Pierfrancesco Mei

Research

Current Research

"Selective Inattention", with Tim de Silva

Abstract: We introduce the concept of selective inattention: agents in the economy selectively update their expectations about aggregate variables only when they make individual decisions for which these variables are relevant. Using a comprehensive set of existing household surveys and a specifically designed new survey, we show that households form expectations of macroeconomic variables that are more accurate, less dispersed, and closer to those of professional forecasters around periods in which they make important decisions, such as buying a house. We study the macroeconomic implications of our findings in a heterogeneous agents incomplete markets model with fixed costs of durable adjustment, where agents can pay an observation cost to acquire information about the return on a risky asset. In the model, agents exhibit selective inattention endogenously: they are more likely to pay the observation cost when adjusting durable consumption. Selective inattention has spillover effects on nondurable consumption and implies that the model can exhibit two features that have been difficult to reconcile jointly: a high level of macro-inattention, which refers to the sluggishness with which average expectations respond to shocks, and large responses of macro aggregates to shocks, in particular volatile durable goods spending.

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

Abstract: An economy's responses to shocks are re-equilibrating processes involving many forces. How do people intuit them? We propose a theory of “shallow understanding” (SU): people only foresee finite rounds of shock propagation, based on a network game representation of the macroeconomy. We develop a theory-informed survey and document facts unique to our theory. Variables that are deeper relative to shocks are understood by fewer people. Further, the ability to comprehend deep relations is a personal characteristic, which explains belief heterogeneity in the population. In an analytical two-period New Keynesian model, we reassess policy transmission. The fiscal multiplier is larger if funded by corporate income taxes instead of individual income taxes under SU, but neutral as predicted by full-information rational expectations (FIRE) and alternative theories. In contrast, policy effectiveness is very sensitive to monetary accommodation under FIRE, but much less so under SU. Moreover, when the monetary rule is aggressive, policy tools can be more potent under SU than FIRE. We extend these lessons to a quantitative heterogeneous-agent New Keynesian model.

"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. I am also a Visiting Fellow at the Federal Reserve Bank of Boston.

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. 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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