UC Berkeley researchers re-evaluating monetary policy in the digital age

In the face of a changing economy, marked increasingly by the digitalization of financial exchanges, UC Berkeley’s economists are re-examining models to understand how money moves through society.

New research has challenged conventional wisdom around monetary economics in recent years. In response, Berkeley’s Department of Economics has launched an effort to research monetary policy in the digital age. The BB90 Fund for Monetary Economics, established through a generous gift from Brian Barish '90, will provide research funding for faculty and doctoral students to study the effectiveness of emerging strategies used by financial regulators to influence economic behavior.

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The following BB90 Fund awardees will be leading innovative research into these topics:

	Valerie Boctor Ph.D. candidate focusing on macroeconomics and household finance Federal policymakers have responded to recession fears, high inflation, and the pandemic in a variety of ways that affect household balance sheets. Valerie Boctor is studying the effects of recent monetary policy and countercyclical stabilization efforts on household financial stability and the wealth distribution.
	Bernardo Candia, Olivier Coibion, Yuriy Gorodnichenko, and Michael Weber Ph.D. student at UC Berkeley, Professor of Economics at The University of Texas at Austin, Professor of Economics at UC Berkeley, and Associate Professor of Finance at the University of Chicago, respectively Since the debut of Bitcoin in 2009, the market for crypto assets has grown at an unprecedented pace. Bernardo Candia (pictured) and three professors will survey U.S. households to better understand the demographics of cryptocurrency owners, why they decided to invest, and what people think about cryptocurrency.
	Martin Caruso Bloeck Ph.D. student focusing on macroeconomics and international economics While e-commerce and online retail enable price shopping, inflation makes it more difficult for consumers to identify low prices with certainty. Martin Caruso Bloeck will seek to provide a quantitative estimate of the welfare cost of inflation.
	Ruslana Datsenko Ph.D. student focusing on firm dynamics, inflation, and monetary policy More researchers are attempting to quantify the long-term impacts of interest rate adjustments, which is much less understood than the short-term impacts. Ruslana Datsenko will evaluate the effect of monetary policy on firms’ total factor productivity and their investments in research and development, breaking down the data to see which firms are most affected.
	Collin Jones and Abhi Gupta Ph.D. students focusing on macroeconomics and finance After the near-collapse of money markets during the 2008-2009 Great Financial Crisis, the Securities and Exchange Commission implemented a number of reforms. Collin Jones and Abhi Gupta will study the effect of these reforms on the stability and price-elasticity of demand in short-term funding markets, especially during the emergency interventions of March 2020.
	Chen Lian Assistant Professor focusing on macroeconomics, monetary theory, behavioral economics, and finance The textbook framework for studying monetary and fiscal policy assumes the economy is dominated by one or the other, leaving little room for interaction. Chen Lian intends to provide a new, systematic framework to think about these issues that can explain the reality and guide policy.
	Alfredo Mendoza Fernández Ph.D. student focusing on macroeconomics and international economics Traditional models for small, open economies assume that monetary authorities must choose between controlling the interest rate and the exchange rate. As digital technologies improve access to exchange rate information and increase households' capacity to invest in foreign currencies, Alfredo Mendoza Fernández will interview Costa Ricans to shed light on how households and firms form exchange rate expectations to determine if these models are outdated.
	Emi Nakamura Chancellor’s Professor of Economics focusing on macroeconomics, international macroeconomics, industrial organization, and finance Deposits are an important source of funding for banks. Some European banks have set negative deposit rates, so customers pay interest on their bank accounts. Emi Nakamura will analyze the effect of negative deposit rates on deposit outflows.
	Jun Peng Ph.D. student focusing on real estate and finance While some people access communications directly from central banks’ social media accounts, others do so indirectly by following friends, economists, and other influencers. Jun Peng will study the roles of these different audience types in how central bank tweets affect stock audience sentiments.
	Matteo Saccarola Ph.D. student focusing on industrial organization, applied microeconomics, and behavioral economics The multitude of online banking tools should make the composition of optimal savings portfolios easier than ever before. Matteo Saccarola will survey Costa Rican households to determine the effect of different communication strategies on exchange rate expectations, with implications for unconventional policy tools such as information provision and behavioral nudges.
	Anders Yding Ph.D. student focusing on macroeconomics and public finance Several central banks have recently introduced negative interest rates for the first time, raising a key question about the effectiveness of this policy. Anders Yding will evaluate how strongly negative interest rates are passed through to financial institutions’ deposit and lending rates.
	Steven Zheng PhD student focusing on asset pricing and macroeconomics Long duration assets, like the stock market or 10-year bonds, respond strongly to monetary policy. However, that is a puzzle for modern macro-finance models. In theory, changes in monetary policy should not affect the stock market (a perpetual asset) or 10-year bonds, yet empirically they do. Steven Zheng aims to gain insight into this puzzle by estimating the channel through which monetary policy moves asset prices using novel intraday stock and bond decompositions.

If you would like to support UC Berkeley’s innovative economic research, please contact Erik Lehto, Associate Director of Development, at (510) 609-5335 or lehto.erik@berkeley.edu.