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on Central Banking |
| By: | Anyfantaki, Sofia; Migiakis, Petros; Petroulakis, Filippos; Giannakidis, Haris; Malliaropulos, Dimitris |
| Abstract: | Using granular security-level data from bond funds domiciled in the US and the euro area, we identify a market-based risk-taking channel of monetary policy transmission via the credit-risk and the maturity structure of bond funds’ portfolios. We measure credit risk at the fund level as the weighted average credit rating of the fund’s bond holdings. We find that accommodative monetary policies by the Fed and the ECB are associated with increased risk in bond funds’ portfolios. Interestingly, risk-taking is more pronounced for funds with longer-term holdings relative to short-term ones and unconventional monetary policy exerts stronger market-based risk-taking effects than interest rate policy. Finally, we find that Fed’s monetary policy has a stronger impact on funds’ risk-taking behaviour than the ECB’s, highlighting the dominant role of US monetary policy in global financial markets. JEL Classification: E52, G12, G15, G20 |
| Keywords: | investment funds, monetary policy, non-bank financial intermediation, risk-taking channel |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263196 |
| By: | Adam, Klaus; Weber, Henning |
| Abstract: | The introduction of a firm or product life cycle into New Keynesian frameworks fundamentally alters the design of optimal monetary policy. Economic welfare and the Phillips curve then depend on the gap between inflation and a time-varying inflation target that arises endogenously from turnover. The inflation target is positive on average and shifts in response to productivity disturbances. As a result, steady-state price stability is no longer desirable and the dynamics make it optimal for monetary policy to "look through" certain productivity disturbances. The latter requires keeping nominal rates unchanged even though both output and inflation move. This complicates the empirical distinction between supply, demand, and policy shocks. Our results highlight that accounting for supply side turnover delivers a rich set of policy-relevant results for inflation targeting and shock identification. |
| Keywords: | firm turnover, product turnover, optimal monetary policy, time-varying inflation target |
| JEL: | E31 E32 E52 E61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:337464 |
| By: | Brzoza-Brzezina, Michał; Rigato, Rodolfo Dinis |
| Abstract: | We study the distributional consequences of the recent inflationary surge and the subsequent monetary policy response in the euro area. Using an estimated two-asset Heterogeneous Agent New Keynesian model with an overlapping generations structure, we analyze the macroeconomic shocks driving inflation between 2021 and 2022. We find that these shocks generated substantial redistribution from young and poor households toward older and wealthier ones. By keeping interest rates unchanged until mid-2022, monetary policy largely offset these distributional effects. A policy response based solely on a standard Taylor rule would have failed to mitigate the redistribution. JEL Classification: E31, E52, E58, D31 |
| Keywords: | Euro area, great inflation, HANK, monetary policy, OLG, redistribution |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263197 |
| By: | Blix Grimaldi, Marianna (Financial Stability Department, Central Bank of Sweden); Schneider, Fabienne (Bank of Canada); Vestin, David (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | This paper examines the interaction between quantitative easing (QE) and the securities lending facility (SLF) using a detailed dataset on Riksbank QE purchases, Swedish DMO SLF transactions and OTC repo deals. A theoretical model further shows how excess demand for assets and search frictions shift the SLF from a backstop to a first-resort tool. Empirically and theoretically, we find that QE expansion is closely linked to higher SLF use. Narrowing spreads between SLF yields and market repo rates make the SLF yield a floor for secured lending, weakening ties to monetary policy benchmarks and potentially altering its transmission. QE announcements also increase SLF usage, raising moral hazard concerns. Theoretically, QE strengthens cash-borrowing dealers’ bargaining position and may reduce reliance on the repo market, with implications for market liquidity. |
| Keywords: | Security Lending Facilities; Quantitative Easing; Repo Market |
| JEL: | E52 E58 G21 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0462 |
| By: | Danilo Leiva-León; Rodrigo Sekkel; Luis Uzeda |
| Abstract: | We develop a trend–cycle Bayesian vector autoregression that jointly estimates the real neutral rate of interest, 𝑟𝑡∗, and identifies monetary policy shocks. As a key innovation, the framework allows cyclical shocks, most notably monetary policy shocks, to affect the trend component of macroeconomic variables, providing a new way to assess whether transitory disturbances have persistent effects. Using external instruments, we find that contractionary monetary policy shocks reduce 𝑟𝑡∗ and lower trend GDP growth, while the model’s estimates of 𝑟𝑡∗ remain consistent with standard benchmark measures. We then quantify the contribution of monetary policy shocks to the secular decline in 𝑟𝑡∗. Although these shocks at times generate sizable movements in 𝑟𝑡∗, their contribution to the long-run decline is modest, and their net effect on 𝑟𝑡∗ since the early 1990s is slightly positive. We complement these findings with cross-country evidence from other advanced economies, pointing to similar effects. |
| Keywords: | neutral interest rate; monetary policy; trend-cycle BVAR |
| JEL: | E32 E44 C32 C51 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:102795 |
| By: | Xiwen Bai; Jesús Fernández-Villaverde; Yiliang Li; Francesco Zanetti |
| Abstract: | We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off. |
| Keywords: | monetary policy, supply chain disruption, state dependence, convex supply curve, inflation |
| JEL: | C32 E31 E32 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12451 |
| By: | Aniello Piscopo |
| Abstract: | Informality represents a pervasive feature of many emerging and developing economies, yet standard macroeconomic models often ignore its effects, potentially biasing the analysis of shocks and the design of monetary policy. This paper studies the macroeconomic and policy implications of informality using a structural VAR for Colombia and a two-agent New Keynesian model with formal and informal sectors, featuring heterogeneous households including hand-to-mouth consumers. I show that informal labor supply shocks generate sectoral reallocation: informal activity absorbs part of the shock, sustaining aggregate output while altering wages, hours, and capital allocation. In contrast, monetary policy shocks propagate more strongly when informality is present, amplifying distributional and capital-reallocation effects. Critically, the presence of informality alters equilibrium determinacy: standard Taylor rules may fail to ensure uniqueness, with stability depending on the share of Ricardian households, the size of the informal sector, and the monetary policy stance. My findings highlight that accounting for informal production is essential for understanding transmission mechanisms and designing effective policy in economies with significant informality. |
| Keywords: | Informal economy; Tax evasion; Monetary policy transmission; Fiscal policy; Public debt; DSGE model; Capital reallocation; Colombia |
| JEL: | E52 E62 E26 H26 O17 O54 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:569 |
| By: | Bletzinger, Tilman; Martorana, Giulia; Mistak, Jakub |
| Abstract: | Financial Conditions Indices (FCIs) are a widely used tool for assessing the broader monetary policy stance beyond the central bank’s direct control. This paper presents a novel vector autoregressive (VAR) model that includes key macroeconomic variables and maps financial variables into a single index, named Macro-Finance FCI. The VAR coefficients and the FCI weights are estimated jointly in one step, ensuring a model-consistent microfinance feedback. The model-implied long-run mean of the index provides a neutral benchmark to which financial conditions converge when inflation is at target and output is at potential. For the euro area, the proposed FCI incorporates nine asset prices – including risk-free rates, sovereign spreads, risk assets, and the exchange rate – and assigns a dominant role to nominal interest rates. It outperforms existing indices in out-of-sample forecasts of inflation and output. A structural identification of supply, demand, and financial shocks indicates that financial conditions require up to one year to transmit to the real economy and almost up to two years to inflation. JEL Classification: C32, E44, E52 |
| Keywords: | financial conditions index, monetary policy, structural macro-finance VAR |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263193 |
| By: | Michael Junho Lee; Donny Tou |
| Abstract: | We propose a theory of stablecoin disintermediation, whereby stablecoins not only erode banks’ deposit franchises but also transmit liquidity stress to the banking system. Using transaction-level data linking on-chain transactions to wholesale interbank payments, we document the first evidence of liquidity-driven bank disintermediation. Stablecoins directly transmit liquidity shocks to the banking system: banks with stablecoin deposits experience substantial increases in payment demand and heightened liquidity exposure to daily stablecoin primary market activity. Consistent with theory, banks operate “narrowly” to support liquidity-hungry stablecoin deposits – requiring substantially larger bank reserve balances to mitigate potential shortfalls. Even as beneficiaries of stablecoin growth within the banking system, partner banks’ loan share of assets contracts relative to peers. Our results substantially broaden the scope for stablecoins to disintermediate banks, impact bank lending, and complicate monetary policy implementation. |
| Keywords: | stablecoins; Bank disintermediation; payments; bank reserves |
| JEL: | D47 E41 E42 E58 G10 G21 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102830 |
| By: | Eijffinger, Sylvester C. W.; de Haan, Jakob |
| Abstract: | Central bank independence (CBI) refers to the absence of influence of politicians on monetary policy making. Since we wrote our first surveys of the literature on central bank independence (Eijffinger and de Haan, 1996 and Berger et al., 2001), a lot has changed. The level of CBI has increased considerably in almost all countries, also more recently. According to Romelli (2024), following a slowdown in central bank law reforms between 2010 and 2015, after 2016 reforms led to further increases in independence in 35 cases, while it declined in only 7 cases. However, Garriga (2025) argues that although there is a global tendency towards more CBI, there is significant variance across and within regions, including numerous reforms reducing CBI in the past two decades. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:337453 |
| By: | Andre, Peter; Schaffranka, Claudia; Weber, Michael |
| Abstract: | This paper examines the persistent upward bias in euro area households' inflation perceptions and expectations, even when realized inflation is near the ECB's target. It discusses behavioural and informational drivers of this bias, its implications for consumption, wage setting, and monetary policy transmission, and the challenges it poses for ECB communication and credibility. The study concludes that improved monitoring and household-oriented communication are essential. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 26 February 2026. |
| Keywords: | Inflation Expectations, Monetary Policy, ECB |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:337489 |
| By: | Behn, Markus; Lo Duca, Marco; Perales, Cristian |
| Abstract: | Using information from the ECB’s Bank Lending Survey, we examine how the implementation of borrower-based macroprudential measures (BBMs) between 2009-Q1 and 2023-Q3 affected mortgage lending standards in a sample of 15 euro area countries. We find that banks generally tightened credit standards around the implementation of BBMs, with the strongest effect occurring contemporaneously. Such tightening of credit standards is observed for different types of BBMs, including limits on loan-to-value or debt-service-to-income ratios and maturities. We also find mild evidence that legally binding measures imply a stronger tightening of credit standards than measures in the form of non-binding recommendations. Finally, this tightening is more pronounced in cases where mortgage loan growth or real estate price growth is high, consistent with BBMs effectively smoothing the credit cycle. JEL Classification: G21, G28, G51 |
| Keywords: | borrower-based measures, credit standards, macroprudential policy, mortgages |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263190 |
| By: | Juan Pablo Di Iorio (Universidad de San Andrés); Javier García-Cicco (Universidad de San Andrés) |
| Abstract: | A salient feature of many emerging and developing economies is that a substantial fraction of government debt is denominated in foreign currency. We study the implications of the Fiscal Theory of the Price Level (FTPL) in a standard New Keynesian small and open economy model, with an explicit role for the currency denomination of public debt. We show that, while the classical FTPL characterization of equilibrium existence and uniqueness extends largely independently of debt composition, the propagation of shocks does not. The currency denomination of public liabilities alters the effects of monetary and fiscal policy, including the possibility that a monetary tightening leads to a depreciation under active fiscal regimes. More broadly, the interaction between the fiscal-monetary policy mix and the share of foreign-currency debt also plays a central role in shaping the response to external shocks. |
| Keywords: | E31; E52; E63; F41 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:179 |
| By: | Merve Capan; Ahmet Gulveren; Tuba Ozsevinc |
| Abstract: | In this study, we propose a trend inflation indicator by using the Multivariate Unobserved-Components Stochastic Volatility Outlier-Adjusted (MUCSVO) model to better capture the underlying inflation dynamics in Türkiye. Our measure effectively filters out temporary shocks and exhibits superior forecasting performance at horizons beyond three months. Moreover, results imply that the permanent component of inflation declined from 3.9 in October 2023 to 2.2 in June 2025. Services emerge as the dominant driver of trend inflation, contributing about 55% despite having only 31% of the consumption basket weight. These results highlight the importance of sectoral decomposition in understanding inflation persistence and improving monetary policy design. As an addition to the underlying trend inflation indicators currently monitored by the Central Bank of the Republic of Türkiye (CBRT), the MUCSVO model enhances the CBRT’s capacity to monitor underlying price dynamics. |
| Keywords: | Unobserved component models, Trend inflation, Inflation forecasting, Monetary policy design |
| JEL: | C32 E31 E37 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2605 |
| By: | Emrehan Aktuğ; Abolfazl Rezghi |
| Abstract: | We study optimal monetary and exchange rate policy in a small open economy facing oil price shocks. In a model with segmented financial markets that generate endogenous UIP deviations, the first-best allocation is achieved through a combination of interest rate policy and foreign exchange intervention (FXI). Monetary policy stabilizes domestic inflation and the output gap, while FXI targets the UIP wedge to offset financial frictions. Oil price shocks endogenously move the net foreign asset position, giving rise to financial imbalances that make FXI essential—a mechanism distinct from exogenous financial shocks highlighted in the literature. Quantitatively, for a calibrated oil exporter, suboptimal regimes such as a free float or a simple peg entail sizable welfare losses of around 2% in consumption-equivalent terms, though peg, and especially peg with fuel subsidies, can outperform free floats. Overall, FXI is crucial to break the destabilizing link between real commodity shocks and financial risk premia. |
| Date: | 2026–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/030 |
| By: | Klaus Gründler; Michael Lamla; Niklas Potrafke; Timo Wochner |
| Abstract: | Households often struggle to understand policy interventions, limiting the effectiveness of policy transmission. We study how economic policy signals reach and influence households, focusing on the role of professional economists as interpretive intermediaries. When policy signals are complex and households face attentional limits, experts help filter and explain the information. Using a series of large-scale cross-national expert surveys and representative household experiments in Germany during the 2022–23 inflation surge, we show that (i) experts actively update and interpret monetary policy signals, (ii) their policy interpretations influence household expectations and spending decisions, and (iii) households prefer expert interpretations over direct communication from policymakers. Our findings highlight a previously overlooked transmission channel, suggesting that expert intermediation can substantially enhance the effectiveness of macroeconomic policy communication. |
| Keywords: | economic experts, economic policy, macroeconomic expectations, monetary policy, belief formation, cross-national experiments |
| JEL: | E31 E71 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12492 |
| By: | Lara Coulier; Selien De Schryder; Milan van den Heuvel; Tobias Verlaeckt (-) |
| Abstract: | We study how mortgage borrowers adjust their mortgage terms and household balance sheets in response to a loan-to-value (LTV) limit. Focusing on the 2020 Belgian LTV policy, we use granular loan- and account-level data from the country’s largest bank. A substantial share of borrowers reduced their LTV ratios, with adjustment patterns varying by income, liquid wealth, and household type. Borrowers mainly responded by increasing downpayments and reducing loan amounts, though these responses were weaker among lower-income households. While the adjustments led to safer mortgages, they were also associated with declines in liquid wealth and consumption in the year following purchase. |
| Keywords: | Housing, Macroprudential Policy, Mortgage Market, Household Finance, Borrower, Heterogeneity |
| JEL: | E58 G21 G51 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:26/1138 |
| By: | Ms. Laura Valderrama; Mr. Richard Varghese |
| Abstract: | This paper applies network analysis to examine the impact of non-bank financial institutions (NBFIs) and financial market stress on contagion risk within the interbank network. Using network-based simulations on euro area banks’ supervisory data, we find that banks’ strong capital and liquidity buffers significantly reduce contagion through interbank exposures: base-line scenarios show only modest capital losses and no cascading defaults. In contrast, stress originating from NBFIs under heightened market volatility markedly amplifies systemic risk. These findings highlight NBFIs and market volatility as key amplifiers of financial stress in the euro area. Our findings call for integrating contagion models into system-wide stress testing and designing macroprudential policies that encompass the entire financial ecosystem. Such policies should account for amplification risks from banks’ NBFI exposures when calibrating buffers and identifying systemic institutions. |
| Keywords: | Systemic Risk; Network Analysis; Interconnectedness; NBFIs; Market Risk |
| Date: | 2026–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/033 |
| By: | Anand, Kartik; König, Philipp Johann |
| Abstract: | This article provides a practical overview for applying the global games approach to solve models with multiple equilibria that are often used in discussions on fi- nancial and macroprudential policies. Global games offer a tractable approach to resolve multiple equilibria by introducing incomplete information, thereby yield- ing unique equilibrium predictions. The article proceeds along the lines of a simple regime change game with strategic complementarities. Starting from the canonical regime change game with homogeneous players, it extends the discus- sion to include heterogeneous groups of players and interlinkages across different institutions with different sets of players. These extensions highlight not only how strategic complementarities can amplify fragility across players and institu- tions but also how heterogeneity and interlinkages affects the design of micro- and macroprudential policy interventions. Finally, the article briefly discusses the application of global games to dynamic coordination games. |
| Keywords: | Global Games, Multiple Equilibria, Coordination Games |
| JEL: | C72 D82 G01 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:337465 |