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on Central Banking |
| By: | Angelos Athanasopoulos; Donato Masciandaro; Davide Romelli |
| Abstract: | This paper provides novel evidence of the long-run effects of central bank independence on inflation. We show that improvements in central bank independence have a much larger impact on inflation in the long run compared to the short run. Contrary to most of the previous literature, our results also show that the long-run effects of central bank independence on inflation are larger in developing countries. We find similar effects using linear and instrumental variable local projection methods. Finally, we show that central bank independence also reduces inflation persistence, reinforcing the effectiveness of monetary policy. |
| Keywords: | central bank design, central bank independence, inflation, persistence |
| JEL: | E5 E31 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25237 |
| By: | Martin Feldkircher; Petr Korab; Viktoriya Teliha |
| Abstract: | This paper analyzes the evolution of central bank topics using a corpus of over 20, 000 speeches spanning nearly three decades and a range of topic models. We identify thirteen themes, including monetary policy, financial stability, digital payments, and climate-related finance. Examining their development over time, we classify these themes as "evergreens", "waning threads", or emergent "rising stars", and show that early adoption and topic leadership are nearly equally shared between emerging and advanced economies' central banks. In the aftermath of the Global Financial Crisis, topic focus converged worldwide, with a renewed emphasis on financial stability. Finally, static covariate regressions link topic prevalence to inflation regimes, central bank independence, and speech format, highlighting the impact of macroeconomic and institutional factors on communication priorities. |
| Keywords: | monetary policy, financial stability, digital payments, climate-related finance |
| JEL: | C55 C88 E52 E58 D83 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-35 |
| By: | Garabedian, Garo (Central Bank of Ireland) |
| Abstract: | We disentangle macroeconomic surprises in a structural Bayesian VAR, and show that common measures of the short-term neutral rate underreact to shocks that affect the near term productive capacity of the economy. In contrast, these measures overreact to transitory demand shocks, such as monetary policy shocks. Their impact is persistent, making short term shocks hard to distinguish from secular trends. Our findings are robust across a large array of r-star measures. Particularly when the economy is near the effective lower bound, expansionary monetary policy has a forceful downwards impact on r-star. Hence, the neutral rate is not exogenous as in the Neo-Wicksellian paradigm. For our main analysis, we extend the Holston-Labauch-Williams estimate back to the 1920s, thus revealing a non-monotonic time-series. We add to the debate on the use of r-star in the policy realm, and the effectiveness of monetary policy tools when rates are low. |
| Keywords: | Equilibrium real interest rate, R*, long-term rates, cyclical drivers, macroeconomic shocks, monetary policy, structural Bayesian VAR, sign restrictions. |
| JEL: | C11 E43 E52 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:4/rt/25 |
| By: | Emmanuel Caiazzo (Department of Economics and Statistics, University of Naples Federico II, CSEF, and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR) |
| Abstract: | This paper presents a model in which the policy rate set by the central bank affects decisions about bank rescue policies when liquidity crises hit the banking system. We highlight a trade-off: maintaining an interest rate ensuring effective control over inflation escalates the costs of rescue interventions. We delve into this trade-off and determine the circumstances under which deviating from the target interest rate, thereby reducing intervention costs, enhances overall welfare. From a normative standpoint, our analysis indicates where liquidity risk is either low or high, the central bank should prioritize achieving the inflation target. |
| Keywords: | Central Banking, Financial stability, Rescue Policies |
| JEL: | G01 G21 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:191 |
| By: | Christophe Blot (Sciences Po, OFCE); Paul Hubert (Banque de France, OFCE); Fabien Labondance (Université Marie et Louis Pasteur, CRESE (UR3190), F-25000 Besançon, France) |
| Abstract: | We investigate whether dissent in monetary policy committees affects asset prices. We exploit a feature of the ECB communication for identification: the revelation of dissent during press conferences is separated from policy decision announcements. Follow- ing a narrative approach, we compute a novel granular index of ECB dissent for each instrument and identify the dissent direction. Using tick data, we isolate asset price changes exactly when dissent is revealed. Dissent has a strong negative effect on stock prices, that operates specifically around status quo decisions. Dissent is a key driver of stock prices on these days, explaining one-third of their variation. |
| Keywords: | Asset prices, Disagreement, Monetary Policy Committee, Bad news, European Central Bank |
| JEL: | G14 E43 E52 D70 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2025-07 |
| By: | Samuel Kaplan (UNC/UDESA); Efstathios Polyzos (Zayed University/CAMA Australia); David Tercero-Lucas (ICADE/ICAI/Universidad Pontificia Comillas) |
| Abstract: | The growing influence of cryptocurrencies in global financial markets has raise questions about the impact of central bank communications on their price dynamics.This paper investigates how central bank communication affects the behaviour of cryptocurrency markets. Using a dataset of over 6, 000 central bank speeches anda broad panel of crypto assets, we quantify sentiment, uncertainty, and fear tone through natural language processing and assess their impact using local projectionmethods. Our results show that positive tone initially depresses returns while raising volatility, whereas uncertainty and fear produce mixed return responses and amplifyprice fluctuations in the short run. Heterogeneity across asset types reveals stronger responses among emerging, high-performing, and non-stablecoin cryptocurrencies.The findings highlight the informational role of central bank narratives in shaping outcomes in speculative and decentralised markets, with important implications forcommunication policy and financial stability monitoring. |
| Keywords: | Cryptocurrency, Central Bank Communication, Text Analysis, Sentiment Analysis, Monetary Policy |
| JEL: | D53 E52 E58 G15 O33 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:365 |
| By: | Patrick Honohan (Peterson Institute for International Economics) |
| Abstract: | Twenty or more of the world's most significant central banks have seen their equity position (or capital and reserves) go negative in the last few years. This novel situation does not fundamentally challenge the ability of these institutions to deliver on their mandate, but it does raise some interesting policy and communications issues. Central banks are incurring losses for two main reasons. The first is the impact of rising interest rates on their maturity mismatched portfolios. The second is losses on foreign exchange reserves accumulated in the attempt to avoid currency overvaluation. Comparing the experience of different central banks is not, however, straightforward. The lack of uniformity in their accounting practice makes it difficult to make comparisons. Indeed, if put on a common marked-to-market basis, Honohan finds that some central banks that report positive net equity are really under water, while (in sharp contrast) others report a negative equity figure that neglects sizable unrealized capital gains. |
| Keywords: | Central bank accounting, central bank capital, quantitative easing |
| JEL: | E58 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iie:wpaper:wp25-15 |
| By: | Weber, Michael |
| Abstract: | This paper assesses the European Central Bank (ECB)'s monetary policy stance as of June 2025, analysing its evolving interest rate path, balance sheet developments, and communication strategy. It highlights the transition toward a neutral policy rate, ongoing quantitative tightening, persistent inflation dispersion, and increasing macroeconomic uncertainty. The analysis concludes that while inflation is converging toward target, elevated uncertainty, and divergence between interest rate policy and balance sheet reduction demand cautious calibration and transparent communication. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee of the European Parliament. |
| Keywords: | ECB, Monetary Policy, Inflation, Neutral Policy Rate |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:319903 |
| By: | Enkhbaatar Oyungerel (Bank of Mongolia); Urangoo Erdenebileg (Bank of Mongolia) |
| Abstract: | This paper attempts to develop a framework for implementing the Countercyclical Capital Buffer (CCyB) in Mongolia's banking sector by identifying early warning indicators of systemic risk and examining the impact of capital adequacy on bank lending. Using quarterly data from 2000 to 2024, the study employs signaling (area under the receiver operating characteristic curve), logit regression, decision tree analysis, and panel regression techniques. Results show that credit-to-GDP gaps, external and fiscal imbalances are strong predictors of banking crises. Additionally, a one-percentagepoint increase in the capital adequacy ratio reduces loan-to-asset ratio by 0.74 percentage points, with the effect more pronounced among larger banks. These findings support the case for a tailored, data-driven CCyB framework in Mongolia and offer broader implications for countercyclical policy design in small, open and commoditydependent economies. |
| Keywords: | countercyclical capital buffer (CCyB); capital adequacy ratio; bank lending; early warning indicators; financial stability |
| JEL: | E58 G28 G32 C23 |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp10-2025 |
| By: | Michael D. Bordo (Rutgers University and Hoover Institution); Mickey D. Levy (Hoover Institution) |
| JEL: | E52 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:341 |
| By: | Yao Amber Li; Lingfei Lu; Shang-Jin Wei; Jingbo Yao |
| Abstract: | We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical “spill-back” pattern differs from the predictions of typical open-economy macro models. We also document a new empirical "spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel—their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions. |
| JEL: | E3 E5 F14 F40 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33811 |
| By: | Monia Magnani; Massimo Guidolin |
| Abstract: | We study the complex, non-linear linkages between short-term policy rates and the size and expected durations of equity bubbles. We extend empirical models of periodically collapsing, rational bubbles to test whether and to what extent the long cycle of rates at the zero lower bound and of quantitative easing policies may have increased the probability of bubbles inflating and persisting, with emphasis on the US stock market. We find that the linkages between S&P returns, and ratebased indicators of monetary policies contain evidence of recurring regimes that can be characterized as one of a persisting vs. one of a collapsing bubble. Moreover, the probabilities of financial markets transitioning from a bubble to a state of (partial) collapse turns out to depend on both the initial, relative size of the bubble and on monetary policy indicators. This implies that an easier (tighter) monetary policy will inflate (deflate) a bubble through a simple, regression-style effect, but also yield a non-linear, “concave” effect by which, starting from low rates, rate hikes may at first inflate bubbles before contributing to their bursting, when rates are pushed above a critical threshold. Besides fitting the data, the resulting, parsimonious, regime switching models provide accurate and economically valuable recursive out-of-sample predictive performance, even when transaction costs are taken into account. |
| Keywords: | Rational bubbles, monetary policy, stock returns, regime switching, forecasting. |
| JEL: | G12 E52 C58 G17 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25252 |
| By: | Paweł Kopiec (Narodowy Bank Polski); Małgorzata Walerych (Narodowy Bank Polski) |
| Abstract: | We investigate whether the transmission of monetary shocks in Poland depends on the level of economic slack. To this end, we estimate smooth transition panel local projections using Poland’s regional data and analyze how monetary shocks affect unemployment and prices in regimes of high and low unemployment. Our key finding aligns with economic intuition: the response of unemployment to monetary policy shocks is stronger when economic slack is high, compared to when it is low. Conversely, the adjustment of prices to monetary innovations is more pronounced when idle resources in the economy are scarce, compared to when they are abundant. Our main conclusion is further supported by evidence showing that the difference in the strength of the employment response to monetary shocks, depending on the unemployment level, is more pronounced in sectors producing non-tradable goods than in those manufacturing tradable goods. Moreover, comparing our model with its linear counterpart confirms that monetary transmission in Poland indeed exhibits state-dependence, while the analysis of monetary shock distributions under low and high unemployment shows that our results are not driven by the presence of a regime-dependent pattern in monetary disturbances. |
| Keywords: | monetary policy transmission, unemployment, local projections, state dependence |
| JEL: | E24 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:nbp:nbpmis:377 |
| By: | Nina Boyarchenko; Kinda Hachem; Anya Kleymenova |
| Abstract: | A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality. We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more work is needed. We present a simple framework for organizing the relevant ideas, namely the externalities that motivate bank regulation, the rationales for allowing accounting discretion, and the use of discretion to circumvent regulation. Our takeaway from reviewing work in these areas is that academic studies of bank regulation and accounting discretion require a more unified approach to design optimal policy for the real world. |
| Keywords: | macroprudential policy, accounting discretion, banking regulation |
| JEL: | D62 E44 G21 G28 M41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11935 |
| By: | Hugo De Vere; Srini Ramaswamy; Sam Schulhofer-Wohl |
| Abstract: | The Federal Reserve’s liabilities include a mix of floating-rate instruments, such as reserves, and long-duration, non-interest-bearing instruments, such as currency. We investigate the implications of an asset-liability management approach to choosing assets to back these liabilities, with a focus on matching the duration of assets and liabilities. We study the net income volatility and mark-to-market volatility of several different asset maturity ladders using a Monte Carlo simulation of future interest rate paths. Short-duration ladders minimize net income volatility when paired with floating-rate liabilities but maximize it when paired with currency. Long-duration ladders minimize income volatility when combined with currency and also minimize the volatility of the economic value of assets net of liabilities in that case, but at the expense of higher mark-to-market asset volatility. We discuss why barbells that combine long- and short-duration strategies produce much lower income volatility than ladders of similar average duration, when liabilities have a mix of long and short durations. However, a barbell could be challenging to implement at scale. We find that an ”across-the-curve” strategy of buying securities in proportion to outstanding amounts generates somewhat less income volatility than a laddered portfolio, though still more than the barbell portfolio. |
| Keywords: | Central Bank; Monetary Policy; Federal Reserve Balance Sheet; Asset and Liability Management |
| JEL: | E52 E58 |
| Date: | 2025–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101201 |
| By: | Nadav Ben Zeev (BGU); Noam Ben-Ze’ev; Daniel Nathan (Bank of Israel) |
| Keywords: | Convenience Yield; Monetary Policy Transmission; Covered Interest Parity Arbitrage; Capital Inflow Shock; Foreign Financial Institutions; Policy Interest Rates; Market Interest Rates; Portfolio Rebalancing; Granular Instrumental Variable; Slow-Moving Capital |
| JEL: | E0 F0 F3 G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bgu:wpaper:2503 |
| By: | Jonathan Chiu; Cyril Monnet |
| Abstract: | Central bankers argue that programmable digital currencies may compromise the uniformity of money. We explore this in a stylized model where programmable money arises endogenously, and differently programmed monies have varying liquidity. Programmability provides private value by easing commitment frictions but imposes social costs under informational frictions. Preserving uniformity is not necessarily socially beneficial. Banning programmable money lowers welfare when informational frictions are mild but improves it when commitment frictions are low. These insights suggest programmable money could be more beneficial on permissionless blockchains. |
| Keywords: | Digital currencies and fintech; Payment clearing and settlement systems |
| JEL: | E50 E58 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-18 |
| By: | Andrew B. Martinez; Alexander D. Schibuola; David Beckworth |
| Abstract: | Arguments for nominal income targeting are often dismissed because it is an unreliable measure. To assess these concerns, we compare the real-time performance of several nominal and real measures of economic slack. We find that the nominal GDP expectations gap - the difference between nominal GDP and average projections thereof from surveys of professional forecasters - performs well as a measure of economic slack: its historical revisions are 2-3 times smaller than other measures, it significantly improves real-time forecasts of inflation since the pandemic, and it makes monetary policy rules up to 40 percent less volatile. Overall, concerns about nominal income targets are misplaced. |
| Keywords: | Business cycles; Forecast accuracy; Phillips curve; Taylor rule |
| JEL: | C53 E32 E37 E47 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2025-004 |
| By: | Stephen G. Cecchetti; Jeremy C. Kress; Kermit L. Schoenholtz |
| Abstract: | In 2023, US regulators proposed the “Basel Endgame, ” a long-awaited overhaul of bank capital requirements. The proposal aimed to bring the United States into compliance with international standards established by the Basel Committee on Banking Supervision in response to the 2008 Global Financial Crisis. However, fierce industry opposition to what banks viewed as a costly increase in capital requirements effectively killed the proposal. In this essay, we describe the purpose of bank capital and the history of international standard-setting in bank regulation. We then highlight the most important aspects of the Basel Endgame, as well as the arguments for and against adopting the rule. We show that the debate unnecessarily conflated two distinct questions: (1) whether the United States should comply with international regulatory standards, and (2) whether the United States should raise large banks’ capital requirements. While there are strong grounds to answer both questions in the affirmative, they need not be addressed together. That is, the United States can implement international standards in a capital-neutral manner to preserve global cooperation in bank regulation, leaving the separate question of raising capital requirements for another day. |
| JEL: | G21 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33982 |
| By: | Joseph Abadi; Jesús Fernández-Villaverde; Daniel R. Sanches |
| Abstract: | We present a micro-founded monetary model of the world economy to study international currency competition. Our model features both “unipolar” equilibria, with a single dominant international currency, and “multipolar” equilibria, in which multiple currencies circulate internationally. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt. A large economy has a natural advantage in ensuring its currency becomes dominant, but if it lacks the fiscal capacity to absorb the global demand for liquid assets, the multipolar equilibrium emerges. |
| Keywords: | Dominant Currency; International Monetary System; Interest-Rate Policy; Fiscal Capacity |
| JEL: | E42 E58 G21 |
| Date: | 2025–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:101163 |
| By: | Dominic Zaun Eu Jones |
| Abstract: | I develop Ornithologist, a weakly-supervised textual classification system and measure the hawkishness and dovishness of central bank text. Ornithologist uses ``taxonomy-guided reasoning'', guiding a large language model with human-authored decision trees. This increases the transparency and explainability of the system and makes it accessible to non-experts. It also reduces hallucination risk. Since it requires less supervision than traditional classification systems, it can more easily be applied to other problems or sources of text (e.g. news) without much modification. Ornithologist measurements of hawkishness and dovishness of RBA communication carry information about the future of the cash rate path and of market expectations. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.09083 |
| By: | Xie, Danyang |
| Abstract: | The United States and China exhibit markedly different development paths in digital assets and blockchain technology. The US relies on market-driven approaches, with the private sector promoting stablecoin innovation to strengthen the dollar’s global position, while China adopts a government-led approach, implementing centralized systems such as consortium chains and the digital yuan (e-CNY), emphasizing financial security and regulation. These divergent paths reflect fundamental institutional differences: American distrust of centralized institutions has fostered distributed ledger development, while China mitigates risks through government leadership. Currently, the digital yuan faces adoption challenges due to insufficient enthusiasm from commercial banks. We propose implementing a “dynamic reserve mechanism” to incentivize circulation and enhance privacy protection to address user concerns. The private sector should participate more actively in innovation, and we recommend establishing AI-supported “dynamic regulatory sandboxes” or “smart regulatory gateways” based on smart contracts to better balance innovation and regulatory needs. To address inflation and depegging risks of stablecoins, we recommend moving beyond fiat currency pegging to explore new models anchored to consumer goods, such as a “BigMac Coin.” |
| Keywords: | Central Bank Digital Currency; Stablecoins; Blockchain; Financial Regulation; Financial Innovation; Regulatory Sandbox |
| JEL: | E42 E58 F33 G28 |
| Date: | 2025–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124989 |