Alejandro Van der Ghote
Research
- Division
Monetary Policy Research
- Current Position
-
Principal Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,Financial Economics,International Economics
- Education
- 2017
PhD in Economics, Princeton University, USA
- Professional experience
- 2025-
Principal Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 2020-2024
Senior Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 2017-2020
Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank
- 4 July 2025
- WORKING PAPER SERIES - No. 3070Details
- Abstract
- We show that in a canonical model with heterogeneous entrepreneurs, financial frictions, and an imperfectly elastic supply of capital, a fall in the interest rate has an ambiguous effect on aggregate economic activity. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, however, this higher demand for capital raises its price and crowds out investment by more productive entrepreneurs. When this reallocation is strong enough, a fall in the interest rate reduces aggregate output. A numerical exploration of the model suggests that this reallocation effect i s quantitatively significant an d – in response to persistent changes in th e interest rate – stronger than the traditional balance-sheet channel. We provide evidence of the reallocation effect using US firm-level data.
- JEL Code
- E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E23 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 30 June 2025
- OCCASIONAL PAPER SERIES - No. 372Details
- Abstract
- This report focuses on the implications of the changed inflation environment for the ECB’s monetary policy strategy, including the lessons learned from both the low inflation and high inflation periods, and the transition from one to the other. The starting point of the report is the outcome of the Monetary Policy Strategy Review 2020-21. While the previous review was conducted in an economic environment of low inflation, with interest rates in proximity to the effective lower bound (ELB), the inflation surge that followed the COVID-19 pandemic underscores the importance of a monetary policy strategy that enables the Governing Council to effectively respond to major changes in the inflation environment.
- 23 November 2022
- RESEARCH BULLETIN - No. 101Details
- Abstract
- Recent empirical findings (Bordalo et al., 2018, 2019; Greenwood et al., 2022) have vindicated the view thatsystemic risk in financial markets is also influenced by cognitive misperceptions about future economicdevelopments in addition to being influenced by financial frictions. Most of the literature on macroprudentialregulation, nonetheless, has omitted those misperceptions and instead has derived policy implicationsassuming rational expectations. In this article (which is based on Camous and Van der Ghote, 2021), weexamine the joint implications of external financing frictions and extrapolative expectations for the stability ofthe financial system and the appropriate conduct of macroprudential regulation. We find that interactionsbetween those two elements exacerbate financial instability relative to the rational benchmark. This calls fortighter macroprudential regulation, even when the regulator is also subject to cognitive misperceptions.Disagreement about the appropriate macroprudential regulation among potential regulators with differingdegrees of misperception is stronger during booms, when risk-taking in financial markets and in realinvestments is more aggressive.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E71 : Macroeconomics and Monetary Economics
- 13 July 2022
- WORKING PAPER SERIES - No. 2680Details
- Abstract
- This paper proposes a tractable New Keynesian (NK) economy with endogenous adjustment in product quality that nests the canonical framework. Endogenous quality choice reduces the slope of the traditional NK Phillips curve and amplifies the economy’s response to productivity shocks. This leads to a less reactionary monetary policy where model misspecification of imperfectly observable quality adjustments matters more for macroeconomic stabilization than the mismeasurement of those adjustments. With no misperception of product quality by the monetary authority, the principles for optimal monetary policy are, nonetheless, unchanged as the quality extensions to the canonical NK model preserve divine coincidence.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 24 June 2022
- RESEARCH BULLETIN - No. 97Details
- Abstract
- Throughout the world, the global financial crisis fostered the design and adoption of macroprudential policies to safeguard the financial system. This raises important questions for monetary policy, which, by contrast, primarily focuses on maintaining price stability. What, if any, is the relationship between (conventional) monetary policy and macroprudential policy? In particular, how does the effectiveness of macroprudential policies influence the conduct of monetary policy? This article reviews recent theoretical and empirical research addressing these questions. The main conclusion is that monetary policy can also perform macroprudential functions, but it does so by deviating from its focus on price stability. The quantification of this trade-off remains an exciting question.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- Network
- Research Task Force (RTF)
- 3 May 2022
- WORKING PAPER SERIES - No. 2659Details
- Abstract
- Swift changes in investors' sentiment, such as the one triggered by COVID-19 global outbreak in March 2020, lead to financial tensions and asset price volatility. We study the interactions of behavioral and financial frictions in an environment with endogenous risk-taking and capital accumulation. Agents form diagnostic expectations about future stochastic outcomes: recent realizations of aggregate shocks are expected to persist. This behavioral friction gives rise to sentiment cycles with excessive investment and occasional safety traps. The interactions with financial frictions lead to an endogenous amplification of financial instability. We discuss implications for policy interventions.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E71 : Macroeconomics and Monetary Economics
- 8 December 2021
- RESEARCH BULLETIN - No. 90Details
- Abstract
- The natural rate of interest is the equilibrium real interest rate that is consistent with inflation on target andproduction at full capacity. This article argues that in economies with low natural rates, such as the euroarea today, macroprudential policy can have benefits for the effectiveness of conventional monetarypolicy, in addition to safeguarding financial stability. Notably, macroprudential policies that curb leverageof financial intermediaries during upturns can also help stimulate aggregate demand during downturns.One way they do so is by containing systemic risk in financial markets. As a by-product of the systemicrisk reduction, intermediary financing and aggregate output also become more stable. This additionalreduction in risk boosts the natural rate and thus reduces the likelihood of hitting the effective lower bound(ELB) on policy rates. In numerical simulations conducted for the euro area, the positive effect ofmacroprudential policy on the average natural rate is estimated to be around 0.7%, while the probability ofhitting the ELB declines by around 8%, relative to a benchmark scenario without macroprudential policy.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy - Network
- Research Task Force (RTF)
- 19 February 2021
- WORKING PAPER SERIES - No. 2527Details
- Abstract
- The Global Financial Crisis fostered the design and adoption of macroprudential policies throughout the world. This raises important questions for monetary policy. What, if any, is the relationship between monetary and macroprudential policies? In particular, how does the effectiveness of macroprudential policies (or lack thereof) influence the conduct of monetary policy? This discussion paper builds on the insights of recent theoretical and empirical research to address these questions.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Discussion papers
- 19 February 2021
- DISCUSSION PAPER SERIES - No. 13Details
- Abstract
- The Global Financial Crisis fostered the design and adoption of macroprudential policies throughout the world. This raises important questions for monetary policy. What, if any, is the relationship between monetary and macroprudential policies? In particular, how does the effectiveness of macroprudential policies (or lack thereof) influence the conduct of monetary policy? This discussion paper builds on the insights of recent theoretical and empirical research to address these questions.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 11 December 2020
- WORKING PAPER SERIES - No. 2498Details
- Abstract
- I study macro-prudential policy intervention in economies with secularly low interest rates. Intervention boosts risk-free real interest rates unintentionally, simply as a by-product of containing systemic risk in financial markets. Thus, intervention also boosts the natural rate of return in particular (i.e., the equilibrium risk-free rate that is consistent with inflation on target and production at full capacity). These results point to a novel complementarity between financial stability and macroeconomic stabilization. Complementary is sufficiently strong to generate a divine coincidence if the natural rate is secularly low, but not too low.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy - Network
- Research Task Force (RTF)
- 20 February 2020
- WORKING PAPER SERIES - No. 2376Details
- Abstract
- This paper examines the interactions of macroprudential and monetary policies. We find, using a range of macroeconomic models used at the European Central Bank, that in the long run, a 1% bank capital requirement increase has a small impact on GDP. In the short run, GDP declines by 0.15-0.35%. Under a stronger monetary policy reaction, the impact falls to 0.05-0.25%. The paper also examines how capital requirements and the conduct of macroprudential policy affect the monetary transmission mechanism. Higher bank leverage increases the economy's vulnerability to shocks but also monetary policy's ability to offset them. Macroprudential policy diminishes the frequency and severity of financial crises thus eliminating the need for extremely low interest rates. Countercyclical capital measures reduce the neutral real interest rate in normal times.
- JEL Code
- E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 26 March 2019
- RESEARCH BULLETIN - No. 56Details
- Abstract
- Should monetary policy be concerned with financial stability? Or do financial supervisory and regulatory policies suffice to achieve this goal? These questions have been prominent in the policy debate since the global financial crisis. To address them, I develop a tractable monetary model in which systemic risk and economic activity both depend on financial conditions. I show that there are benefits from using monetary policy, i.e., interest-rate policies, to enhance financial stability. These benefits are quantitatively moderate, however, and partly offset by costs in terms of inflation variability.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination - Network
- Research Task Force (RTF)
- 5 June 2018
- WORKING PAPER SERIES - No. 2155Details
- Abstract
- How to conduct macro-prudential regulation? How to coordinate monetary policy and macro-prudential policy? To address these questions, I develop a continuous-time New Keynesian economy in which a financial intermediary sector is subject to a leverage constraint. Coordination between monetary and macro-prudential policies helps to reduce the risk of entering into a financial crisis and speeds up exit from the crisis. The downside of coordination is variability in inflation and in the employment gap.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
G01 : Financial Economics→General→Financial Crises - Network
- Research Task Force (RTF)
- 2024
- The Review of Economic Studies
- 2021
- American Economic Journal: Macroeconomics
- 2019
- Journal of Monetary Economics