Errikos Melissinos
I am participating on the 2023/2024 academic job market.
Research
Working Papers
Real Term Premia in Consumption-Based Models
Can consumption-based mechanisms generate positive and time-varying real term premia as we see in the data? I show that only models with time-varying risk aversion or models with high consumption risk can produce these patterns. The latter explanation has not been analysed before with respect to real term premia, and it relies on a small group of investors exposed to high consumption risk. Additionally, it can give rise to a "consumption-based arbitrageur" story of term premia. In relation to preferences, I consider models with both time-separable and recursive utility functions. Specifically for recursive utility, I introduce a novel perturbation solution method in terms of the intertemporal elasticity of substitution. This approach has not been used before in such models, it is easy to implement, and it allows a wide range of values for the parameter of intertemporal elasticity of substitution.
A Perturbation Solution Method for Models with Recursive Utility
I illustrate a novel method for pricing assets within recursive utility models in continuous time, that has first been used in Melissinos (2023). My method builds on the analytic solution of Tsai and Wachter (2018). While their solution is valid for a value of the intertemporal elasticity of substitution equal to 1, I provide the full perturbation series in terms of the IES, which gives rise to a global perturbation approximation in terms of the state variable. This allows the pricing of assets for a much larger range of values for the IES, which are economically meaningful. I comment on the convergence properties of the perturbation series, and I show that the method provides a straightforward and reliable approach to asset pricing. I employ my method to derive prices of long-term bonds, the price consumption ratio and the instantaneous return of the consumption perpetuity.
Measuring On-the-job Learning Rates in Multidimensional Skills
with Mariia BondarIn this paper, we introduce a framework with multidimensional skills, in which we estimate how fast skills accumulate due to on-the-job experience. We model an individual’s wage as a weighted sum of her productivities in different skills. We call this skill-specific productivity expertise. Since expertise is not directly observable, we proxy this variable with skill-specific experience, which depends on the years of labor market experience across different occupations and the importance of the corresponding skill in those occupations. We compute skill-specific experience using the data on occupational skill requirements from O*NET. We then estimate the wage equation using skill-specific experience to evaluate the speed of expertise accumulation (learning rate) in different skills. We find that expertise in different skills grows with skill-specific experience and that different skills exhibit different learning rates.
Estimating Monetary Policy Rules
In this paper, I perform Bayesian estimations of the monetary policy rule parameters for various structural New Keynesian models. I find that the estimates depend on the model specification, and there are no robust estimates that are valid across a variety of models. In addition, my results are also consistent with the existence of a structural break in the conduct of monetary policy in the US at the 1980s.
Work in Progress
Monetary Policy Evaluation in Real Models
I showcase a method for evaluating monetary policy. I introduce a simple model, in which monetary policy can directly affect the magnitude of consumption growth. I argue that within such a framework evaluation of monetary policy can be simpler than the standard approach of the literature. In addition, a development of this approach could facilitate market-based evaluations of monetary policy that are based on fluctuations of real interest rates in response to monetary policy shocks.
Jointly Explaining Stock Market Non-Participation and the Equity Premium
I am working on a heterogeous agent model that shows the level of stock participation of individuals with different levels of risk aversion. I start by deriving the term structure of interests rates and the equity premium based on a consumption process with high levels of consumption volatility. I then derive the optimal investment and consumption levels of more risk-averse investors, including when there is a small friction in investing. I analyze the resulting stock market participation levels, the equity premium and the level of risk sharing provided by markets.