Research

Working papers

Working papers

1. Monetary Policy and Aggregate Investment: The Role of Entrepreneurs

   Alexander Matusche, and Johannes Wacks

   Feb 2024

   Abstract PDF

   We study the role of entrepreneurs for the transmission of monetary policy to aggregate investment. To this end, we develop a HANK model with entrepreneurs who invest in private firms with risky returns. The model matches the distribution of private business returns over owners’ net worth observed in the Survey of Consumer Finances. This is important because a lower return premium over the risk-free rate leads to stronger portfolio rebalancing towards the private business in response to expansionary monetary policy. Entrepreneurs are quantitatively important for the transmission of monetary policy. If they do not react to the change in the interest rate, the output response is more than 30% smaller. A shift of wealth from workers to entrepreneurs as observed in the US since the 1980s, strengthens the real effects of monetary policy.

Published articles

Published articles

1. The Short-Run Employment Effects of Public Infrastructure Investment

   Alexander Matusche

   European Economic Review, Feb 2025

   Abstract Bib PDF Online Appendix

   I study the stimulus effects of a permanent expansion of public investment that improves long-run productivity. Through an anticipation effect on labor demand, the policy change raises employment already in the short-run. In a model with search and matching labor market, I characterize the employment multiplier of public investment analytically and show that it is larger in a recession than a boom. Calibrated to the US, the model yields an increase in employment of 0.26 percentage points one year after a permanent expansion of public investment by 1% of GDP. The anticipation effect accounts for 65% of the employment gain.

   @article{Matusche2025,
     author = {Matusche, Alexander},
     date = {2025-08},
     journal = {European Economic Review},
     title = {The Short-Run Employment Effects of Public Infrastructure Investment},
     doi = {10.1016/j.euroecorev.2025.105046},
     issn = {0014-2921},
     pages = {105046},
     volume = {177},
     onlineappendix = {PublicInvestmentOnlineAppendix.pdf},
     publisher = {Elsevier BV},
     year = {2025},
   }

2. Does wealth inequality affect the transmission of monetary policy?

   Alexander Matusche, and Johannes Wacks

   Journal of Macroeconomics, Mar 2023

   Abstract Bib PDF

   We provide evidence that higher wealth inequality between households is associated with stronger real effects of monetary policy. First, we use state-dependent local projections to show that the US and the UK exhibited stronger real effects of monetary policy in times of higher wealth inequality. Second, we measure wealth inequality within US states and document that economic activity responds more strongly to interest rate changes in states where wealth is distributed more unequally. Third, we show that ECB monetary policy has stronger real effects in Euro Area countries with higher wealth inequality.

   @article{Matusche2023,
     title = {Does wealth inequality affect the transmission of monetary policy?},
     author = {Matusche, Alexander and Wacks, Johannes},
     journal = {Journal of Macroeconomics},
     volume = {75},
     number = {},
     pages = {},
     year = {2023},
     publisher = {Elsevier {BV}},
     url = {https://doi.org/10.1016/j.jmacro.2022.103474},
     month = mar
   }

Policy reports

Policy reports

1. Slow Recoveries Through Fiscal Austerity – New Insights in the Effects of Fiscal Austerity

   Francesco Bianchi, Diego Comin, Howard Kung, and 2 more authors

   Mar 2019

   Abstract Bib PDF

   Several European countries such as Spain, Portugal, and Greece implemented austerity programs to cope with the government-debt crisis in the aftermath of the Great Recession: They increased taxes on consumption, labour, and capital and reduced government expenditures to prevent a large increase in the debt-to-GDP ratio. Such policies impose a greater tax burden on the economy which distorts labour supply and investment. We argue that these additional tax distortions make it less attractive for firms to invest in adopting new technologies. New insights from the FRAME project show that fiscal austerity has severe negative consequences for productivity and economic growth in the medium-run and can lead to slow recoveries. Further, austerity may ex- acerbate existing market failures associated with investment in research and development (R&D) and technology adoption. Beyond its well-known impact on aggregate demand fiscal austerity has a negative effect on future economic growth and productivity growth and hence also on the supply side. Fiscal consolidation is desirable only if it enables a quick reduction of the cost of financing debt but this is unlikely.

   @report{Bianchi2019,
     author = {Bianchi, Francesco and Comin, Diego and Kung, Howard and Kind, Thilo and Matusche, Alexander},
     title = {Slow Recoveries Through Fiscal Austerity – New Insights in the Effects of Fiscal Austerity},
     institution = {Centre for European Economic Research (ZEW)},
     year = {2019},
     type = {ZEW Policy Brief},
     month = mar,
     url = {https://www.zew.de/en/publications/slow-recoveries-through-fiscal-austerity-new-insights-in-the-effects-of-fiscal-austerity-1},
   }