Ricardo A. M. R. Reis is a Portuguese economist and the A. W. Phillips professor of economics at the London School of Economics. In a 2013 ranking of young economists by Glenn Ellison, Reis was considered the top economist with a PhD between 1996 and 2004., and in 2016 he won the Germán Bernácer Prize for top European-born economist researching macroeconomics and finance. He writes a weekly op-ed for the Portuguese newspaper Jornal de Notícias and participates frequently in economic debates in Portugal.
In 2002, with Gregory Mankiw he proposed the sticky-information Phillips curve and followed it later with rational theories of inattention, and sticky-information models in general equilibrium. This model of nominal rigidities is based on the slow diffusion of information among the population of price setters and displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary. Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.
In 2004, with Gregory Mankiw and Justin Wolfers, Reis started the modern empirical literature that focuses on disagreement in surveys. A large literature that followed has documented the empirical properties of disagreement, has shown that it is very different from uncertainty, and has used it as moments to evaluate imperfect information models.
Pure inflation
In 2010, with Mark Watson, Reis developed measures of pure inflation, which have become popular measures of core inflation used by central banks around the world.
The diabolic loop and ESBies
In 2011, Reis with Markus Brunnermeier, Luis Garicano, Philip R. Lane and others, argued that when banks hold significant amounts of bonds issued by their sovereign this creates a ``diabolic loop" whereby small changes in the perceived solvency of the sovereign can amplify into large crises. This concept has become central in accounts of the Euro crisis, and is also referred to as the "doom loop" or the "bank-government nexus". They proposed creating European Safe Bonds a new financial vehicle allowing banks in the Eurozone to break the diabolic loop, without creating the problems of joint and several liability with Eurobonds. The European Systemic Risk Board proposed a variant of ESBies, labelled Sovereign Bond-Backed Securities as a crucial ingredient to have a more stable Eurozone.
HANK models
In 2012, Reis wrote the first model that merged the Aiyagari model of incomplete markets with a New Keynesian model of nominal rigidities. In 2016, he published the first business-cycle model that merged the Krusell-Smith model of business cycles with the Christiano–Eichenbaum–Evans model of monetary policy. These models were later baptized HANK, or Heterogeneous Agent New Keynesian Models.
Central bank solvency
In 2013, with Robert E. Hall he invented the concept of central bank insolvency to describe the impact of possible losses from quantitative easing programs.
The misallocation hypothesis of slumps and crashes
In 2013, he proposed the misallocation hypothesis for the European slump and crash. It contends that by joining the eurozone, countries in the European periphery enjoyed large capital inflows, but their underdeveloped financial and political systems misallocated this capital leading to a slump in productivity and sowing the seeds of the crisis. Fast financial integration without financial depth creates a slump and a crash. Some accounts of why low real interest rates can be causing misallocation and low productivity build on his idea.
In 2016, at the Kansas City Federal Reserve economic policy symposium, Reis proposed that a central bank's balance sheet should be just large enough to satiate the demand for bank reserves. In modern monetary systems, where deposits at the central bank are the key monetary instrument, ensuring that the deposit rate equals the private interbank rate achieves the Friedman rule.
