Rubén Domínguez-Díaz

Government consumption stimulus is often implemented alongside other fiscal measures that shape its effectiveness. This paper studies the interaction between government spending multipliers and unemployment insurance (UI) extensions. Using state-level military spending shocks and cross-state variation in UI duration, we show that longer pre-existing UI significantly lowers spending multipliers. To interpret these findings, we develop a small open economy model with search-and-matching frictions and heterogeneous households. The model highlights two channels: a level effect that reduces precautionary savings, and an endogenous UI-duration effect whereby higher spending lowers unemployment and shortens UI extensions. Quantitatively, the latter mechanism dominates.

Banks provide households with liquid deposits — households' dominant liquid asset to buffer income fluctuations — and channel these into credit to firms. This paper shows both of these roles of the financial system are key to understanding how financial frictions amplify downturns. I first build a two-asset New Keynesian model with heterogeneous households and banks, and study the transmission of an income-risk shock that raises households' liquid asset demand. Constrained lending reduces investment and therefore household income. Lower income reduces consumption, while households also reduce savings in liquid bank deposits. Lower liquidity leaves households more exposed to the income fall, closer to their borrowing constraints, driving consumption further down. Monetary policy relaxes banks' leverage constraint, supports both lending and endogenous liquidity creation, and stabilizes the economy. Finally, I provide supporting evidence for the model predictions: in the data, tighter financial conditions deepen the recessionary impact of the shock, while contracting lending and dampening liquid deposit accumulation.

We estimate the macroeconomic effects of defence expenditure using a novel dataset covering the universe of defence procurement contracts in Spain over 30 years. Our defence procurement data overcomes identification challenges posed by implementation lags inherent in traditional government spending, as contracts are awarded years before production begins and spending is recorded in government national accounts only upon delivery. Using local projections, we find that GDP effects take time to materialise, become sizeable, but remain transitory. That is, while defence investment has relevant economic consequences, these are bound to occur in the medium run insofar as the spending process is hindered by implementation lags. A DSGE model calibrated to our empirical setting yields two main findings. First, reducing implementation lags to US levels would meaningfully frontload macroeconomic effects. Second, defence spending delivers more transient and smaller long-run effects than general public investment projects.

We analyze how production networks transmit foreign price shocks and reshape monetary policy trade-offs in an open-economy New Keynesian model with domestic and international input–output linkages. Analytically, we show that closing the output gap does not generally stabilize conventional inflation targets, as sector-level terms-of-trade movements and trade imbalances become additional drivers of inflation dynamics. We also characterize the inflation index associated with output-gap stabilization and show that openness adjusts sectoral inflation weights according to their domestic value-added content. Quantitatively, we study an international energy price shock in a model calibrated to major euro area countries and their trade partners. We find that production networks amplify the cumulative headline inflation response and worsen monetary policy trade-offs, as measured by the sacrifice ratio.

This paper explores the macroeconomic consequences of levying tariffs on imported investment goods, which directly affect the household's investment Euler equation. First, we construct a new multi-country and multi-sector investment input-output matrix to trace investment goods through international production chains. Second, we embed this in an open-economy New Keynesian model with production networks. In a uniform US tariff experiment, this channel more than doubles the impact contraction in GDP, with investment-goods exposure as the best predictor of aggregate output losses. Holding the average tariff fixed, redesigning its composition to avoid the investment network cuts cumulative domestic output losses by two-thirds.

We study the short-run macroeconomic transmission of a US–China tariff war in an open economy multi-sector New Keynesian model with input–output linkages, sectoral nominal rigidities, and heterogeneous currency invoicing. A reciprocal 10 percentage-point tariff increase generates asymmetric incidence: the tariff-imposing country bears more of the inflationary burden, while the targeted country experiences the larger output contraction. Production networks amplify this contraction by propagating the shock beyond the directly tariffed bilateral margin. Currency invoicing further shapes transmission. Under heterogeneous invoicing, dollar-priced border prices weaken the expenditure-switching role of exchange rates, deepening the contraction in China relative to producer-currency pricing and altering third-country spillovers. The EA response is small in the aggregate, but only because positive trade-diversion margins are offset by weaker demand from China and multilateral adjustments. We then exploit the model's sectoral structure by imposing tariffs on one Chinese sector at a time. Sectoral incidence is highly concentrated, but aggregate effects cannot be inferred from the directly tariffed sector alone: domestic propagation offsets own-sector gains in the US, reinforces own-sector losses in China, and leaves the EA as a net object shaped by opposing trade margins. The results show that tariff incidence depends jointly on where the tariff lands, how the shock propagates through production networks, and how invoicing governs border-price adjustment. A framework that combines these margins delivers a materially different assessment from one built on bilateral trade shares alone.

Employment stabilization, and hence firms' hiring, is fundamental for households' income and consumption. This means that stabilization policies targeted at firms spill over to the demand side of the economy. The current paper shows that the demand-side effects can render supply-side policies effective, even if conventional monetary policy is constrained. In a New Keynesian model with equilibrium unemployment and incomplete markets, the paper looks at a hiring subsidy that stimulates employment. Households' desire to accumulate precautionary savings falls, raising consumption and aggregate demand. Calibrating the model to the US, the ensuing increase in inflation renders the hiring stimulus effective precisely when the central bank cannot further support aggregate demand. Instead, absent idiosyncratic risk, and thus the expansionary demand-side effects, the hiring stimulus is crowded-out.

We develop an endogenous growth model with imported dirty energy, domestically produced clean energy, and carbon taxes to study the macroeconomic implications of a green energy transition. Calibrated to Spain, the model quantifies how carbon taxes affect long-run outcomes and short-run resilience to external energy price shocks. While long-run gross domestic product (GDP) losses are modest and partly offset by endogenous gains in energy efficiency and clean investment, our key finding is that the transition delivers substantial short-run benefits. As the clean-energy share rises from 26% to 86%, exposure to international dirty-energy price shocks declines sharply, reducing GDP impacts from -0.43% to -0.08%. Carbon-tax-induced decoupling of clean from dirty-energy prices plays a central role in insulating the economy. Our results highlight an overlooked channel through which climate policy enhances macroeconomic stability.

This paper introduces an endogenous growth general equilibrium model of firm dynamics and innovative investment for the Spanish economy that allows a better understanding of the medium-term effects of economic policies and shocks. We calibrate the model using both aggregate and firm-level data. We then use the model to assess the macroeconomic consequences of the different components of the Next Generation EU (NGEU) program, including public investment, private capital transfers, and innovative investment transfers. According to our baseline simulation, the NGEU funds significantly foster economic activity, with annual GDP growth increasing between 0.08 and 0.13 percentage points over the period of NGEU funds disbursement. In particular, we find that one of the key drivers of these output gains is the endogenous response of productivity to the fiscal stimulus. Among the different policy instruments, we find that innovation transfers deliver the largest effects on aggregate output, only matched by highly efficient public investment.