Behavioural Macroeconomics

Purse Strings Versus Heart Strings: Transmission Channels in Economics and Psychology (with Viet H. Nguyen, University of Melbourne)
Do emotions affect economic behaviour? Employing unit record data from two population-level surveys, we use self-reported financial stress and mental distress to identify negative emotions and use current and expected spending to capture consumption behaviour. We identify two transmission channels of negative emotions, one predicted by economists and one predicted by psychologists. We find that the psychology transmission channel dominates when budget constraints are not binding. As a coping mechanism, consumers increase consumption to regulate the negative emotions caused by stress. In contrast, negative emotions identified as the autonomous component in consumer sentiment lead to a decline in consumption. These findings are in line with appraisal models of emotions where the behavioural impact of emotions is not driven by their valence (pleasantness) but by their antecedent appraisals (perceived causes).
Scarred workers (with Viet H. Nguyen, University of Melbourne)


This paper compares consumer inflation and wage expectations. We use the example of Australia, a long term inflation targeter with wage expectations data since 1997. Results suggest that the global financial crisis (GFC) was a 'hot stove' event that scarred workers. Inflation expectations are firmly anchored while nominal wage expectations are not and have been declining since the early 2010's, leading to expected declines in real wages. The GFC and the subsequent economic slow-down rendered the possibility of a job loss salient for many workers which impacted workers' wage expectations formation and has led to a more pessimistic outlook on wages. This scarring (or 'experience based learning') decreased the pass-through of inflation expectations to wages post GFC. These results fit neatly with weak actual pass-through from price to wage inflation observed in the US.

Monetary Economics

The transmission of financial stress to the Antipodes (with Sandra Eickmeier, Deutsche Bundesbank and Sabine Tanneberger, Deutsche Bundesbank)

Applying a global dynamic factor model shows that global financial stress puts downward pressure on economic activity in the Antipodes, where the negative impact is felt throughout the economies. While financial stress in emerging Asia has similar effects on New Zealand, it puts upward on economic activity in Australia. Results suggest that Australian banks may shift from lending abroad to lending at home putting upward pressure on consumption and house price in Australia. Perhaps as expected, global financial stress puts downward pressure on commodity prices while the effect of financial stress in emerging Asia is small.

Open Economy Macro Modelling

racing foreign shocks to regional economic actvity (with Robert Lamy, The Forecasting Advisor)

The paper demonstrates that regional indexes of activity provide a simple and convenient tool to identify differences in the evolution and drivers of regional economic activity. We construct indexes of activity for ten Canadian provinces. Applying the indexes in a broader context by using a structural vector autoregression (SVAR) approach allows us to analyse the effects of shocks from the US and from China on regional economic activity. This Index-SVAR approach facilitates a rich analysis because impulse responses can be traced back to index components.

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