research | Gergo Motyovszki

Publications

Monetary Policy and Inequality Under Labor Market Frictions and Capital-Skill Complementarity. (2021)

Juan Dolado, Gergő Motyovszki, and Evi Pappa

American Economic Journal: Macroeconomics , 2021

(also circulated in CEPR Discussion Papers, 2018).

PDF Online Appendix CEPR DP AEA web voxEU Model replication Empirical replication Abstract

We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC) in production. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel.

Working Papers

The Macroeconomic Effects of US Tariff Hikes. (2025)

Gergő Motyovszki

European Economy – ECFIN Discussion Papers , Nov 2025

PDF ECFIN web EC Spring Forecast 25 box Abstract

US trade policy has taken a sharp protectionist turn under the second Trump administration, with the aim of boosting domestic manufacturing production, reducing the US trade deficit, and raising budgetary revenues ”paid by foreigners.” This paper assesses the macroeconomic consequences of recent US tariff announcements, based on quantitative simulations by the European Commission’s multi-region New Keynesian DSGE model, QUEST. Results indicate that, rather than aiding domestic production, tariff hikes weaken the US economy. While tariffs shift demand from imports towards US-produced goods, they also act as an adverse supply shock. In addition, the equilibrium terms-of-trade appreciation crowds out exports, and monetary tightening in response to inflationary pressures hurts domestic demand as well. Although tariff revenues generate additional fiscal space for the US government, only around a quarter of the burden falls on foreigners in the form of a US terms-of-trade gain. Finally, tariff hikes reduce US trade deficits only temporarily. The effects on EU GDP are moderately negative, driven mainly by weaker exports to the US. At the same time European exporters gain market share in third countries at the expense of less competitive American firms. US tariffs on other countries lead to trade diversion, slightly deepening the short-term economic losses in Europe, but reversing later on. A general tit-for-tat retaliation would deepen the negative impacts in both the US and the EU. Beyond the direct effects of tariffs, rising uncertainty and a loss of investor confidence in the US economy further aggravates the adverse economic consequences by tightening financing conditions. Sensitivity analyses highlight the role of tariff persistence, the currency of trade invoicing and the monetary policy response.
Public Investment and Debt Sustainability. (2024)

Gergő Motyovszki, Philipp Pfeiffer, and Jan in ’t Veld

European Economy – ECFIN Discussion Papers , Jun 2024

PDF ECFIN web Abstract

Rising public investment needs raise the issue of debt sustainability. This paper analyses the implications of public investments for debt dynamics using quantitative model simulations. Without offsetting fiscal adjustments via the primary balance, a temporary increase in public investment implies a lasting increase in the debt-to-GDP ratio. While a significant boost to real GDP can create some backing for the additional public debt, the direct budgetary costs of the stimulus outweigh this denominator effect. In the medium and long run, as these endogenous effects fade, debt dynamics becomes increasingly driven by the longterm r-g differential, which is assumed to be positive in our central scenario, putting debt-to-GDP on an increasing trajectory. In contrast, negative r-g could ensure that debt-to-GDP eventually reverts to its baseline level, even without budgetary adjustments. Alternatively, letting the primary balance adjust beyond the impact of the fiscal shock can provide another mechanism for debt stabilisation. In particular, if non-stimulus spending is fixed in real terms while taxes increase in line with expanding output, debt-toGDP falls below its baseline in the medium run, even in an economy with positive r-g. However, this constitutes a quasi-consolidation where the resulting higher primary balances reflect the inherent fiscal costs, underlining that public investment is not a “free lunch”. Nonetheless, the need for debt-financed public investments to be eventually paid for (in a narrow fiscal sense) does not preclude their potential to be welfare-improving for society, especially if they facilitate the climate transition – a channel our model does not explicitly consider.
The Fiscal Effects of Terms-of-Trade-Driven Inflation. (2023)

Gergő Motyovszki

European Economy – ECFIN Discussion Papers , Jul 2023

(also published in Quarterly Report on the Euro Area, 2024)

PDF QREA ECFIN web Abstract

This paper looks at whether the recent sharp spike in inflation can be beneficial for public debt sustainability by eroding the real value of nominal debt. Simulations with the European Commission’s QUEST model suggest that if the source of inflation is an adverse terms-of-trade shock, then it leads to a rising public debt-to-GDP ratio. In this case, the debt-reducing effect of higher inflation is outweighed by the adverse effects of slower real growth, a declining primary budget balance, and higher interest rates as an active monetary policy tightens to fight inflationary pressures. The results are highly policy-dependent: shorter consolidated debt maturity (brought about by past QE programs) would speed up the rise in interest expenditures, while a more accommodative monetary policy would delay them, also supporting nominal growth. The reaction of the primary fiscal balance (via automatic stabilisers, inflation indexation and debt-stabilisation rules) also matters. However, the baseline result that the debt-to-GDP ratio rises in response to an adverse terms-oftrade shock is fairly robust across all but the most extreme alternative policy scenarios.
Monetary-Fiscal Interactions and Redistribution in Small Open Economies. (2020)

Gergő Motyovszki

European University Institute, ECO Working Papers , 2020

PDF EUI web Abstract

Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficit-financing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies.
Balance of Payments Crises and Household Heterogeneity in Small Open Economies. (2019)

Gergő Motyovszki

mimeo, EUI – draft in progress , 2019

slides
Weak Wage Recovery and Pracautionary Motives After a Credit Crunch. (2018)

Gergő Motyovszki, Łukasz Rachel, and Rana Sajedi

mimeo, Bank of England – preliminiary draft , 2018

PDF

Policy work

Spillovers to the EU from US tariffs imposed on third countries. (2025)

European Commission, Economic Forecast , Autumn 2025

PDF AF25 ECFIN web
The macroeconomic effect of US tariff hikes. (2025)

European Commission, Economic Forecast , Spring 2025

PDF SF25 ECFIN web
The effect of fiscal expansion on the external balances of Romania. (2025)

European Commission, In-Depth Review - Romania , May 2025

PDF RO IDR
Digitalisation: channels, impacts and implications for monetary policy in the euro area. (2021)

ECB Occasional Papers , 2021

coauthored with the ECB Strategy Review’s workstream on digitalisation

PDF ECB web
Deflation fears in developed economies. (2014)

István Ábel, Kristóf Lehman, Gergő Motyovszki, and Zoltán Szalai

Magyar Nemzeti Bank Bulletin , Jul 2014

PDF MNB web
Possible impacts of the financial crisis on potential output. (2013)

Péter Gábriel and Gergő Motyovszki

Magyar Nemzeti Bank Bulletin , May 2013

PDF MNB web
The Role of Exchange Rate in the Monetary Policy of Emerging Economies. (2011)

Gergő Motyovszki

Development and Finance , 2011

(in Hungarian only)

PDF web

Theses / Term Papers

Essays on macroeconomic policies and household heterogeneity. (2021)

Gergő Motyovszki

PhD thesis, European University Institute, Florence , 2021

thesis committee: Jordi Galí, Tommaso Monacelli, Evi Pappa, Alessia Campolmi

PDF EUI web
Currency Mismatch and Monetary Policy in Emerging Economies. (2016)

First-year PhD paper, European University Institute, Florence , 2016

PDF
Nominal GDP Targeting as an Alternative Framework for Monetary Policy – A New Keynesian Approach. (2013)

MA thesis, Central European University, Budapest , 2013

PDF CEU web
The euro crisis as a balance of payments crisis. (2012)

BA thesis, Corvinus University of Budapest , 2012

PDF (HU) BCE web
The role of exchange rate in the monetary policy of emerging economies. (2011)

BA thesis, Corvinus University of Budapest , 2011

PDF (HU)
Should central banks react to asset price movements?. (2009)

Scientific Student Conference paper, 1st prize, Corvinus University of Budapest , 2009

PDF (HU) BCE web

Selected Assignments

Banking School vs Currency School – Money Creation. (2016)

PDF (EUI)
The Evolution of Phillips Curve Concepts and Their Implications for Economic Policy. (2013)

PDF (CEU)
The Effect of Trade Union Density on Inflation Performance in OECD Countries. (2012)

PDF (CEU)

Commentaries / Blog Posts

personal blog at EUI.

EUI blog
Under the spell of zeros: Monetary and fiscal policy in an oversaving Europe. (2020)

Social Europe EUI blog
Az uniós források és a hírhedt “tőkeszivattyú”. (2018)

PDF (HU) portfolio.hu
Magyar euró - Nincs is olyan távol?. (2017)

PDF (HU) portfolio.hu
Ideje tisztázni, mit is csinálnak éppen az MNB-nél. (2016)

PDF (HU) portfolio.hu
Mennyire fertőző az orosz influenza?. (2015)

PDF (HU) portfolio.hu
A hatékonyság elveszi a munkahelyeket?. (2014)

szexikozgaz.hu
Miért keresünk kevesebbet itthon, mint Nyugaton?. (2014)

szexikozgaz.hu
szuveren.hu articles. (2011-2012)

Még mindig inflációs célkövetés? Nominális GDP-célkövetés Megszorítás vagy élénkítés? Aranystandard - újratöltve Magasabb inflációt Európában? Vásároljon-e az EKB államkötvényeket? Optimális-e az euróövezet? Euróválság - párhuzamok a múltból A szigorú monetáris politika védelmében Reálleértékelés - így vagy úgy?