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Faculty & Research

Gaetano Gaballo Wins European Research Council (ERC) Consolidator Grant

Gaetano Gaballo, Associate Professor of Economics at HEC Paris and member of the GREGHEC joint research lab with the CNRS, has been awarded a European Research Council (ERC) Consolidator Grant for his research project on inflation. Gaetano thus becomes HEC’s fourth recipient of the prestigious ERC grants since 2020. The funding lasts 5 years.


321 researchers have won 2022 European Research Council (ERC) Consolidator Grants. The funding - worth a total of €657 million – is part of the EU’s Horizon Europe program. These grants are designed to support outstanding academics with seven to 12 years of post-PhD experience to pursue their most promising research.

Mariya Gabriel, European Commissioner for Innovation, Research, Culture, Education and Youth, said: “[The scientists and scholars]’s discoveries lay the groundwork for innovation and, ultimately, for growth and economic competitiveness in Europe”. In this interview with Knowledge@HEC, Gaetano Gaballo explains his research project.

Professor Gaballo, can you explain your research project and what makes it unique?

The Eurozone is currently facing a sudden and sharp increase in inflation. Whether inflationary pressures will persist and what will be the cost of an eventual monetary tightening crucially depends on inflation expectations. 

In that context, my ERC project, “A Learning-from-Prices view of Business Cycles” (LearnInCycle), focuses on the impact of actual market prices (i.e. the total amount received from a sale transaction) on the perception of inflation by consumers, and on how this perception may influence monetary policy. 

The project builds on the idea that people interpret fluctuations in market prices as signals of change in the economy that they cannot directly observe. Hence, price changes may matter more for the impact they have on people’s expectations than for the real impact they have on their budgets. 

The research consists of five working packages: two theoretical and three empirical, each exploring different aspects of the research question. The key novelty of the project relative to existing research is to study not only how expectations move market outcomes but also how these feed into expectations as people observe actual prices, providing a full circle of general equilibrium implications.

Overall, the “LearnInCycle” project has the potential to bring groundbreaking contributions to the understanding of inflation and business cycles. This project shares the spirit of a recent trend in central banks’ efforts to get a better appraisal of the importance of consumers’ expectations, after decades of a strict empirical focus on firms’ pricing. 



What has led you to conduct this research?

In my previous papers, I have explored numerous mechanisms of what different economic agents learn from varying prices. 

As a senior economist at the Banque de France, I explored a model in which households learn from current prices about others’ noisy foresight (see Gaballo in AEJ:Macro, 2016). In a different paper, I have studied the effects of firms learning from local input prices about overall inflation (see Gaballo in ReStud, 2018). 

Since becoming professor of Economics at HEC Paris in 2019, I have published research showing that learning from prices makes public information increase uncertainty (see Ehrmann, Gaballo, Hoffmann and Strasser in JME, 2019); that the asset-backed security freezes of 2009 crises could be due to investors learning about underlying risk from equilibrium market outcomes (see Gaballo and Marimon in JME, 2021); and that important fluctuations in business cycles could be explained by consumers learning from changes in the real price of housing about the prospects on economic activity (see Chahrour and Gaballo in ReStud, 2021).

Naturally, my ERC project LearnInCycle is an integral part of my research agenda in that I explore the implications of consumers’ learning from actual prices about overall current and future inflation. Find more information on Professor Gaballo’s research and ERC project on his website here.

Learn about more research from Gaetano Gaballo with articles and interviews on Knowledge@HEC here.