Pierfrancesco Mei

Research

Current Research

"Selective Inattention", with Tim de Silva

Abstract: This paper studies how durable decisions, such as purchasing a home or car, affect how households acquire information about macroeconomic variables and form their expectations. Using a newly-designed survey of U.S. consumers, we show that households concentrate the timing and frequency of their information acquisition about macroeconomic variables around the time period in which they make durables purchases. These patterns in information acquisition generate selective inattention, in which households that make durables adjustments hold beliefs that are around 35% more accurate than those of non-adjusters. To assess the macroeconomic implications of selective inattention, we build an incomplete markets model of non-durable and durable consumption where households acquire information dynamically about interest rates. After calibrating the parameters governing information acquisition using survey data, we study how selective inattention affects the response of the economy to changes in interest rates. Like a model with exogenous information, selective inattention dampens the response of non-durable consumption to interest rates. However, unlike a model with exogenous information, a model with selective inattention generates responses of durable consumption that are almost as large as the full information case. In sum, our results suggest that the beliefs of decision-makers, in addition to average beliefs, matter for the propagation of macroeconomic shocks.

"Thinking about the Economy, Deep or Shallow?", with Lingxuan Wu

Abstract: We propose a theory of shallow thinking to capture people’s limited understanding of the long causal chains involved in the propagation of shocks. We conceptualize general equilibrium as a system of causal relations in a directed cyclic graph and develop a survey to measure people’s understanding of it. Our estimation suggests that, on average, people think about only 2.6 steps of propagation, overlooking much of the graph and underappreciating feedback loops. Our theory implies that longer feedback loops have less influence on beliefs. In a New Keynesian model with an active Taylor rule, shallow thinking reconciles several bond market puzzles and has macroeconomic consequences: (i) long-term nominal interest rates underreact to cost-push shocks but overreact to monetary policy shocks; (ii) inflation expectations negatively predict bond excess returns, controlling for yields; (iii) cost-push shocks are more inflationary than under rational expectations; and (iv) more persistent cost-push shocks lead to higher inflation, contrary to rational expectations. In a real business cycle model, in response to productivity shocks: (i) output displays a more persistent, hump-shaped response; (ii) investment and labor hours show amplified reactions; and (iii) the response of stock excess returns starts positive but turns negative after a few quarters.

"The How and Why of Household Reactions to Income Shocks", with Stefanie Stantcheva and Roberto Colarieti. NBER Working Paper 32191, 2024.

Abstract: This paper studies how and why households adjust their spending, saving, and borrowing in response to transitory income shocks. We leverage new large-scale survey data to first quantitatively assess households' intertemporal marginal propensities to consume (MPCs) and deleverage (MPDs) (the “how”), and second to dive into the decision-making processes across households (the “why”). The combination of the quantitative estimation of household response dynamics with a qualitative exploration of the mental models employed during financial decisions provides a more complete view of household behavior. Our findings are as follows. First, we validate the reliability of surveys in predicting actual economic behaviors using a new approach called cross-validation, which compares the responses to hypothetical financial scenarios with observed actions from past studies. Second, we show that MPCs are significantly higher immediately following an income shock and diminish over time, with cumulative MPCs over a year showing significant variability. However, MPDs play a critical role in household financial adjustments and display significantly more cross-sectional heterogeneity. Third, using specifically designed survey questions, we find that there is a broad range of motivations behind households' financial decisions and identify household types using machine learning methods. Similar financial actions stem from diverse reasons, challenging the predictability of financial behavior solely based on socioeconomic characteristics. Finally, we use our findings to address some puzzles in household finance.

Pre-PhD Research

"Debt and Austerity: International Evidence and the Case of Brazil" (2020), with Alberto Alesina, Cadernos de Finanças Públicas

"The Italian Public Debt" (2019), with Alberto Alesina, Carlo Favero and Francesco Giavazzi, Book Chapter in “Austerity”, Rizzoli

"Austerity and Public Debt Dynamics" (2019), with Carlo Favero, CEPR DP 14072

About

Welcome to my webpage!

I am a PhD Candidate in Economics at Harvard University with research interests in macroeconomics, finance and behavioral economics.

Harvard

During my time at Harvard I worked as a research assistant for Professors Alberto Alesina, Emmanuel Farhi, Kenneth Rogoff, and Andrei Shleifer. Since 2021, I have been the teaching fellow for the first-year PhD macroeconomics course at Harvard (Professors Robert Barro, Adrien Bilal, Xavier Gabaix, and Ludwig Straub). In May 2023, I was awarded the Harvard GEA prize for best teaching fellow in the Economics Department. In 2023/24, I was a Visiting Fellow at the Federal Reserve Bank of Boston. I am also a research fellow in the Social Economics Lab led by Professor Stefanie Stantcheva at Harvard. My research has been supported by the Alberto Giovannini UniCredit Scholarship, the Lynde and Harry Bradley Foundation Fellowship, the Molly and Domenic Ferrante Macro Fund, the Michael S. Chae Macroeconomic Policy Fund, and the Federal Reserve Bank of Boston Dissertation Fellowship.

Bocconi

Before joining Harvard, I obtained Bachelor and Master's degrees in Economics from Bocconi University in Milan under the supervision of Professor Francesco Giavazzi. Between 2016 and 2019, I worked as a research assistant for Professors Alberto Alesina, Carlo Favero, Francesco Giavazzi, and Stefanie Stantcheva. I was a visiting student at Princeton University and at the Innocenzo Gasparini Institute of Economic Research, and an intern at the Financial Times and the Institute for Fiscal Studies in London. In 2018/19 I was president of the Economic Society, the first-established economics student society at Bocconi. During my Master, I received the Bocconi Graduate Merit Award, and the Vittorio Bertazzoni Scholarship.

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Elements

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