|
on Central Banking |
| By: | Marc Burri; Daniel Kaufmann |
| Abstract: | We extend the heteroskedasticity IV estimator of Rigobon and Sack (2004) from one to multiple monetary policy shocks by imposing recursive zero restrictions on the impact matrix. Unlike high-frequency identification, the approach requires neither intraday tick data nor precise announcement timestamps, making it applicable to countries or historical periods where such data are unavailable. Applied to US FOMC announcements, we find causal effects similar to those of high-frequency identification. The heteroskedasticity-based instrument passes weak-instrument tests for the target shock, whereas high-frequency surprises fail. For the path shock, we also find strong heteroskedasticity-based instruments in key specifications, and we show that the underlying shocks are similar to those based on high-frequency identification. |
| Keywords: | Monetary policy shocks, causal effects, forward guidance, heteroskedasticity, high-frequency, instrumental variables |
| JEL: | C3 E3 E4 E5 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:irn:wpaper:26-06 |
| By: | Aina Puig |
| Abstract: | This paper estimates the causal effects of monetary policy shocks on household consumption, with additional analysis of labor market and income responses, disaggregated by gender and race. I find that contractionary monetary policy reduces consumption more for black than white households, with the largest declines among households headed by black women. These gaps persist after accounting for differences in household education, debt, and income, but are partly explained by differences in marital status and spousal insurance against shocks. These shocks also lead households to shift expenditures from non-essential and durable goods toward essential non-durable goods and services. The analysis provides estimates of marginal propensities to consume across groups and shows that contractionary, rather than expansionary, shocks drive aggregate consumption responses. These findings highlight the importance of accounting for intersectional demographic heterogeneity in evaluating the distributional effects of monetary policy. |
| Keywords: | Monetary Policy; Gender; Racial Inequality; Intrahousehold Allocation |
| JEL: | E21 E52 J15 J16 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1108 |
| By: | Héctor J. Villarreal (School of Government and Public Transformation, Tecnológico de Monterrey) |
| Abstract: | This paper studies the distributional consequences of fiscal dominance through asset prices. When public debt constrains monetary policy, interest rates may decline as debt increases. Lower discount rates raise asset valuations, generating capital gains for asset holders. In a simple framework combining public debt dynamics, fiscal reaction functions, and a debt-sensitive interest rate rule, we derive a formal condition under which fiscal dominance generates redistribution toward asset-owning households through the asset price channel, and show that the wealth share of asset holders is increasing in public debt. |
| Keywords: | fiscal dominance, public debt, interest rates, asset prices, wealth inequality, monetary policy, fiscal policy, redistribution |
| JEL: | E52 E62 G12 D31 H63 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:gnt:wpaper:30 |
| By: | Mr. Adrian Alter; Julia Bersch; Albert Touna Mama; Bright Quaye |
| Abstract: | Central bank independence (CBI) is a key institutional feature for price stability, but its role in sovereign debt markets is less understood. This paper examines whether CBI lowers borrowing costs in local-currency sovereign debt markets in emerging and developing economies. Using data for up to 137 countries from 2000--2024, we first reaffirm that stronger CBI substantially reduces inflation and its volatility. We then show that, in normal times, a 0.1-point increase (on a 0–1 scale) in CBI is associated with lower five-year local-currency sovereign yields of 0.6–0.7 percentage points. A decomposition reveals two important mechanisms through which CBI reduces local-currency sovereign yields: lowering near-term risk compensation and compressing the term premium. In addition, we find evidence that this relationship is stronger under inflation-targeting regimes and larger in sub-Saharan Africa, but does not hold during systemic global crises. Finally, using dominance analysis, we show that domestic fundamentals explain more of the variation in yields than global factors. These findings demonstrate that debt markets directly price institutional credibility, offering clear guidance for the design of monetary frameworks. |
| Keywords: | Sovereign yields; Local-currency bonds; Risk premium; Term premium; Inflation; Central bank independence |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/058 |
| By: | Sébastien Bourdin (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School); Jérôme Picault (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres); Arnaud Simon (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres) |
| Abstract: | The development of home ownership in the second half of the 20th century has been perceived as an asset and a significant contributor to wealth accumulation. However, rising property prices and increasingly stringent mortgage lending criteria have placed this model under pressure, particularly for younger generations. Recent territorial reforms and expansionary monetary policies, such as the European Central Bank's quantitative easing (QE) programme, have produced asymmetric effects on regional housing markets. This study applies a spatial econometric model to French departments to investigate how these developments have disproportionately benefited departments located near new regional capitals, thereby exacerbating disparities between these centres and their peripheral territories. By incorporating a spatial perspective, this analysis enriches our understanding of the dynamics between housing finance and regional development while shedding light on the implications of these transformations for financial stability and regional planning policy. |
| Keywords: | Regional disparities, Housing lending market, Monetary policy, Territorial reform, Economic geography |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05568167 |
| By: | Jaunius Karmelavičius; Ms. Julia Otten |
| Abstract: | This paper develops a life cycle model to study household choice under macroprudential borrower-based measures (BBMs). The model is extended to multiple heterogeneous households, allowing to assess both aggregate and distributional effects of BBMs on mortgage and housing demand. The framework is applied to Lithuanian and Slovak distributional data to quantify the impact of various BBM configurations. We find that the presence of binding BBMs can usefully dampen mortgage and house price growth. However, tight regulation may also redirect demand towards lower-valued housing, while pushing households into the rental market. In particular, loan-to-value (LTV) limits are most constraining for households with little or no initial wealth. This highlights the distributional consequences of BBMs and the importance of designing regulation to account for borrower characteristics. |
| Keywords: | Macroprudential policy; borrower-based measures; mortgages; life cycle model.; IMF working papers; household behavior; life cycle model; borrower characteristic; housing demand; Credit; Housing prices; Housing; Macroprudential policy instruments |
| Date: | 2026–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/066 |
| By: | Mr. Damien Capelle; Yang Liu |
| Abstract: | This paper evaluates the effectiveness and robustness of a Tax on Inflation Policy (TIP) for improving welfare at the Zero Lower Bound (ZLB) in a New Keynesian model. When the ZLB results from a fall in the neutral interest rate, a negative TIP mitigates deflationary pressures, narrows the output gap, and implements the constrained-efficient allocation. When the ZLB is driven by self-fulfilling expectations, TIP can eliminate the deflationary equilibrium altogether. A rule that responds aggressively to inflation with a negative intercept proves robust across scenarios. Using a medium-scale model calibrated to Japan, we quantify a robust TIP rule that would have lifted the economy out of its liquidity trap. |
| Keywords: | Deflation; Zero Lower Bound; Liquidity Trap; Tax on Inflation; Taxbased Incomes Policies; Externality |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/059 |
| By: | Alyssa G. Anderson; Alessandro Barbarino; Anthony M. Diercks; Stephen I. Miran |
| Abstract: | For the avoidance of doubt: 1) This catalogue presents and analyzes a variety of options for reducing the Federal Reserve’s balance sheet. Nothing here is an endorsement of any specific policy option; this is a menu of options. Combined, we estimate these options open the door to balance sheet reduction of $1.2 to $2.1 trillion within the Fed’s current ample reserves framework. Further reductions would be possible with a return to scarce reserves. 2) The process of materially shrinking the balance sheet would require a great deal of implementation and rulemaking work in advance and will take time, at least a year and quite possibly several, before the Fed can begin shrinking its balance sheet. If undertaken, there are good reasons for moving slowly and gingerly, and to take steps to ensure financial markets are able to absorb the reissue of securities that roll off the Federal Reserve’s balance sheet. |
| Keywords: | Monetary policy; Open market operations (OMO); Reserves; Federal Reserve balance sheet; Federal funds rate |
| JEL: | E52 E58 |
| Date: | 2026–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103000 |
| By: | Joshua K. Hausman; John V. Leahy; John Mondragon; Johannes Wieland |
| Abstract: | Nominal interest rates have real effects. Residential mortgages and other real world debt contracts require a sequence of constant nominal payments. Combined with payment-to-income constraints, these nominal payments force borrowers to take on less debt when nominal interest rates rise, regardless of the behavior of the real interest rate. Survey data shows that conditional on the real rate, higher nominal mortgage interest rates reduce home buying sentiment. And increases in nominal mortgage rates reduce mortgage origination more in cities where payment-to-income constraints are more likely to bind. We explore the macroeconomic implications of payment-to-income constraints in a new Keynesian model modified to include a credit good. The payment-to-income constraint amplifies the effect of current short-term nominal interest rates on output and inflation, making the model less forward-looking than the standard new Keynesian model. |
| JEL: | E4 E50 G21 R21 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35033 |
| By: | Mr. Sam Ouliaris; Ms. Celine Rochon |
| Abstract: | The Quarterly Projection Model (QPM) is one of the IMF’s standard frameworks for monetary policy analysis and forms a core component of a forward‑looking Forecasting and Policy Analysis System (FPAS). Traditionally, the QPM is solved using simulation tools available in MATLAB. This technical note demonstrates how the canonical QPM can instead be implemented using the EViews econometric package, with the aim of reducing the technical barriers to applying the model in practice. The note is intended for policy analysts and economists who wish to adapt the QPM to country‑specific settings without requiring advanced proficiency in the EViews programming language. The approach is illustrated using a notional “Country Z, ” but the methodology can be readily adapted to real‑world country applications. Users need only to assemble the required data and make targeted modifications to existing EViews code, such as selecting the appropriate exchange‑rate regime equations and calibrating key model constants. In addition to solving the QPM for its baseline projection, the technical note shows how to construct and analyze alternative scenarios. These scenarios may involve multiple exogenous shocks and constraints on selected endogenous variables, enabling users to assess the dynamic response of the economy and the speed and path of its return to the baseline. |
| Keywords: | forecasting; monetary policy analysis; quarterly projection model; time series analysis; real exchange rates; |
| Date: | 2026–04–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imftnm:2026/003 |
| By: | Iñaki Aldasoro; Paula Beltran; Federico Grinberg |
| Abstract: | Using data on four USD-pegged stablecoins and 27 fiat currencies, this paper documents spillovers from stablecoin-based foreign exchange (FX) to traditional FX markets. We document a gap between the cost of acquiring dollars via stablecoins and via the spot FX market (parity deviations). To establish a causal link between stablecoin flows and FX markets, we use a granular instrumental variable that exploits idiosyncratic shocks to stablecoin net inflows in other currencies. Our estimates indicate that a 1% exogenous increase in net stablecoin inflows raises parity deviations by 40 basis points, depreciates the local currency, and widens the dollar premium in synthetic funding markets (covered interest parity (CIP) deviations). A model of constrained arbitrage rationalizes these findings and provides structural foundations for the identification strategy. Counterfactual simulations show that halving cross-market frictions would attenuate CIP spillovers by roughly one-half and cut exchange rate effects by nearly one-third. A dynamic extension that closely matches the empirical impulse responses shows that spillovers grow disproportionately when intermediaries suffer losses, as depleted capital reduces their capacity to absorb further shocks. Our results establish stablecoins as an emerging segment of global currency markets with direct implications for financial stability. |
| Keywords: | Stablecoins; foreign exchange; market segmentation; capital flows; arbitrage |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/056 |