Working Papers
Carbon Pricing and Monetary Policy in an Estimated Macro-Climate Model (Job Market Paper)
Presented at: ECB Conference on Monetary Policy 2025 (Video), EEA Annual Congress 2025, 2CMFI Conference at Bayes Business School 2025
Abstract: I develop and estimate a heterogeneous-agent New Keynesian macro-climate model to study the effects of carbon price shocks on the euro area. Using EU ETS data and local projections, I document three empirical results of carbon price shocks: a gradual decline in emissions, a temporary surge in inflation, and a contraction in economic activity. Four key mechanisms allow the model to reproduce these results: fossil energy adjustment costs, limited substitutability between fossil and green energy, complementarities between energy and other inputs, and the presence of Hand-to-Mouth households vulnerable to higher energy prices. These model features crucially shape the optimal monetary policy response. Carbon price shocks pose a monetary policy trade-off: raising interest rates would curb inflation but deepen the demand contraction. The Ramsey planner instead cuts the policy rate, accepting temporarily higher inflation to stabilize real activity. Absent the key model features, a rate hike becomes optimal. A Taylor rule targeting core rather than headline inflation is closer to the welfare-optimal response.
Inflation, Inequality, and the Business Cycle
with Clara Lindemann and Mathias Trabandt
Presented at: Inflation Drivers and Dynamics Conference at ECB 2025 (poster), EABCN – Can Heterogeneous Agent Models Be Useful for Central Bankers? How? at Bank of England 2025 (poster), Conference on Heterogeneous Agents in Macroeconomic Models at Czech National Bank 2024 (poster)
Abstract: We introduce a nonlinear, state-dependent Phillips curve into a standard Heterogeneous Agent New Keynesian (HANK) model. We show that this nonlinearity is crucial for jointly matching the empirical properties of inflation and inequality. In our model, inflation and income inequality respond asymmetrically to business cycle fluctuations, increasing more sharply than declining. As a result, the model accounts for the observed positively skewed distributions of U.S. inflation rates and income inequality. In contrast, a version with a constant Phillips curve slope fails to replicate these empirical patterns, underscoring the importance of the nonlinear Phillips curve.
Presented at: ECB DG-Research internal seminar as part of Summer Research Graduate Programme (2023), Bonn-Frankfurt-Mannheim Ph.D. conference at University of Bonn (2024)
Abstract: I use scenario analysis to assess the impacts of heterogeneous climate change mitigation policies across euro area member states on the macroeconomy and optimal monetary policy in the euro area. I develop a two-country DSGE model of a currency union extended by a disaggregated energy sector, where fossil and renewable energy are bundled. Each country has a sovereign fiscal authority that levies a carbon tax on fossil energy producers, while monetary policy is conducted by a common central bank. I simulate different green transition scenarios. My results suggest that if one country delays the transition, it mitigates domestic GDP loss and becomes relatively more competitive. Optimal monetary policy stabilizes union-wide core inflation, even if the transition is not coordinated across countries. The common central bank should therefore ”look through” the modest increase in headline inflation resulting from higher energy prices. Finally, the green transition is least harmful in terms of GDP loss if both countries reinvest carbon tax revenues into subsidies to green energy firms.
Publication
Pre-doctoral publication:
Determinants of Substantial Public Debt Reductions in Central and Eastern European Countries
with Lilli Zimmermann
Empirica, Vol. 49, February 2022, pp.53-70
Sofia Semik 