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on Central Banking |
| By: | Richard Dennis; Pelin Ilbas |
| Abstract: | We examine a framework in which fiscal, monetary, and macroprudential policies interact. We study a range of settings in which policy is conducted optimally, allowing for cooperative, non-cooperative and leadership policy frameworks. We find that there are important interactions between the three policies such that (full) cooperation involving all three policymakers offers substantial advantages over non-cooperation. Importantly, we find that much of the gain to full cooperation can be achieved through a partial cooperation setting whereby monetary policy and macroprudential policy cooperate while remaining independent of fiscal policy. This finding supports institutional frameworks in which macroprudential policy is conducted by central banks or from within central banks. Partial cooperation involving fiscal policy and macroprudential policy performs poorly, leading to worse outcomes than non-cooperation. Our findings are robust to a range of alternative settings involving different assignment of objectives. For our model, we find little or no advantage to policy leadership. |
| Keywords: | Monetary policy, macroprudential policy, fiscal policy, policy interaction, policy coordination |
| JEL: | E42 E44 E52 E58 E61 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-64 |
| By: | Abdelkader Aguir (ESPI - Ecole Supérieure des Professions Immobilières); Nesrine Dardouri (USO - جامعة سوسة = Université de Sousse = University of Sousse) |
| Abstract: | Interest in empirical studies of monetary policy has grown over the past decade, and particularly since the post COVID-19 pandemic period characterized by a surge in inflation rates in every corner of the globe. Against this backdrop, central banks' traditional inflation forecast framework has been challenged, leading to renewed analysis of the monetary policy transmission mechanism. Focusing on Tunisia, an emerging small open economy subjected to external shocks, this study focuses on the role played by the monetary authority in the conduct of Tunisia's monetary policy over the period from 2000 to 2024. This period is characterized by a deceleration of growth and an increase in inflation and unemployment. This work shows also how a VAR model with long-run restrictions justified by economic theory can be usefully applied in the analysis of monetary policy; the effects of the money market rate and other shocks; the relationship between prices and the nominal effective exchange rate; and the relationship between inflation and the output gap. |
| Keywords: | vector autoregressions, H5, I31, COVID-19, political revolution, monetary policy, monetary policy political revolution COVID-19 vector autoregressions Tunisia JEL Classification: C01 H5 I31 Z18 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05290329 |
| By: | Rodrigo Sekkel; Henry Stern; Xu Zhang |
| Abstract: | We provide novel insights into how foreign and domestic monetary policy communications, beyond rate announcements, affect the financial markets of open economies. We construct a high-frequency dataset that documents the impact of Federal Reserve (Fed) and Bank of Canada (BoC) rate announcements, speeches, press conferences and minutes releases to Canadian financial markets between 1997 and 2023. We find that non-rate announcements are a significant source of domestic monetary policy surprises and international spillovers. Across event types, Fed communications are particularly influential for long-term interest rates and stock futures while BoC communications matter more to short-term interest rates. Since BoC communications have little effect on U.S. interest rates, Canadian announcements have a greater impact on the CAD/USD exchange rate by inducing larger changes in the cross-country interest rate differential. |
| Keywords: | Asset pricing; Central bank research; Exchange rates; Financial markets; Interest rates; International financial markets; Monetary policy |
| JEL: | E52 F31 G15 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-33 |
| By: | Hyeongwoo Kim; Shuwei Zhang |
| Abstract: | This paper investigates the design of optimal monetary policy responses to technology shocks in a two-country model framework featuring sticky prices and local currency pricing, where technology shocks propagate internationally. We demonstrate that technology shocks originating in the tradable sector, regardless of their country of origin, elicit monetary policy responses that are symmetric and closely aligned across countries, thereby providing a rationale for a fixed exchange rate regime. In contrast, technology shocks in the nontradable sector generate asymmetric policy reactions and weaken the source country's currency, supporting the case for exchange rate flexibility. In addition, the international transmission of technology shocks amplifies real-sector dynamics through news effects, prompting central banks to adopt contractionary policies, starkly contrasting with the findings of previous literature. |
| Keywords: | Sticky Price; Local Currency Pricing; Exchange Rate Regimes; Technology Diffusion; Interest Rate Rules |
| JEL: | F31 F41 O0 E52 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:abn:wpaper:auwp2025-11 |
| By: | Dominik Hecker; Maik Wolters; Maik H. Wolters |
| Abstract: | We estimate a New Keynesian model that allows endogenous transitions between a target equilibrium, with inflation fluctuating around the central bank’s target and interest rates typically positive, and a low-inflation equilibrium, where the effective lower bound binds and de-anchored expectations keep inflation persistently below target. The model is estimated using Bayesian methods, employing an ensemble MCMC sampler with a particle filter to handle nonlinearities. We find that the United States remained in the target equilibrium after the global financial crisis, the euro area transitioned to the low-inflation equilibrium in 2015, with the subsequent inflation surge initiating a return to the target equilibrium in 2021, and Japan entered the low-inflation equilibrium in the early 2000s. Bayes factors strongly favor the equilibrium-transition model over an alternative specification in which the lower bound binds only occasionally and expectations remain anchored. |
| Keywords: | multiple equilibria, nonlinear estimation, particle filter, deflation, zero lower bound, natural interest rate, inflation expectations |
| JEL: | C51 E31 E43 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12280 |
| By: | Wosser, Michael (Central Bank of Ireland); McInerney, Niall (Central Bank of Ireland); Athanasopoulos, Angelos (Central Bank of Ireland) |
| Abstract: | We examine the costs and benefits of LTV and LTI borrower based measures (BBM) changes on future consumption growth rates. Costs are established using a semi-structural model of the Irish economy, which quantifies how macroprudential policy changes affect forecasts for expected consumption growth. Benefits appear in the form of changes to the tail risk to consumption growth, at the 5th percentile, over a forecast horizon of up to 4 years, given the same macroprudential policy change within a novel consumption at risk framework. We find that policy tightening actions involving LTV and LTI are associated with dampened central, or expected, consumption growth rates but appear broadly correlated with less adverse consumption growth tail risk. The timing of BBM adjustments is shown to be highly important, taking the phase of the financial cycle into account. |
| Keywords: | Macroprudential Policy, Borrower Based Measures, Consumption Growth, Costs and Benefits Study, LTV, LTI, Financial Cycle, Policymaker Preferences. |
| JEL: | E5 G01 G17 G28 R39 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:14/rt/25 |
| By: | Adrián Carro (BANCO DE ESPAÑA); Jorge E. Galán (BANCO DE ESPAÑA); Enric Martorell (BANCO DE ESPAÑA); Raquel Vegas (BANCO DE ESPAÑA) |
| Abstract: | This paper presents a comprehensive literature review on the effects of borrower-based macroprudential measures (BBMs)—such as loan-to-value (LTV), debt-to-income (DTI) and debt-service-to-income (DSTI) limits—with a particular focus on their effectiveness in mitigating systemic risks in housing markets. The review synthesizes findings from both empirical and theoretical studies. The evidence shows that BBMs are effective tools for addressing systemic risks arising from household over-indebtedness and real estate market imbalances. Empirical studies indicate that stricter mortgage lending standards significantly reduce the probability of default, moderate credit growth during expansionary phases and enhance the resilience of the financial system. Theoretical models further suggest that BBMs help stabilize credit cycles, lower the likelihood of financial crises and mitigate adverse welfare effects during downturns. However, they also highlight potential redistributive consequences. Overall, the evidence supports the inclusion of BBMs as core instruments within the macroprudential policy framework, while underscoring the need for flexible design and ongoing evaluation based on granular data and advanced modeling to ensure their effectiveness and minimize unintended effects. |
| Keywords: | borrower-based measures, credit growth, defaults, house prices, macroprudential policy, models and mortgages |
| JEL: | C83 E44 E58 G21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2524e |
| By: | Bro de Comères, Quentin (Central Bank of Ireland); Mugrabi, Farah (Central Bank of Ireland & Université catholique de Louvain); Lyons, Paul (Central Bank of Ireland) |
| Abstract: | We develop a Quick Stress Testing (QST) methodology to provide high-frequency assessments of the resilience of the Irish banking system under different adverse macro-financial outlooks. The framework accommodates both internally generated scenarios—whose severity depends on the credit cycle—and externally provided ones. We estimate the capital depletion banks would face under such scenarios by interacting them with bank balance-sheet sensitivities to macroeconomic outcomes, derived from European Banking Authority (EBA) data. Through Monte Carlo simulations, we then ensure we are considering severe enough yet plausible scenarios. A key advantage of our streamlined methodology is that it can be applied more frequently than conventional stress-testing exercises. |
| Keywords: | Stress Test, State-Dependent Local Projections, Macroprudential Policy, Credit Cycle, Bank Resilience. |
| JEL: | E58 G01 E32 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:17/rt/25 |
| By: | Giuliana, Raffaele; Panfilo, Matteo; Peltonen, Tuomas |
| Abstract: | This study sheds light on the impact of digitalisation and social media on deposit flows and rates of euro area banks during the recent period of monetary tightening. Drawing on difference-in-differences analysis of confidential monthly data (12/2019 –10/2023) of deposit flows and rates as well as measures of bank digitalisation and social media exposure through Twitter sentiment, the study offers two novel sets of findings. First, banks with a higher degree of digitalisation exhibit larger fluctuations in deposits, with higher inflows from mid-2020 to early 2022 but greater outflows in response to the tightening. Digitalisation is also correlated with higher sensitivity of banks’ NFC deposit rates to policy rates. Second, a negative Twitter sentiment reduces deposit inflows, even after accounting for traditional news’ sentiment and a comprehensive set of bank-specific factors, including asset prices and performance indicators. JEL Classification: G21 |
| Keywords: | deposit franchise, deposits, digitalisation, monetary tightening, social media |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2025153 |
| By: | Helmut Elsinger; Helmut Stix; Martin Summer |
| Abstract: | This paper examines consumers' intended adoption of a digital euro in Austria using a discrete choice experiment. We estimate a mixed logit model to quantify the role of key attributes such as privacy, offline functionality, security against financial loss, monetary incentives, and payment form factors. Our findings indicate that security and financial incentives are the strongest drivers of adoption, while respondents do not report strong preferences among the privacy options that are laid out in the experiment. We identify significant heterogeneity in adoption likelihood across socio-demographic groups. Simulations suggest that under realistic design assumptions, approximately 45% of individuals are found to have an intention to adopt a digital euro. |
| Keywords: | central bank digital currency (CBDC), consumer adoption, discrete choice experiment, payment preferences |
| JEL: | E42 D12 G21 C35 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1302 |
| By: | Gourinchas, Pierre-Olivier; Ray, Walker; Vayanos, Dimitri |
| Abstract: | We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by arbitrageurs with limited capital. Risk premia in our model are time-varying, connected across markets, and consistent with the empirical violations of uncovered interest parity and expectations hypothesis. Through risk premia, large-scale bond purchases lower domestic and foreign bond yields and depreciate the currency, and short-rate cuts lower foreign yields, with smaller effects than bond purchases. Currency returns are disconnected from long-maturity bond returns, and yet the currency market is instrumental in transmitting bond demand shocks across countries. |
| JEL: | E43 E44 E52 F31 G12 G15 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127783 |