Research

Publication

Should monetary policy care about redistribution? Optimal fiscal and monetary policy with heterogeneous agents

With François Le Grand and Xavier Ragot.

Paper. (First version 2018/01. This version 2025/05). Accepted at the Review of Economic Studies.

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.

Working Papers

Heterogeneous Firm Expectations and Misallocation. Draft

With Erwan Gautier and Paul Hubert.

This paper examines how heterogeneity in firms’ forecasting accuracy contributes to resource misallocation. Using French quarterly survey data on firm expectations matched with administrative data, we show that firms systematically deviate from rational expectations, resulting in forecast errors that significantly affect investment and hiring decisions. These decisions, in turn, lead to differences in marginal revenue product of capital (MRPK) and labor (MRPL). Heterogeneity in forecasting accuracy thus generates dispersion in MRPK and MRPL. We show that when firms underpredict their demand, their MRPK increases by 5.4% and MRPL by 4.1% compared to when they forecast their demand accurately.

Work in Progress

When should we tax firms? Optimal corporate taxation with firm heterogeneity

Corporate fiscal policy over the business cycle is implemented in very different ways over time and across countries. Moreover, little is known about how it should be conducted. This paper studies the design of optimal fiscal policy in a heterogeneous firm environment when the economy is hit by aggregate shocks. It provides tools to understand when and how heterogeneous firms should be taxed or subsidized over the cycle. To tackle this issue, I first solve a tractable model that delivers a simple distribution of firms. In this framework, I provide an analytical characterization of the corporate tax rate over the business cycle. Then, I solve for the optimal path of the tax rate in a real business cycle framework extended to include firm heterogeneity in both capital and productivity. My main result is that, in both exercises, the variation in the optimal tax rate depends on the variation in capital misallocation. This is due to the presence of financial constraints that prevent the allocation of capital from being optimal, and whose severity evolves in response to aggregate shocks. When calibrated to the U.S. economy, I show that misallocation decreases after a positive aggregate shock, and that the optimal tax rate is countercyclical.

Firms’ Marginal Propensities to Invest

Old Draft. New draft coming soon

How to stimulate aggregate investment? There are different transmission channels from macroeconomic policies to firm’s investment. Changes in firms’ income is an important one. Therefore, designing efficient counter-cyclical policies requires an understanding of how changes in firms’ income translate into changes in firms’ investment and which firms are the most responsive to such policies. In this paper, I use a new method to estimate firms’ marginal propensities (MPIs) to invest out of a transitory liquid income shock. I use a semi-structural method developed in the household literature and I show that this method can overcome difficulties encountered in previous estimations. I also investigate MPIs heterogeneity across firms. I show that firms’ MPIs are positive and significantly different from 0. On average, firms use 14.4% of the change in current income caused by a transitory income shock to invest. Moreover, firms that face financial constraints and/or firms that face liquidity constraints have higher MPIs than the ones that don’t. Finally, I show that MPIs are very heterogeneous across sectors.

The Heterogeneous Effects of Bank Losses

With John Kramer and Tobias Renkin .