Ricardo Reis

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Ricardo Reis
Ricardo Reis 3.jpg
Born (1978-09-01) September 1, 1978 (age 43)
Institution London School of Economics
Field Macroeconomics
School or
tradition
New Keynesian economics
Alma mater Harvard University (Ph.D., 2004)
LSE (B.Sc., 1999)
Influences N. Gregory Mankiw
ContributionsESBies or SBBS; The misallocation hypothesis for the European slump and crisis; QE and central bank solvency ; HANK model; Automatic stabilizers and transfer multipliers ; Sticky information ; Disagreement in inflation expectations
AwardsBest young money-finance economist, BdF-TSE price (2017); Best European macroeconomist under the age of 40, Bernacer prize (2016); Excellence award in global economic affairs, Kiel (2013); Kenneth Arrow Prize (2004).
Information at IDEAS / RePEc

Ricardo A. M. R. Reis (born 1 September 1978) is a Portuguese economist and the A. W. Phillips professor of economics at the London School of Economics. In a 2013 ranking of young economists by Glenn Ellison, Reis was considered the top economist with a PhD between 1996 and 2004., [1] and in 2016 he won the Germán Bernácer Prize for top European-born economist researching macroeconomics and finance. He writes a weekly op-ed for the Portuguese newspaper Jornal de Notícias and Expresso, and participates frequently in economic debates in Portugal.

Contents

Academic career

Reis earned his Bachelor of Science (B.Sc.) degree from the London School of Economics in 1999, and his Doctor of Philosophy (Ph.D.) from Harvard University in 2004. He taught at Princeton University from 2004 to 2008 before moving to Columbia University where he became a full professor at the age of 29, one of the youngest ever in the history of the university. He is an academic advisor and visiting scholar at central banks around the world, and sits on the board of multiple institutions.

Economic contributions

Sticky information and inattentiveness

In 2002, with Gregory Mankiw, Reis proposed the sticky-information Phillips curve [2] and followed it later with rational theories of inattention, [3] and sticky-information models in general equilibrium. [4] This model of nominal rigidities is based on the slow diffusion of information among the population of price setters and displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.

Empirical study of disagreement in surveys

In 2004, with Gregory Mankiw and Justin Wolfers, Reis started the modern empirical literature that focuses on disagreement in surveys. [5] A large literature that followed has documented the empirical properties of disagreement, has shown that it is very different from uncertainty, and has used it as moments to evaluate imperfect information models.

Pure inflation

In 2010, with Mark Watson, Reis developed measures of pure inflation, which have become popular measures of core inflation used by central banks around the world. [6]

The diabolic loop and ESBies

In 2011, Reis with Markus Brunnermeier, Luis Garicano, Philip R. Lane and others, argued that banks holding significant amounts of bonds issued by their sovereign creates a "diabolic loop", whereby small changes in the perceived solvency of the sovereign can amplify into large crises. [7] This concept has become central in accounts of the Euro crisis and is also referred to as the "doom loop" or the "bank-government nexus". They proposed creating European Safe Bonds (ESBies) ,a new financial vehicle allowing banks in the Eurozone to break the diabolic loop without creating the problems of joint and several liability with Eurobonds. [8] The European Systemic Risk Board proposed a variant of ESBies, labelled Sovereign Bond-Backed Securities (or SBBS) as a crucial ingredient to have a more stable Eurozone.

HANK models

In 2012, Reis wrote the first model that merged the Aiyagari model of incomplete markets with a New Keynesian model of nominal rigidities. [9] In 2016, he published the first business-cycle model that merged the Krusell-Smith model of business cycles with the Christiano–Eichenbaum–Evans model of monetary policy. [10] These models were later baptized HANK, or Heterogeneous Agent New Keynesian Models.

Central bank solvency

In 2013, with Robert E. Hall, Reis invented the concept of central bank insolvency to describe the impact of possible losses from quantitative easing programs. [11] [12]

The misallocation hypothesis of slumps and crashes

In 2013, Reis proposed the misallocation hypothesis for the European slump and crash. [13] It contends that by joining the eurozone, countries in the European periphery enjoyed large capital inflows, but their underdeveloped financial and political systems misallocated this capital leading to a slump in productivity and sowing the seeds of the crisis. Fast financial integration without financial depth creates a slump and a crash. Some accounts of why low real interest rates can be causing misallocation and low productivity build on his idea.

QE and satiating the market for reserves

In 2016, at the Kansas City Federal Reserve economic policy symposium, Reis proposed that a central bank's balance sheet should be just large enough to satiate the demand for bank reserves. [14] In modern monetary systems, where deposits at the central bank are the key monetary instrument, ensuring that the deposit rate equals the private interbank rate achieves the Friedman rule.

Automatic stabilizers

In 2016, with Alisdair McKay, Reis showed that automatic stabilizers can be very effective by reducing the need for precautionary savings at the start of recessions. [15]

Related Research Articles

Macroeconomics Study of an economy as a whole

Macroeconomics is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy’s growth and stability. This includes regional, national, and global economies. According to a 2018 assessment by economists Emi Nakamura and Jón Steinsson, economic "evidence regarding the consequences of different macroeconomic policies is still highly imperfect and open to serious criticism."

Monetarism School of thought in monetary economics

Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy.

New Keynesian economics

New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroeconomics.

Greg Mankiw American economist

Nicholas Gregory Mankiw is an American macroeconomist who is currently the Robert M. Beren Professor of Economics at Harvard University. Mankiw is best known in academia for his work on New Keynesian economics.

Nominal rigidity Inertia of prices in economics

Nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.

Disinflation

Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation. Disinflation occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising.

John B. Taylor American economist

John Brian Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University, and the George P. Shultz Senior Fellow in Economics at Stanford University's Hoover Institution.

In economics, a menu cost is the cost to a firm resulting from changing its prices. The name stems from the cost of restaurants literally printing new menus, but economists use it to refer to the costs of changing nominal prices in general. In this broader definition, menu costs might include updating computer systems, re-tagging items, and hiring consultants to develop new pricing strategies as well as the literal costs of printing menus. More generally, the menu cost can be thought of as resulting from costs of information, decision and implementation resulting in bounded rationality. Because of this expense, firms sometimes do not always change their prices with every change in supply and demand, leading to nominal rigidity. Generally, the effect on the firm of small shifts in price is relatively minor compared to the costs of notifying the public of this new information. Therefore, the firm would rather exist in slight disequilibrium than incur the menu costs.

Dynamic stochastic general equilibrium modeling is a macroeconomic method which is often employed by monetary and fiscal authorities for policy analysis, explaining historical time-series data, as well as future forecasting purposes. DSGE econometric modeling applies general equilibrium theory and microeconomic principles in a tractable manner to postulate economic phenomena, such as economic growth and business cycles, as well as policy effects and market shocks.

Michael Dean Woodford is an American macroeconomist and monetary theorist who currently teaches at Columbia University.

The neoclassical synthesis (NCS), neoclassical–Keynesian synthesis, or just neo-Keynesianism was a post-World War II academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Keynes with neoclassical economics. Being Keynesian in the short run and neoclassical in the long run, neoclassical synthesis allowed the economy to adjust via fiscal and monetary policies in the short run whilst predicting that equilibrium in the long run will be reached without state intervention. The synthesis, formulated by a group of economists, dominated economics in the post-war period and formed the mainstream of macroeconomic thought in the 1950s, 1960s and 1970s.

New classical macroeconomics School of thought in macroeconomics

New classical macroeconomics, sometimes simply called new classical economics, is a school of thought in macroeconomics that builds its analysis entirely on a neoclassical framework. Specifically, it emphasizes the importance of rigorous foundations based on microeconomics, especially rational expectations.

Jordi Galí

Jordi Galí is a Spanish macroeconomist who is regarded as one of the main figures in New Keynesian macroeconomics today. He is currently the director of the Centre de Recerca en Economia Internacional at Universitat Pompeu Fabra and a Research Professor at the Barcelona Graduate School of Economics. After obtaining his doctorate from MIT in 1989 under the supervision of Olivier Blanchard, he held faculty positions at Columbia University and New York University before moving to Barcelona.

History of macroeconomic thought Aspect of history

Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.

Markus Brunnermeier

Markus Konrad Brunnermeier is an economist, who is the Edwards S. Sanford Professor of Economics at Princeton University, and a nonresident senior fellow at the Peterson Institute for International Economics. He is a faculty member of Princeton's Department of Economics and director of the Bendheim Center for Finance. His research focuses on international financial markets and the macro economy with special emphasis on bubbles, liquidity, financial crises and monetary policy. He promoted the concepts of liquidity spirals, CoVaR as co-risk measure, the paradox of prudence, financial dominance, ESBies, the Reversal Rate, Digital currency areas, the redistributive monetary policy, and the I Theory of Money. He is or was a member of several advisory groups, including to the IMF, the Federal Reserve Bank of New York, the European Systemic Risk Board, the German Bundesbank and the U.S. Congressional Budget Office. He is also a research associate at CEPR, NBER, and CESifo.

New neoclassical synthesis

The new neoclassical synthesis (NNS), which is now generally referred to as New Keynesian economics, and occasionally as the New Consensus, is the fusion of the major, modern macroeconomic schools of thought - new classical macroeconomics/real business cycle theory and early New Keynesian economics - into a consensus view on the best way to explain short-run fluctuations in the economy. This new synthesis is analogous to the neoclassical synthesis that combined neoclassical economics with Keynesian macroeconomics. The new synthesis provides the theoretical foundation for much of contemporary mainstream economics. It is an important part of the theoretical foundation for the work done by the Federal Reserve and many other central banks.

In economics, divine coincidence refers to the property of New Keynesian models that there is no trade-off between the stabilization of inflation and the stabilization of the welfare-relevant output gap for central banks. This property is attributed to a feature of the model, namely the absence of real imperfections such as real wage rigidities. Conversely, if New Keynesian models are extended to account for these real imperfections, divine coincidence disappears and central banks again face a trade-off between inflation and output gap stabilization. The definition of divine coincidence is usually attributed to the seminal article by Olivier Blanchard and Jordi Galí in 2007.

Emi Nakamura American economist

Emi Nakamura is a Canadian-American economist. She is the Chancellor's Professor of Economics at University of California, Berkeley.

Stephanie Schmitt-Grohe is a German economist who currently works as a professor of economics at Columbia University. Schmitt-Grohe's research has been focused on macroeconomics as well as fiscal and monetary policy in open and closed economies. In 2004 she was awarded the Bernacer prize, for her research of monetary stabilization policies.

Jón Steinsson is Chancellor's Professor of Economics at University of California, Berkeley, a research associate and co-director of the Monetary Economics program of the National Bureau of Economic Research, and associate editor of both American Economic Review: Insights, and the Quarterly Journal of Economics. He received his PhD in economics from Harvard and his AB from Princeton.

References

  1. Ellison, G. (2013) "How Does the Market Use Citation Data? The Hirsch Index in Economics," AEJ: Applied Economics, 5 (3), 63–90, doi : 10.1257/app.5.3.63
  2. Mankiw, N.G. and R. Reis (2002) "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," Quarterly Journal of Economics, 117(4), 1295–1328, doi : 10.1162/003355302320935034
  3. R. Reis (2006) "Inattentive Producers," Review of Economic Studies, 73(3), 793–821, doi : 10.1111/j.1467-937X.2006.00396.x
  4. Mankiw, N.G. and R. Reis (2010) Imperfect Information and Aggregate Supply" Handbook of Monetary Economics doi : 10.1016/B978-0-444-53238-1.00005-3
  5. Mankiw, N. G., J. Wolfers and R. Reis (2004) "Disagreement about Inflation Expectations" NBER Macroeconomics Annual, 18, 209–248 doi : 10.3386/w9796
  6. Reis, R. and M. Watson (2010) "Relative Goods' Prices, Pure Inflation, and the Phillips Correlation" AEJ: Macroeconomics, 2 (3), 128–57 doi : 10.1257/mac.2.3.128
  7. Brunnermeier, Garicano, Lane, Marco Pagano, Reis, Santos, Thesmar, van Nieuwerburgh and Vayanos (2011) "ESBies: A Realistic Reform of Europe's Financial Architecture" In: The Future of Banking: A VoxEu.org Book, edited by Thorsten Beck, 15-20, October 2011
  8. Brunnermeier, Langfeld, Pagano, Reis, van Nieuwerburgh and Vayanos (2017) "ESBies: Safety in the Tranches," Economic Policy 32, 177-219.
  9. Oh, H, and R. Reis (2011) "Targeted Transfers and the Fiscal Response to the Great Recession," Journal of Monetary Economics, 59, S50-S64 doi : 10.1016/j.jmoneco.2012.10.025
  10. McKay, A. and R. Reis (2011) "The Role of Automatic Stabilizers in the U.S. Business Cycle," NBER working paper 16775 doi : 10.3386/w19000
  11. Reis, R. (2013) "The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis" American Economic Review, 103 (3), 135–40 doi : 10.1257/aer.103.3.135
  12. Hall R. and R. Reis (2013) "Maintaining Central-Bank Solvency under New-Style Central Banking" doi : 10.3386/w21173
  13. R. Reis (2013) "The Portuguese Slump and Crash and the Euro Crisis," Brookings Papers on Economic Activity, 46, 143-193 doi : 10.1353/eca.2013.0005
  14. R. Reis (2016) "Funding Quantitative Easing to Target Inflation," Designing Resilient Monetary Policy Frameworks for the Future, Jackson Hole Economic Policy Symposium: Federal Reserve Bank of Kansas City, August 2016
  15. McKay, A. and R. Reis (2011) "The Role of Automatic Stabilizers in the U.S. Business Cycle," NBER working paper 16775 doi : 10.3386/w19000.