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on Central Banking |
| By: | Okan Akarsu; Emrehan Aktug; Muserref Kucukbayrak |
| Abstract: | We document hand-to-mouth (HtM) ratios for European countries using the Household Finance and Consumption Survey (HFCS) dataset and assess their role in monetary policy transmission. Using European Central Bank (ECB) monetary shocks and panel local projections, we find that countries with higher HtM ratios have a less pronounced response to monetary policy shocks compared to those with lower HtM ratios. This aligns with the predictions of heterogeneous agent New Keynesian models with both wage and price rigidity. When wages are stickier than prices, real wages for HtM agents may decline despite interest rate cuts, which hinders the demand boost typically expected from the New Keynesian Cross. Consequently, monetary policy is less effective in stimulating aggregate demand in countries with higher HtM ratios. |
| Keywords: | HtM ratio, Monetary policy transmission, Wage and price rigidity, Heterogenous agents |
| JEL: | E12 E24 E31 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2506 |
| By: | Louisa Roos (Department of Economics, Trinity College Dublin) |
| Abstract: | This paper examines how women and men’s labour respond differently to monetary policy changes, particularly exchange rate policy. The study leverages the unexpected unpegging of the Swiss franc from the Euro in 2015, which led to a significant appreciation of the Swiss franc. This currency appreciation increased women’s work volume relative to men’s. The effect is especially pronounced among the least educated women, who act as a labour buffer and are most responsive to macroeconomic fluctuations, underscoring the nuanced gender effects of monetary policy. |
| Keywords: | monetary policy, exchange rate, gender, labour |
| JEL: | E52 J16 B54 J21 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0725 |
| By: | Yao, Wei (Tilburg University, School of Economics and Management) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:185d14d3-9dc2-4276-82ec-e2d59b3d693f |
| By: | Rosso, Biagio; Gatto, Matteo |
| Abstract: | What are key macroeconomic consequences of an occasionally binding debt-control policies in economies operating under Fiscal Dominance? From a kindred theoretical perspective, what happens when relaxing the "Sargent" assumption of a perfectly flexible monetary authority to occasionally inflexibility in the form of limits to the quantity of debt or money-growth at which the authority is willing to operate? Finally, how does this matter for optimal fiscal-monetary rules and interactions in such contexts, in particular for the desirability of inflation-targeting? The organising framework we propose, unifying MD and FD with and without occasional inflexibility is (i) a DSGE sticky-price model admitting both MD and FD as alternative solutions to indeterminacy of the equilibrium inflation path, and (ii) extended to account for occasionally binding upper boundaries to quantity of debt through which passive monetary authorities is willing to assist the dominant fiscal side (occasional policy inflexibility). Drawing on the OccBin approach in the sequence space for the analysis of DSGE models featuring non-linearities arising from endogenous regime switching, including occasionally binding constraints, we study transitional dynamics in response to shocks, and optimal monetary-fiscal policy, across unconstrained MD, FD, and FD with occasional policy inflexibility. We provide two ways of integrating this occasionally binding policy-side or supply-side constraint: an overdetermined system with temporary disequilibria or policy-induced shortages, solved for through Least Squares, and one in which the Monetary Authority endogenously deviates from its standard behaviour to enforce the inflexible policy. Subsequently, an "optimal policy" exercise -- via optimal simple rules -- is conducted seeking to identify the monetary-fiscal policy pairs that minimise a standard quadratic loss function. Based on the analysis of impulse responses and the optimal policy rules exercise, we highlight a number of new results, relevant to both theory and policy applications, on FD economies emerging from accounting for occasionally inflexibility in the form of debt ceilings. In order: dynamics display emergent properties, in the form of endogenous higher macroeconomic volatility and a recessionary-deflationary cycle; macroeconomic stabilisation is more difficult to achieve under strong inflation targeting than under perfectly flexible passive policy; more dovish monetary rules outperform hawkish ones (targeting inflation as strong as feasible under the passive monetary policy requirements); gradualism in policy reform could lead to the emergence of policy traps; more systematic fiscal policy intervention could reinstate (relative) optimality of stronger inflation targeting. |
| Keywords: | fiscal dominance; optimal monetary-fiscal policy; occasionally binding constraints; debt ceiling; endogenous regime switching; NK models; shortages; shortages as endogenous regime switches; inflation path indeterminacy; |
| JEL: | C63 E31 E32 E52 E58 E63 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125094 |
| By: | Nuobu Renzhi (Capital University of Economics and Business); John Beirne (Asian Development Bank) |
| Abstract: | This paper examines the impact of monetary policy shocks on firm-level productivity across 32 emerging market economies from 2000 to 2023, using panel local projections and a comprehensive firm-level dataset. We identify exogenous monetary policy shocks using a forward-looking Taylor rule and analyze their dynamic impact on total factor productivity. The results indicate a significant and persistent decline in productivity following a monetary-tightening shock. Crucially, financial frictions drive heterogeneous responses among firms: firms facing higher financial frictions experience more severe and prolonged productivity losses, whereas those with lower frictions recover more quickly. Additionally, firms characterized by low market power, younger age, or operation in financially vulnerable sectors, such as services, experience larger and longer-lasting productivity losses compared to their counterparts. Furthermore, we find asymmetric effects, whereby contractionary monetary shocks result in substantial productivity losses, while expansionary shocks fail to generate offsetting gains. |
| Keywords: | productivity;monetary policy;emerging markets |
| JEL: | D22 D24 E52 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:021408 |
| By: | Pelizzon, Loriana; Mattiello, Riccardo; Schlegel, Jonas |
| Abstract: | This paper examines the rise of non-bank financial intermediaries (NBFIs) and its implications for financial stability and monetary policy transmission in the Euro Area and the United States. While the U.S. financial system has long been market-based, the Euro Area has experienced a striking expansion of NBFIs, which now account for a larger share of GDP than in the U.S. While the sector has grown significantly, much of its capital is intermediated and allocated outside the EU, reflecting missed opportunities for domestic capital market development. We argue that this pattern is a consequence of limited growth opportunities within Europe, weak financial market infrastructure, and the absence of key institutional enablers such as a sizable capital market and securitization frameworks. We further examine how NBFIs pose supervisory challenges due to geographic concentration, influence money market dynamics, and interact with monetary policy transmission. The paper concludes with policy recommendations to unlock the sector's potential - including reforms to deepen European capital markets, a unified supervisory mechanism and consideration of extending some central bank facilities to NBFIs. |
| Keywords: | Non-bank Financial Intermediaries (NBFIs), Monetary Policy Transmission, European Capital Markets |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:321877 |
| By: | Juin-Jen Chang; Wan-Ting Chang; YiLi Chien; Chun-Hung Kuo |
| Abstract: | We analyze the interaction between the Taiwan central bank's profits and its policies. To earn large and consistent profits, the Taiwan central bank significantly expanded its balance sheet and relied on inexpensive short-term domestic funding to invest in longer-term foreign debt securities. In doing so, the central bank engineered a massive duration and currency mismatch on its balance sheet to capture term and currency risk premiums. We also argue that these large profits could not have been realized without a low rate policy combined with heavy regulations on domestic financial institutions. These regulations function like a tax on the returns of private overseas investments, effectively trapping funds within the domestic financial system. Ultimately, the profits earned by the central bank are, in effect, an implicit tax revenue levied on domestic depositors. |
| Keywords: | monetary policy; fiscal policy; central bank independence; financial repression |
| JEL: | G12 E62 |
| Date: | 2025–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101338 |
| By: | Laura Felber |
| Abstract: | This paper examines the effects of exchange rate fluctuations on cross-border consumer spending in small open economies. Exploiting a large, unexpected and persistent central bank-induced exchange rate appreciation and drawing on a unique dataset of over 500 million anonymized debit and credit card transactions, I document a substantial and immediate impact on both cross-border shopping by domestic consumers and tourism spending by foreign consumers. The strongest spending adjustments are observed among domestic consumers living near the border and foreign consumers from neighboring countries. Furthermore, foreign consumers from neighboring countries exhibit high exchange rate sensitivity on both the extensive and intensive margins and shift their consumption from higher- to lower-value goods and services. These findings suggest significant substitution effects in consumption on impact and emphasize the important role of cross-border shopping in small open economies. The paper provides insights for policymakers and central bankers, especially in small open economies where the exchange rate channel is an important channel of monetary policy transmission. |
| Keywords: | Exchange rates, Consumption, Monetary policy, Exchange rate channel, Heterogeneity, Transaction payments data, Tourism, Event study |
| JEL: | D12 E21 E52 E58 F14 F41 R11 Z30 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-09 |
| By: | Ray, Walker; Droste, Michael; Gorodnichenko, Yuriy |
| Abstract: | We study the role of preferred habitat in understanding the economic effects of the Federal Reserve’s quantitative easing (QE). Using high-frequency identification and exploiting the structure of the primary market for US Treasuries, we isolate demand shocks that are transmitted solely through preferred habitat channels but otherwise mimic QE shocks. We document large localized yield curve effects when financial markets are disrupted. Our calibrated model, which embeds preferred habitat in a New Keynesian framework, can largely account for the observed financial effects of QE. QE is modestly stimulative for output and inflation, but alternative policy designs can generate stronger effects. |
| Keywords: | quantitative easing; monetary policy; market segmentation; treasury auctions |
| JEL: | E52 E43 E44 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:120833 |
| By: | Hongzhe Wen; Songbai Li |
| Abstract: | With market capitalization exceeding USD 200 billion as of early 2025, stablecoins have evolved from a crypto-focused innovation into a vital component of the global monetary structure. This paper identifies the characteristics of stablecoins from an analytical perspective and investigates the role of stablecoins in forming hybrid monetary ecosystems where public (fiat, CBDC) and private (USDC, USDT, DAI) monies coexist. Through econometric analysis with multiple models, we find that stablecoins maintain strong peg stability, while each type also exhibiting distinctive responses to market variables such as trading volume and capitalization, depending on the mechanisms behind. We introduce a hybrid system design that proposes a two-layer structure where private stablecoin issuers are backed by central bank reserves, ensuring uniformity, security, and programmability. This model merges the advantages of decentralized finance and payment innovation while utilizing the Federal Reserve's institutional trust. A case study on the 2023 SVB-USDC depeg event illustrates how such a hybrid system could prevent panic-induced instability through transparent reserves, secured liquidity, and interoperable assets. Ultimately, this research concludes that a hybrid monetary model not only enhances financial inclusivity, scalability, and dollar utility in digital ecosystems but also strengthens systemic resilience, offering a credible blueprint for future digital dollar architectures. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.10997 |
| By: | Young-Han Kim (Economic Department, Sungkyunkwan University, Seoul) |
| Abstract: | This paper examines the environmental and macroeconomic impacts of changes in global value chain (GVC) participation, cross-border externality of carbon emissions, environmental considerations in monetary policy, and international coordination in environmental policy across seven NGFS scenarios. An E-DSGE model analysis shows that i) increased GVC participation, with higher reliance on imported intermediate goods, slows economic growth more significantly in high-pollution regimes, ii) the emphasis on environmental issues in monetary policy has insignificant impact on carbon emissions while increasing macroeconomic volatility to more polluted regimes. These findings suggest that while less stringent environmental policies may offer short-term benefits, these are outweighed by higher long-term transition costs. Therefore, a proactive environmental policy, aimed at achieving a 'Net Zero 2050' scenario, could foster more stable economic conditions. Furthermore, the environmental concerns in monetary policy should be moderated to mitigate potential side effects of indirect interventions on carbon emissions. |
| Keywords: | Climate change, NGFS scenarios, Cross-border externalities, GVC participation, Monetary policy, Environmental policy coordination |
| JEL: | E52 E62 Q58 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15016746 |
| By: | Sriram Darbha; Cyrus Minwalla; Rakesh Arora; Dinesh Shah |
| Abstract: | We frame the wide spectrum of possible system architectures for an online retail central bank digital currency (CBDC) and identify a promising architecture well-suited for basic payments. We select OpenCBDC 2PC, a representative system design that fits this architecture and analyze it using a range of criteria to assess the feasibility of such system designs. Our analysis, augmented with lab experiments, focuses on retail payment systems with two-tier deployment and includes a detailed assessment of non-repudiation, integrity of the monetary supply, privacy, compliance, scalability of performance and resilience of the system state. It suggests that such system designs can be fast and cheap for basic payments, with high privacy, although some areas such as integration with retail payments systems, performance of auditing and resilience of the core system state require further investigation. Our framing highlights other promising architectures for an online retail CBDC, whose analysis we leave as an area for further exploration. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E E4 E42 E5 E51 O O3 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:25-09 |
| By: | Herrera, Luis; Pirovano, Mara; Scalone, Valerio |
| Abstract: | This paper proposes a novel yet intuitive method for the calibration of the CCyB through the cycle in the euro area, including the positive neutral CCyB rate. The paper implements the Risk-to-Buffer framework by Couaillier and Scalone (2024) in both a DSGE and macro time series setting and proposes a calibration of the PN CCyB aimed to reduce the macroeconomic amplification of shocks occurring in an environment where risks are neither subdued nor elevated. The suggested positive neutral CCyB rates for the euro area are consistent across methodologies and robust to alternative specifications, ranging between 1% and 1.5%. The results also highlight the role of different shocks and sources of cyclical systemic risk for the calibration of the CCyB through the cycle. The flexibility of the method regarding the modeling tools, the selection of specific levels of risks as well as the choice of state variables and of exogenous shocks make it particularly suitable to be tailored to national specificities and policymakers’ preferences. JEL Classification: C32, E51, E58, G01 |
| Keywords: | capital requirements, countercyclical capital buffer, financial stability, macroprudential policy |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253075 |
| By: | Salim Ergene |
| Abstract: | This paper studies optimal government interventions to recapitalize corporations under tight financial conditions. The policymaker can finance the recapitalization program through income taxes and an inflation tax on money holdings. However, households operating the labor-intensive production technology can evade their tax obligations. Growing tax evasion raises the tendency to monetize interventions. Partially monetizing recapitalization yields welfare gains, as an inflation tax reallocates resources from less to more productive sectors. However, financing unproductive government spending through seigniorage revenue becomes an inferior policy, as contemporaneous inflation costs outweigh the expansionary effects of fiscal policy. Pecuniary externalities generate scope for macroprudential policies, mitigating the effects of financial shocks. |
| Keywords: | Tax evasion, Recapitalization, Currency mismatch, Depreciation |
| JEL: | E12 E41 E26 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2507 |
| By: | Pál, Tibor; Storti, Giuseppe |
| Abstract: | This paper analyses the dynamics of the natural rate of interest (r-star) in the US using a score-driven state-space model within the Laubach–Williams structural framework. Compared to standard score-driven specifications, the proposed model enhances flexibility in variance adjustment by assigning time-varying weights to both the conditional likelihood score and the inertia coefficient in the volatility updating equations. The improved state dependence of volatility dynamics effectively accounts for sudden shifts in volatility persistence induced by highly volatile unexpected events. In addition, allowing time variation in the IS and Phillips curve relationships enables the analysis of structural changes in the US economy that are relevant to monetary policy. The results indicate that the advanced models improve the precision of r-star estimates by responding more effectively to changes in macroeconomic conditions. |
| Keywords: | r-star, state-space, Kalman filter, score-driven models |
| JEL: | C13 C51 E52 |
| Date: | 2025–07–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125338 |
| By: | Ansgar Rannenberg (National Bank of Belgium, Research Department) |
| Abstract: | I show that in a canonical HANK model, under a balanced budget fiscal rule, the effect of a nominal interest rate peg is much larger than in a representative agent (RA) model. By contrast, under a standard fiscal rule where tax revenue responds gradually to deviations of the debt-to-GDP ratio from steady-state and depends on economic activity, the effect of forward guidance is much weaker than in the RA model, and becomes linear in the length of the peg. This result is robust to allowing for countercyclical inequality and income risk, and carries over to a quantitative model with capital. |
| Keywords: | Forward guidance, fiscal rules, HANK |
| JEL: | E52 E37 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202507-478 |