papers**

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**Recursive Contracts**“ (with Albert Marcet) January, 2019, Forthcoming in*Econometrica*.

We obtain a recursive formulation for a general class of optimization problems with forward-looking constraints which often arise in economic dynamic models, for example, in contracting problems with incentive constraints or in models of optimal policy. *Read more*

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**Money is an Experience Good: Competition and Trust in the Private Provision of Money**” (with Juan Pablo Nicolini and Pedro Teles), Journal of Monetary Economics, 2012.

We extend the envelope theorem, the Euler equation, and the Bellman equation to dynamic constrained optimization problems where binding constraints can give rise to nondifferentiable value functions and multiplicity of Lagrange multipliers. *Read more*

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**Competition, Human Capital and Income Inequality with Limited Commitment**” (with Vincenzo Quadrini) Journal of Economic Theory, May 2011.

We develop a dynamic, general equilibrium model with two-sided limited commitment to study how barriers to competition, such as restrictions to business start-up, affect the incentive to accumulate human capital. We show that a lack of contract enforceability amplifies the effect of barriers to competition on human capital accumulation. *Read more*

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**Stable Sunspot Equilibria in a Cash-in-Advance Economy**” (with G. Evans and S. Honkapohja) B.E. Journal of Macroeconomics (nominated for BEPress’s Arrow Prize for Senior Economists 2007 as the best paper by senior economists).

We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits. *Read more*

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**Nominal Debt as a Burden to Monetary Policy**” (with J. Diaz-Giménez, G. Giovannetti and P. Teles) Review of Economic Dynamics, 2008, 11, 3, 493-514.

We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt. In a model where nominal debt is the only source of time inconsistency, the Markov-perfect equilibrium policy implies the progressive depletion of the outstanding stock of debt, until the time inconsistency disappears. There is a resulting welfare loss if debt is nominal rather than indexed.*Read more*

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**Strategic Delegation in Monetary Unions**” (with V.V. Chari and L. Jones) The Manchester School, 2004.

In monetary unions, monetary policy is typically made by delegates of the member countries. This procedure raises the possibility of strategic delegation that countries may choose the types of delegates to influence outcomes in their favor. We show that without commitment in monetary policy, strategic delegation arises if and only if three conditions are met: shocks affecting individual countries are not perfectly correlated, risk-sharing across countries is imperfect, and the Phillips Curve is nonlinear. *Read more*

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**Aggregate Consequences of Limited Contract Enforceability**” (with Thomas Cooley and Vincenzo Quadrini) Journal of Political Economy, 2004 .

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output. *Read more*

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**Inside – Outside Money Competition**” (with J.P.Nicolini and P.Teles) Journal of Monetary Economics, 50, November 2003.

We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. *Read more*

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**The Fiscal Theory of Money as an Unorthodox Financial Theory of the Firm**”, Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, Palgrave, New York, 2001.