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on Central Banking |
| By: | De Santis, Roberto A.; Cardamone, Dario |
| Abstract: | We examine the state dependence of monetary policy transmission and the parameters of the Phillips curve, dynamic IS equation, and Taylor rule across four regimes defined by joint deviations of inflation from the Federal Reserve’s target and output from potential. The analysis uncovers important regime-specific asymmetries. The Taylor principle holds across all four regimes. The systematic policy response to the output gap weakens when inflation is below target but output remains above potential, whereas the response to inflation is broadly similar across regimes. The size of monetary policy shocks is significantly larger when inflation exceeds its target. The Phillips curve steepens when inflation exceeds target and output is above potential, while output sensitivity to interest rate changes declines under high inflation and economic slack. This explains why monetary policy shocks are significantly larger in inflationary booms, but transmission becomes less effective when elevated inflation coincides with economic slack. JEL Classification: C32, E52 |
| Keywords: | DIS curve, monetary transmission, Phillips curve, state dependence, Taylor rule, threshold VAR |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263175 |
| By: | Alexa Kaminski (University of Zurich); Alistair Macaulay (University of Surrey); Wenting Song (UC Davis) |
| Abstract: | This paper studies how the transmission of monetary policy varies with monetary policy narratives. Using an AI-based data classification algorithm guided by macroeconomic theory, we construct directed graphs of the causal mechanisms described in FOMC transcripts, which capture the narratives used to justify interest rate decisions. Even after purging these narratives of predictable components from contemporaneous macroeconomic conditions, we find substantial variation in narratives over time. Clustering the residual graphs yields three recurring types: an inflation narrative, a finance narrative, and a textbook narrative. Narrative-conditioned local projections reveal that the transmission of monetary policy is strongly narrative dependent, no narrative cluster exhibits the canonical joint decline in inflation and output, and the price puzzle is narrative specific. These results suggest that standard shock measures average over heterogeneous policy episodes and that narrative measurement provides a practical way to operationalize this heterogeneity. |
| JEL: | C45 C55 E52 E58 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0126 |
| By: | Philipp Poyntner; Sofie R. Waltl |
| Abstract: | We study how the general public perceives the link between monetary policy and housing markets. Using a large-scale, cross-country survey experiment in Austria, Germany, Italy, Sweden, and the United Kingdom, we examine households' understanding of monetary policy, their beliefs about its impact on house prices, and how these beliefs respond to expert information. We find that while most respondents grasp the basic mechanisms of conventional monetary policy and recognize the connection between interest rates and house prices, literacy regarding unconventional monetary policy is very low. Beliefs about the monetary policy-housing nexus are malleable and respond to information, particularly when it is provided by academic economists rather than central bankers. Monetary policy literacy is strongly related to education, gender, age, and experience in housing and mortgage markets. Our results highlight the central role of housing in how households interpret monetary policy and point to the importance of credible and inclusive communication strategies for effective policy transmission. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.08957 |
| By: | H. Ozlem Dursun-de Neef; Tarik Alperen Er; Ibrahim Yarba |
| Abstract: | Combining bank-firm level credit registry data on the universe of loans and firms’ financial statements, we analyze the transmission of policy rate movements to banks’ lending behavior through their ex-ante exposure to interest rate risk. Controlling for demand side factors and other bank characteristics that are known to affect monetary policy transmission, our bank-firm level analyses show that banks with higher ex-ante exposure to interest rate risk reduce their lending and shorten their loan maturities once interest rates begin to rise, compare to banks with lower exposure. However, the effect is valid only for private banks, not state-owned banks. This effect is particularly pronounced for banks with low capital ratios, highlighting the importance of bank capital in contractionary periods. The effect persists at the firm level where firms are unable to avoid reductions in their loans by switching to less-exposed banks. Yet, this is the case only for SMEs, not for large firms. This reveals the asymmetric deterioration in SMEs’ lending conditions relative to large firms. We also document the real effects of the monetary policy transmission on firms’ sales and employment. Our findings reveal that SMEs, but not large firms, with higher exposure to interest rate risk through their banks experience declines in sales and employment. |
| Keywords: | Interest rate risk, Bank lending, Monetary policy transmission, SMEs |
| JEL: | G21 E51 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2601 |
| By: | Silvia Miranda-Agrippino; Tsvetelina Nenova; Hélène Rey |
| Abstract: | Using a novel indicator for the People's Bank of China monetary policy stance, we estimate a policy rule that accounts for the dual nature of its price stability mandate—encompassing domestic inflation and the exchange rate—and for the evolution of its operational framework. The “Ins”: The domestic transmission follows textbook patterns, with exceptions due to the active management of the renminbi and the financial account. The "Outs": International spillovers are powerful and affect commodity markets, global production and trade. The pass-through to foreign (US) prices is substantial. Financial spillovers are second-order, and mostly derivative from trade spillovers. |
| JEL: | E50 F3 F4 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34626 |
| By: | Iñaki Aldasoro; Andreas Barth; Laura Comino Suarez; Riccardo Reale |
| Abstract: | When capital requirements rise, banks can raise equity or reduce risk-weighted assets, typically by cutting lending. We show they also use credit default swaps (CDS). Linking EU trade-repository CDS data to syndicated loans for November 2017 to April 2024, we document that banks significantly increase CDS hedging on loans to firms in countries that raise their countercyclical capital buffer (CCyB). Our identification exploits within-bank comparisons of hedging for similar borrowers across countries with different CCyB rates. A 1 percentage point increase in the CCyB reduces the uninsured share of a loan by about 53 percentage points, with the strongest effects for banks most exposed to the buffer-raising country. Eligible credit risk transfer via CDS thus emerges as a first-order channel through which banks accommodate tighter capital requirements, potentially attenuating macroprudential policy transmission. |
| Keywords: | bank capital requirements, CDS, countercyclical capital buffers |
| JEL: | E51 G21 G28 G32 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1323 |
| By: | Vanessa B. Schmidt |
| Abstract: | I study the role of home production in determining the labor income channel through which monetary policy affects consumption inequality. To this end, I develop a Two-Agent New Keynesian model with home production. In the context of my model, hand-to-mouth households experience a sharper decline in labor income compared to richer households in response to a contractionary monetary policy shock. However, they increase home production to a greater extent than richer households do. The resulting labor income channel is therefore one third the size when accounting for home production. In line with my theoretical results, I show empirically that individuals living hand-to-mouth respond to contractionary monetary policy shocks by increasing home production by more than richer people do. |
| Keywords: | constrained households, consumption inequality, home production, monetary policy, TANK models |
| JEL: | E21 E52 J22 |
| Date: | 2025–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0082 |
| By: | Alessandro Franconi; Giacomo Rella |
| Abstract: | Using the Distributional Financial Accounts of the United States, we study the effects of monetary policy on the wealth distribution. The direction and persistence of these effects depend on the policy instrument. Interest rate cuts initially reduce wealth inequality but increase it in the medium run. Asset purchases, instead, increase wealth inequality but only temporarily. Housing is the main channel through which monetary policy affects wealth at the bottom while corporate equities explain wealth growth at the top. Using household-level data from the Panel Study of Income Dynamics, we document a wealth reversal at the bottom of the distribution: lower interest rates raise housing wealth in the short run but lead to higher mortgage debt and lower net wealth over time, contributing to the medium-term rise in inequality. |
| Keywords: | Monetary Policy, Distributional Financial Accounts, Wealth Inequality. |
| JEL: | E52 D31 E44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:rsi:creeic:2504 |
| By: | Thomas Ankenbrand; Denis Bieri; Stefano Ferrazzini; Johannes Hoehener |
| Abstract: | Tokenised money encompasses a broad range of digital monetary instruments issued on distributed ledger technology, including Central Bank Digital Currencys (CBDCs), deposit tokens, stablecoins, and decentralised protocol-based designs. Despite their shared monetary function, these instruments differ markedly in issuer structure, collateralisation, stability mechanisms, governance, and technological embedding, creating conceptual ambiguity. This paper proposes a concise taxonomy spanning twelve key design dimensions, offering a systematic framework for comparing heterogeneous forms of tokenised money. The taxonomy clarifies how different design choices shape monetary properties, risks, and policy implications, supporting clearer analysis and dialogue across academia, industry, and regulation. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.11010 |
| By: | Matthieu Bussiere; Tommaso Gasparini; Guillaume Horny; Benoit Nguyen |
| Abstract: | How does heterogeneity in deposit funding among banks influence the transmission of monetary policy to loan supply? To address this question, we exploit a bank-level panel dataset of more than 450 banks from 19 euro-area countries from 2007 to 2023. Our empirical findings reveal that banks with a higher reliance on deposit funding exhibit a more muted increase in lending rates following monetary policy tightening. These results are consistent with a mechanism in which deposit funding shapes bank loan supply. |
| Keywords: | Banks, Deposit Pricing, Loan Supply |
| JEL: | G14 G23 G29 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1029 |
| By: | George-Marios Angeletos; Chen Lian; Christian K. Wolf |
| Abstract: | How does the fiscal framework affect the central bank's ability to stabilize output and inflation? The textbook answer, which assumes Ricardian households, recommends that fiscal adjustment should be fast enough to allow for monetary dominance. We instead argue that, with non-Ricardian households, the central bank may indeed welcome slow, or even no, fiscal adjustment. On the demand side, slow fiscal adjustment helps stabilize aggregate spending; on the supply side, it eases tax distortions, improving the output-inflation trade off. And while the first channel favors slow fiscal adjustment only when the business cycle is dominated by demand shocks, the second channel extends this preference to supply shocks. A quantitative exercise affirms our lessons in the U.S. context, with the central bank preferring virtually no fiscal adjustment over the business cycle. |
| JEL: | E52 E62 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34654 |
| By: | Sébastien Blanco; Miriam Koomen; Pinar Yesin |
| Abstract: | We present novel evidence on the global transmission of monetary policy (MP) surprises via bond funds. Using daily MP surprise measures and a multi-country panel of weekly fund flows, we document that bond fund flows respond systematically to MP surprises. The direction, intensity, and persistence of these responses, however, vary across destination countries, fund investment strategies, and fund domiciles. Furthermore, bond fund flows react not only to domestic MP surprises, but also to foreign MP surprises, indicating cross-border spillovers. We explore two mechanisms driving these responses: the relative importance of MP shocks versus information shocks, and the impact of exchange rate movements on portfolio rebalancing. Our findings highlight the role of nonbank financial intermediaries in global MP transmission. |
| Keywords: | NBFIs, Bond funds, Monetary policy surprises, Cross-border spillovers |
| JEL: | G23 E52 E44 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2026-01 |
| By: | Rubio Mateo Luis |
| Abstract: | Using monthly data for 2016-2025, I identified unexpected policy innovations as residuals from a Taylor rule and estimated Local-Projection impulse responses for headline CPI, tradables/non-tradables, and nine disaggregated components, treating those innovations as monetary policy shocks. Tightening is no quick fix: a +10 pp policy-rate shock leaves monthly inflation above baseline for roughly two years and cumulates sizable price-level gains (approx. 7-8 pp at one year, remaining positive at two to four years). Movements are faster and larger in tradables; services adjust more slowly, with wide heterogeneity across categories. Inference relies on heteroskedasticity- and autocorrelation-consistent (HAC) standard errors with wild-bootstrap checks. These patterns indicate long and variable lags in this setting; effective disinflation requires persistence and coordination with complementary instruments. Evidence suggests the monetary policy rate was either ineffective or not the right instrument to achieve price stability, perhaps favoring the choice of monetary-aggregate targeting for Argentina. I find early 90% significance for most series and zero-hit times clustering near two years. |
| JEL: | E5 E3 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4836 |
| By: | Ferrari Minesso, Massimo; Siena, Daniele |
| Abstract: | This paper studies the international macro-financial implications of U.S. dollar-backed payment stablecoins. These digital assets create a new global safe asset channel that links private money creation and global payment needs directly to U.S. public debt. By reshaping the demand for safe assets and the geography of dollar intermediation, stablecoins transform the dynamics of global financial markets, generating new trade-offs, also for the U.S.: even if they widen the dollar’s global footprint and compress U.S. risk-free yields, they entail non-trivial macro-financial costs. Stablecoins dampen the domestic real effects of U.S. monetary policy and increase both U.S. and foreign exposure to cross-country shocks, making a more digital, dollar-centric reserve system less stable. These effects are limited at low adoption levels but rise non-linearly with stablecoin capitalization, reshaping the functioning of the international financial system. JEL Classification: G15, E42, E44, E52, F3 |
| Keywords: | financial stability, global safe asset, monetary policy, spillovers, stablecoins |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263174 |
| By: | Alex Huang |
| Abstract: | The Journal Impact Factor (IF), as a core indicator of academic evaluation, has not been systematically studied in relation to its historical evolution and global macroeconomic environment. This paper employs a period-based regression analysis using long-term time series data from 1975-2026 to examine the statistical relationship between IF and Federal Reserve monetary policy (using real interest rate as a proxy variable). The study estimates three nested models using Ordinary Least Squares (OLS): (1) a baseline linear model, (2) a linear model controlling for time trends, and (3) a log-transformed model. Empirical results show that: (i) in the early period (1975-2000), there is no significant statistical relationship between IF and real interest rate ($p>0.1$); (ii) during the quantitative easing period (2001-2020), they exhibit a significant negative correlation ($\beta=-0.069$, $p |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.09618 |
| By: | Joana Passinhas; Isabel Proença |
| Abstract: | In 2022, the euro area started to experience very high levels of inflation relative to its history, prompting the European Central Bank to raise reference rates by 450 basis points from July 2022 to September 2023. The market anticipated this, with the Euro Interbank Offered Rate, that frequently serves as the reference rate in housing loans, rising as early as March 2022. In this context, we study the benefits of a debt service-to-income (DSTI) limit, namely the Portuguese one set in 2018, in changing the loan service-to-income (LSTI) ratio distribution of new loans for house purchase in the low interest rate (before March 2022) and in the new increasing interest rate environment. Using instrumental variable quantile regressions, we obtain the benefits of the limit by comparing the LSTI distribution of loans under the DSTI limit versus the one of loans included in the exceptions (i.e. with DSTI ratios above the limit). Findings show that DSTI limits effectively keep risky loans from entering the market and reduce individuals effort rate in both the low and rising interest rate environment. The benefits of the DSTI limit became more pronounced after interest rates began rising, highlighting their role in maintaining stringent lending standards in a higher-interest environment. |
| JEL: | C21 C26 E58 G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w02524 |
| By: | Stefano Herzel (DEF, University of Rome "Tor Vergata"); Marco Nicolosi (Università La Sapienza) |
| Abstract: | We analyze the sensitivity of the euro-area yield curve to revisions in market expectations of the ECB policy rate. Using changes in the maintenance-period forward OIS as a market-based measure of policy-rate surprises, we document that yield responses vary systematically across maturities. To interpret these patterns, we adopt a short-rate model with stochastic jumps occurring only at scheduled ECB meeting dates and derive closed-form expressions for the condi- tional sensitivity of yields to changes in the expected jump size. We compare the model-implied term-structure responses with realized yield changes on days of large revisions in expectations. The model reproduces the cross-sectional shape and magnitude of observed sensitivities, especially the pronounced peak at intermediate maturities, underscoring the importance of incorporating scheduled jump times when modeling interest-rate dynamics. |
| Keywords: | OIS, €STR, ECB, monetary policy surprises, scheduled jumps, term-structure sensitivity |
| JEL: | E43 E52 G12 |
| Date: | 2026–01–12 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:619 |
| By: | Jean Barthélemy; Eric Mengus; Guillaume Plantin |
| Abstract: | This paper introduces a general and parsimonious framework to study whether a state can control the value of its currency by declaring it to be the legal tender for claims between itself and the private sector, and by trading it for desirable commodities according to a mechanism of its choice. In an economy in which all agents are price-setters, we identify when such policies elicit a single equilibrium price level. For policies that fail to do so, for example because different official and unofficial prices may coexist in equilibrium, we still offer tight restrictions on the set of predictable price levels. We discuss how our framework sheds light on common mechanisms driving various historical and recent forms of monetary or/and fiscal instability. |
| Keywords: | Price Level Determination; Legal Tender; Monetary Policy; Fiscal Policy |
| JEL: | E42 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1023 |
| By: | Friedheim Diego; De Marco Filippo |
| Abstract: | This paper investigates how lenders’ inflation expectations shape credit allocation. Banks expecting higher inflation reallocate credit towards ex-ante leveraged firms, which benefit from a reduction in real debt burdens. To test this hypothesis, we combine individual bank macroeconomic forecasts for developed economies with syndicated loan data from 1991 to 2021. We show that banks expecting a 1 percentage point higher inflation over the next year extend loans that are 15% larger and 17 basis points cheaper to firms with high long-term leverage, relative to banks with lower inflation expectations. Importantly, the effects are not present for firms with high short-term leverage, whose real value is harder to reduce. Consistent with this pattern, firms receiving loans from banks with higher inflation expectations increase their capital expenditure relative to otherwise similar firms borrowing from banks with lower expectations. |
| JEL: | E31 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4803 |
| By: | Walter Farkas (University of Zurich - Department Finance; Swiss Finance Institute; ETH Zürich); Fabian Sandmeier (University of Zurich - Department of Finance; Swiss Finance Institute) |
| Abstract: | We analyze solvency and liquidity implications of Credit Default Swaps (CDS) in banking networks. We emphasize that one can neither isolate them, nor just analyze them in parallel, but needs to consider their complex interplay. By calibrating our model to the largest banks in the Euro area, we are able to run a large-scale stress test and isolate the effect of different network configurations, as well as different overall coverages of CDS, on systemic risk. An increase in CDS notional always leads to an increase in liquidity risk. The impact on solvency risk is conditional on the topology of the network. We provide a robust network configuration for which an increase in CDS notional leads to a decrease in solvency risk. |
| Keywords: | Systemic Risk, Financial Networks, Credit Default Swaps, Solvency Stress Testing |
| JEL: | C63 D85 G01 G21 G28 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp25107 |
| By: | Luca Vota; Luisa Errichiello |
| Abstract: | Departing from the dominant approach focused on individual and meso-level determinants, this paper develops a macroeconomic formalization of job insecurity within a New Keynesian framework in which the standard IS-NKPC-Taylor rule block is augmented with labor-market frictions. The model features partially informed private agents who receive a noisy signal about economic fundamentals from a fully informed public sector. When monetary policy satisfies the Taylor principle, the equilibrium is unique and determinate. However, the release of news about current or future fundamentals can generate a "Paradox of Transparency" through general-equilibrium interactions between aggregate demand and monetary policy. When the Taylor principle is violated, belief-driven equilibria may emerge. Validation exercises based on the Simulated Method of Moments support the empirical plausibility of the model's key implications. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.13627 |
| By: | Neil Rankin |
| Abstract: | Staggered prices and finitely-lived agents create scope for a debt-financed tax cut to raise output. We study analytically how the impact multiplier depends on whether debt is expected gradually to return to its original level or else to rise to a permanently higher level, and on the speed of this. Under a simple Taylor Rule, the first debt path raises, but the second lowers, output on impact. With the first debt path, the multiplier is also probably hill-shaped in debt persistence. However, even a short-lived initial exogenous nominal interest-rate peg makes the multiplier probably positive with both debt paths. |
| Keywords: | fiscal deficit, staggered prices, finitely-lived agents, overlapping generations, output multiplier, debt persistence, debt gradualism, Taylor Rule, temporary nominal interest-rate peg |
| JEL: | E62 E63 H62 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:yor:yorken:26/01 |
| By: | Yasuo Hirose; Donghoon Yoo |
| Abstract: | This paper investigates the quantitative implications and empirical relevance of behavioral expectations (BE) in dynamic stochastic general equilibrium (DSGE) models under equilibrium indeterminacy. Alongside the rational expectations (RE) benchmark, we examine two BE frameworks-diagnostic expectations (DE) and cognitive discounting (CD)-in both expectation formation and forecast error specifications. Using a simple example, we show that each combination yields a distinct equilibrium law of motion and different dynamic responses to fundamental and sunspot shocks. To evaluate their empirical relevance, we then estimate a medium-scale DSGE model for Japan’s prolonged zero interest rate period, a likely episode of indeterminacy, under various BE specifications. The DE model with RE-based forecast errors outperforms other specifications in replicating key macroeconomic dynamics, particularly the overreaction of aggregate variables to major shocks. Variance and historical decompositions reveal technology and sunspot shocks as primary drivers of output and inflation, respectively. Sunspot shocks stabilize output but amplify inflation volatility. Relative to the RE benchmark, the DE model assigns greater importance to sunspot shocks, highlighting the role of BE and indeterminacy in Japan's macroeconomic fluctuations. |
| Keywords: | equilibrium indeterminacy, diagnostic expectations, cognitive discounting, rational expectations, Bayesian estimation |
| JEL: | C32 C62 E32 E71 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-02 |