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They use RCTs on US households and document systematic heterogeneity in response to inflation-related information. Lessons: i) homeowners exhibit greater baseline awareness/update their expectations less than renters; ii) they adjust durable spending significantly, whereas renters do not.

Lorenzo is an excellent presenter, a pretty effective teacher, and a great team player: Go for him!!!

Lorenzo's rich portfolio includes contributions on the time-varying role played by US monetary policy shocks for the world business cycle; the role of oil and commodity price shocks at a global level; and the importance of accounting for financial stress in estimating growth-at-risk for the US.

Bottom line: The inflation surge wasn’t just about supply-side shocks. Unprecedented fiscal stimulus played a dominant role, challenging traditional macroeconomic models. Read the full paper for all the details!

Policy implications? Fiscal policy needs to be central in inflation discussions. Understanding its transmission mechanisms can help design better stabilization and debt management strategies.

Lorenzo then proposes a structural model that interprets the inflationary role of fiscal policy by breaking Ricardian equivalence, allowing for interactions with monetary policy, and modeling the persistence of fiscal-driven inflation through aggregate demand.

The Euro Area tells a slightly different story:
• Delayed and smaller fiscal interventions explain why inflation there lagged behind the US.
• Fiscal inflation contributed ~2% to Euro Area inflation, peaking in 2022.

Monetary policy, initially tight during the pandemic, became more accommodative in the recovery phase - adding to inflationary pressures. Meanwhile, supply shocks (e.g., supply chain crises, Ukraine war) played a secondary role.

How much? Fiscal shocks alone pushed inflation up by 4 percentage points, accounting for more than half of the surge.
• CARES Act (2020): Prevented deflation during the pandemic collapse.
• ARP Act (2021): Fueled inflation as the economy rebounded.

Using a Structural VAR (SVAR), Lorenzo identifies the causal effects of fiscal stimulus on inflation. Key finding: The unprecedented scale of fiscal interventions during the pandemic was the main driver of inflation in the US.

Conventional wisdom attributes the recent inflation spike on supply-side issues (commodity prices, supply chain disruptions). Lorenzo’s take is different: demand shocks - particularly fiscal policy shocks - played the dominant role.