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on Central Banking |
| By: | Mario González-Frugone; Ignacio Rojas |
| Abstract: | In recent decades, central banks have increasingly relied on communication as a policy tool. We use linguistic methods to extract the latent information from monetary policy documents in Spanish of the Central Bank of Chile and use this information to reassess the impact of monetary policy surprises on financial markets. As a by-product of this analysis, we present a methodology for analyzing central bank documents in Spanish, construct a sentiment index that captures the policy tilt of each document, and examine whether these documents provide information that can help anticipate changes in the monetary policy rate. The sentiment index is categorized into key economic topics—Inflation, Activity, External Conditions, Financial Conditions, Expectations, and Risk—enabling a detailed understanding of the dynamics behind policy bias. Our findings reveal that monetary policy rate (MPR) surprises have a strong and immediate effect on the yield curve. However, this impact is short-lived and diminishes along the yield curve. In contrast, sentiment surprises in press releases exhibit a weaker, but more persistent effect across instruments. Regarding the minutes, our results suggest that the information they contain is generally already priced in, as sentiment surprises from these documents do not significantly affect the yield curve. Conversely, surprises in the Monetary Policy Report (IPoM) have a positive effect on two-year interest rates, indicating that these reports provide new information that shapes medium-term monetary policy expectations. In terms of anticipation, we find that Central Bank policy documents provide enough information to anticipate policy rate movements. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1053 |
| By: | Robert Ferstl (Off-Site Banking Analysis and Strategy Division); Bernhard Graf |
| Abstract: | The following study analyzes the transmission of monetary policy to bank lending in the euro area. It focuses particularly on the heterogeneity in the speed and strength of propagation of monetary policy shocks across euro area countries. We employ instrumental variables, based on common euro area wide high-frequency identified monetary policy surprises in combination with local projections, to infer the dynamic effect of monetary policy on bank lending. Local projections are estimated for loan growth to non-financial corporations, allowing for a flexible specification that accounts for potential asymmetries in responses to easing versus tightening monetary policy shocks. The robustness of inferred impulse response functions is examined during the pandemic and across different phases of the monetary policy normalization that began in 2022, including both hiking and easing cycles and extending to the end of 2024. We find that the response of bank lending to monetary policy shocks is generally synchronous across euro area countries in that impulse responses peak after 12 to 18 months. However, the magnitude of peak effects varies considerably pointing to pronounced country heterogeneity in the bank lending channel. Moreover, we find significant asymmetries in country-specific bank lending responses wherein monetary policy tightening shocks are generally less strongly propagated suggesting downward rigidity in the bank lending channel. Taken together our results help policymakers quantify the heterogeneity of common euro-area monetary policy transmission to bank lending across member countries. |
| Keywords: | Monetary policy transmission, Bank lending channel, Country heterogeneity |
| JEL: | E52 F45 G21 |
| Date: | 2026–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:277 |
| By: | Guido Ascari (De Nederlandsche Bank); Alexandre Carrier (European Central Bank); Emanuel Gasteiger (TU Wien); Alex Grimaud (Oesterreichische Nationalbank); Gauthier Vermandel (Banque de France) |
| Abstract: | We study monetary policy in an environment where price and wage Phillips curves exhibit true curvature. To this end, we propose a New Keynesian (NK) model with endogenous adjustment of price and wage setting frequencies, moving beyond the quasilinear structure of standard nonlinear NK Phillips curves (NKPC). Using euro area data from 1999Q1 to 2024Q4, we estimate and simulate the non-linear model, analyzing the recent inflation surge and the implications of state-dependent prices andwages for monetary policy. Unlike conventional models, our framework does not attribute inflation dynamics primarily to exogenous supply shocks. Instead, the impact of shocks depends on their timing, size, and the business cycle. Consequently, the inflation–output stabilization trade-off is state-dependent: monetary policy is more effective in curbing inflation, and supply shocks have larger effects during periods of high inflation. |
| Keywords: | New Keynesian Phillips Curve, non-linearity, inflation, monetary policy |
| JEL: | C51 E31 E47 E52 |
| Date: | 2025–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:270 |
| By: | Mirjalili, Seyed hossein; Keshtgar, Nafiseh; Abdurahimian, Mohammad Hossein; Fakhar poor, saeed |
| Abstract: | This study aims to identify the macroeconomic factors influencing the likelihood of a banking crisis in Iran, with a particular focus on macroprudential policy. We employed a discrete econometric model (Logit/Probit) using data from 2011 to 2023. The independent variables include the loan-to-deposit ratio (LTD) as a proxy for macroprudential policy, the interbank interest rate as a proxy for monetary policy, as well as the inflation rate and exchange rate volatility as indicators of macroeconomic instability. The positive and significant coefficient of LTD confirms that liquidity risk arising from excessive credit expansion is the main domestic factor increasing the probability of a crisis. The strong and positive coefficients for inflation and exchange rate volatility suggest that macroeconomic and currency shocks threaten financial stability by deteriorating asset quality and increasing loan defaults. The coefficient for the interbank rate implies the dominance of the disciplinary and supervisory effects of monetary policy over liquidity risk, meaning that a targeted increase in the policy rate by the central bank effectively reduces the probability of a crisis by imposing higher costs on riskier banks. Overall, the findings indicate that financial stability in Iran is influenced by short-term liquidity management and macroeconomic shocks, and that macroprudential policy plays an effective role in curbing risk-taking behavior. |
| Keywords: | Banking crisis; macroprudential policy; Loan to Deposit ratio; Exchange Rate Volatility; Systemic risk. |
| JEL: | G28 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128879 |
| By: | Piero Garcia (Banco Central de Reserva del Perú) |
| Abstract: | This paper studies how exogenous liquidity shocks transmit from central bank balance-sheet operations to bank contract pricing. Using real-time liquidity forecasts from the Central Reserve Bank of Peru (BCRP), I identify reserve-supply shocks from forecast errors in the calibration of daily open market operations. The main analysis quantifies how these shocks affect financial conditions in the banking sector by estimating the dynamic response of lending and deposit spreads relative to safe yields of comparable maturity. I find that a positive liquidity shock to financial institutions generates a sizable and persistent compression of spreads, driven by declines in bank credit and deposit rates while safe yields respond little, consistent with a reduction in the liquidity premia embedded in bank contracts. The results are robust across alternative maturities, liquidity measures, model specifications, and alternative approaches to the measurement of liquidity shocks. These findings imply that balance-sheet and liquidity management policies can influence the effective stance of monetary policy not only through the level of short-term rates, but also through the pricing of liquidity risk that shapes bank spreads and borrowing costs. |
| Keywords: | liquidity premium, monetary policy, non-conventional policy, interbank market, interest rates |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-015 |
| By: | Hall, Viv B. |
| Abstract: | This paper evaluates the governance performance of four small, open economy central banks. Two of these, the Reserve Bank of Australia and the Reserve Bank of New Zealand, are inflation targeting; the other two, the Hong Kong Monetary Authority and the Monetary Authority of Singapore, place major emphasis on exchange rate stability. The four have in common, many elements necessary for excellent governance. But they also display significant differences in principle and in operating procedures, and hence in their monetary policy and corporate governance frameworks. The differences can be associated with different primary goals, different constitutional environments, single-person or "committee" decision-making models, and the central banks having proceeded at different speeds to recognise the need to commit fully to optimal transparency and accountability. There is "no one size fits all" best practice governance framework for central banks, but key desirable principles should be adhered to and two specific suggestions on governance reporting and funding agreements should be considered |
| Keywords: | Central bank governance, Corporate governance, Monetary policy indepedence, Credibility, Transparency, Accountability, Australia, New Zealand, Hong Kong, Singapore, Inflation targeting, Exchange rate targeting, Currency board, |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:vuw:vuwecf:33501 |
| By: | Philipp Roderweis (Oesterreichische Nationalbank); Alexander Toplitsch (Wirtschaftsuniversität Wien) |
| Abstract: | Using data from the 2023 Austrian Household Finance and Consumption Survey this paper provides first evidence on the role of personality traits in shaping households’ inflation expectations. Extracting and validating the Big Five traits for Austria for the first time, we show personality traits explain substantial variation in inflation expectations, adding 70% to the explained variance accounted for by sociodemographics. For instance, consumers at the 90th percentile of the openness to experience trait report inflation expectations 0.66 percentage points higher than those at the 10th percentile. A large share of Austrian households update expectations adaptively from past experienced inflation rather than anchoring to the ECB’s price stability target. Personality traits predict both this anchoring behavior and households’ absolute forecast error, highlighting their relevance for Taylor-rule effectiveness. Positive policy signals, education and participation in the financial market mediates these effects. The results have direct implications for monetary policy transmission, macroeconomic modeling, and central bank communication strategies. |
| Keywords: | Inflation expectations, personality traits, Big Five, household surveys, monetary policy |
| JEL: | D84 E31 E52 E58 |
| Date: | 2026–02–10 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:272 |
| By: | Maximilian Böck; Alina Steshkova (ViennaUniversity of Economics and Business); Thomas Zörner (Oesterreichische Nationalbank (OeNB)) |
| Abstract: | This paper examines how carry trade activity affects the transmission of monetary policy in currency markets. It analyzes a set of developed and emerging market currencies against the U.S. dollar. The U.S. dollar appreciates in response to a conventional monetary policy shock but depreciates to a central bank information shock. A threshold vector autoregressive model is fitted to discriminate between different regimes of speculative carry trade activity. Higher carry trade intensity is associated with larger excess returns and higher crash risk. Across regimes, the differences in exchange rates are mild, while those in interest rates are more pronounced. A currency trading strategy created on the day of central bank announcements, which takes into consideration the joint co-movement of interest rates and stock prices, substantially outperforms the carry trade in terms of the Sharpe ratio and downside risk. |
| Keywords: | Currency markets, Carry Trade Strategy, Monetary Policy, Threshold VAR |
| JEL: | C24 C32 E52 F31 F41 |
| Date: | 2024–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:258 |
| By: | Guangling Liu; Marrium Mustapher |
| Date: | 2025–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:rza:ersawp:899 |
| By: | Nitin Nair |
| Abstract: | This paper causally shows that non-financial corporate liquidity dampens monetary policy transmission. While standard analyses of financial heterogeneity rely on exposure-based esti- mates, I additionally employ Granular Instrumental Variables (GIV) to overcome endogeneity concerns. GIVs exploit idiosyncratic shocks to the largest corporate cash holding firms to identify exogenous variation in the aggregate cash ratio. I then develop a stock-flow consistent growth model to identify the structural conditions under which corporate cash accumulation weakens transmission. These results have direct implications for the effectiveness of monetary policy and motivate the inclusion of corporate liquidity into mechanisms like the financial accelerator and investment functions. |
| Keywords: | Monetary Policy Transmission; Local Projections; Granular Instrument Variables; Corporate Finance; Stock–flow consistent model |
| JEL: | C36 E12 E22 E52 G32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2610 |
| By: | Ngunza Maniata, Kevin; Pinshi, Christian P. |
| Abstract: | This article provides a structured review of the rapidly growing literature on the implications of artificial intelligence (AI) for central banking and proposes an organizing taxonomy of the main macro-financial and institutional channels discussed in recent contributions. As a general-purpose technology, AI has the potential to influence productivity growth, price-setting behavior, inflation dynamics, and the transmission of monetary policy, while its diffusion in the financial system may introduce new sources of systemic risk through algorithmic coordination, model opacity, and cyber vulnerabilities. The article synthesizes recent contributions from international financial institutions and academic research to organize these channels within a coherent macro-financial framework. It also reviews documented applications of AI within central banks, including macroeconomic forecasting and nowcasting, supervisory technology, payments oversight, and internal information processing. Attention is given to the emerging literature on African central banks and other emerging market economies, where AI offers opportunities to alleviate data constraints but also raises challenges related to skills, infrastructure, and governance. By organizing and critically assessing existing evidence, the article clarifies why AI constitutes a structural issue for central banking and identifies key areas for future research on monetary and financial stability. |
| Keywords: | Artificial intelligence; Central banks; Monetary policy; Financial stability; Emerging markets. |
| JEL: | E31 E52 E58 G01 G28 O33 O55 |
| Date: | 2026–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128352 |
| By: | Bowden, Roger; Lorimer, Dawn |
| Abstract: | June 2007 saw the first serious attempt by the Reserve Bank of New Zealand to exercise its currency intervention powers, in an attempt to put a cap on the soaring NZ dollar. Sceptics pointed out that this was inconsistent with the comfort to the foreign exchange carry trade conveyed by signals that the official cash rate would remain high or even tightened further, and intervention attempts could even perversely drive the currency higher. The problem for monetary policy has been that in an incomplete debt market, the only real channel for the official cash rate to impact on fixed rate home mortgage rates is via the indirect feedback from offshore NZ interest rates. This means that the exchange rate becomes the vector. We argue on the basis of forward interest rates that the problem is fixing itself, and from here on will only be hindered by currency intervention or further tightening signals from the central bank. |
| Keywords: | Carry trade, Exchange Rate Intervention, NZ dollar, Uridashis, Official Cash Rate, Term structure, |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:vuw:vuwecf:33474 |
| By: | Luca Fornaro; Martin Wolf |
| Abstract: | We provide a macroeconomic framework to study monetary and fiscal policies for AI. Advances in AI expand firms’ ability to automate production. While higher automation boosts productivity and potential output, it also reduces workers’ share of income. Since workers have a high propensity to consume, advances in AI may depress aggregate demand and lead to a slump. Expansionary monetary policy can convert an AI slump into an AI boom, but in doing so it faces two challenges. In the short run, AI worsens the inflation-employment trade off faced by the central bank. In the medium run, monetary policy may be constrained by the zero lower bound, since weak demand lowers the natural rate. Employment subsidies and cuts in labor taxes can usefully complement monetary policy, by reducing firms’ cost of labor and inflation, as well as supporting workers’ income and aggregate demand. |
| Keywords: | monetary policy, automation, AI, inflation, liquidity traps, endogenous productivity, wages, artificial intelligence |
| JEL: | E32 E43 E52 O31 O42 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:upf:upfgen:1943 |
| By: | Michael Pfarrhofer (Vienna University of Economics and Business); Anna Stelzer (Oesterreichische Nationalbank) |
| Abstract: | We assess asymmetries, nonlinearities and state dependencies in dynamic responses of the euro area to monetary policy shocks. The dataset includes macroeconomic, financial, and survey-based variables measuring credit conditions and bank lending transmission channels. These data are observed at different frequencies. We propose a multivariate nonparametric mixed-frequency model, and discuss how to compute dynamic causal effects in a nonlinear context. The results suggest limited effects of expansionary policy shocks whereas contractionary shocks yield responses in line with theory. There is little variation over the business cycle and in distinct periods such as at the effective lower bound. |
| Keywords: | nonlinear structural inference, mixed frequency data, Bayesian nonparametrics, credit channel |
| JEL: | C32 E32 E52 |
| Date: | 2026–03–16 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:276 |
| By: | Valentina Cortés Ayala; Karlla Muñoz Cáceres; Daniel Pérez Klein |
| Abstract: | This article presents the results of the “Central Bank Expectations Survey, ” conducted by the Central Bank of Chile and targeted at over 30 central banks worldwide, with responses from 28 of them. The objective of the survey was to gather information on the existence of inflation expectations surveys aimed at firms or households, identifying who conducts the data collection, the methodologies used, the purposes for which they are employed, and whether the results are used as an input to monitor the anchoring of agents' expectations relative to each institution's inflation target. The study's findings reveal methodological and data treatment heterogeneity, as well as diversity in the interpretation of expectations anchoring. Additionally, a lag was identified in the use of consumer surveys compared to firm surveys. The study demonstrates the growing importance of these instruments in economic analysis and monetary policy formulation but also highlights the need for joint efforts among institutions to improve the quality and comparability of the results obtained. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1054 |
| By: | Alexander Meléndez (Banco Central de Reserva del Perú) |
| Abstract: | This paper examines the influence of monetary policy and the zero lower bound (ZLB) on government consumption and investment multipliers in Peru from 1996Q1 to 2023Q3. Using a hybrid Time-Varying Parameter Vector Autoregression with Stochastic Volatility (TVP-VAR-SV), the study estimates impulse response functions, fiscal multipliers, forecast error variance decompositions, and historical decompositions for each quarter of the sample. The results indicate that a tighter monetary policy stance is associated with lower estimated government consumption and investment multipliers, consistent with standard monetary-fiscal interaction mechanisms documented in the literature. Moreover, following the adoption of an explicit policy rate framework, estimated fiscal multipliers exhibit greater sensitivity to interest rate conditions. In this context, the COVID-19 period provides a natural episode of historically low policy rates, approximating a ZLB-type environment from an analytical perspective, under which estimated government investment multipliers increase significantly, in line with the international literature. These findings contribute to the literature on monetary–fiscal policy interactions in emerging market economies operating under inflation targeting and a managed floating exchange rate regime. |
| Keywords: | fiscal multipliers, monetary policy, zero lower bound, emerging country |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-016 |
| By: | Evelyn Muñoz-Salas (Department of Economic Research, Central Bank of Costa Rica); César Ulate Sancho (Department of Economic Research, Central Bank of Costa Rica) |
| Abstract: | This essay is part of a research agenda developed within the framework of the Consultative Group on Monetary Policy (CGMP) of the Bank for International Settlements (BIS, https://www.bis.org/publ/bppdf/bispap163.htm), which documents lessons learned by central banks in the Americas and other emerging market economies following recent episodes of heightened uncertainty. The agenda draws on survey evidence, analytical frameworks and institutional experiences to examine monetary policy decision-making and communication in highly uncertain environments. The essay describes the approach of the Central Bank of Costa Rica to incorporating uncertainty into macroeconomic analysis, risk assessment and monetary policy communication, and provides evidence on how analytical frameworks, decision-making processes and communication strategies have been adapted in an environment of elevated volatility and increased macroeconomic complexity. ***RESUMEN: Este ensayo forma parte de una agenda de investigación desarrollada en el marco del Grupo Consultivo de Política Monetaria (CGMP) del Banco de Pagos Internacionales (BIS), que documenta las lecciones aprendidas por bancos centrales de América y otras economías emergentes, tras episodios recientes de elevada incertidumbre. recopila encuestas, marcos analíticos y experiencias institucionales, con el objetivo de examinar cómo se toman decisiones de política monetaria y se en contextos de elevada incertidumbre. Se presenta el enfoque del Banco Central de Costa Rica para integrar la incertidumbre en el análisis macroeconómico, en la evaluación de riesgos y en la comunicación de la política monetaria, aportando evidencia concreta sobre la adaptación de los marcos analíticos, los procesos de decisión y las estrategias de comunicación en entornos de elevada volatilidad y complejidad macroeconómica. |
| Keywords: | Monetary Policy; Uncertainty; Monetary Policy Communication; Reaction Function; Forward Guidance; Scenario Analysis, Política monetaria, Incertidumbre, Comunicación de la política monetaria, Función de reacción, Orientación prospectiva, Análisis de escenarios |
| JEL: | E50 E58 E44 F42 G01 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:apk:epolec:2601 |
| By: | Felipe Martínez |
| Abstract: | This paper examines the heterogeneous effects of monetary policy and oil price shocks on inflation across the income distribution in Chile. We find that a contractionary monetary policy shock significantly reduces inflation for all income deciles, with a larger decline for high-income households. This differential response is mainly driven by price changes in the Transport category, which accounts for a larger share of expenditures among these households. By contrast, an oil price shock significantly increases cumulative inflation. Although the initial impact is stronger for high-income households, the effect becomes larger for low- and middle-income households as the shock propagates to other sectors, driven by a comparatively stronger price response in the Food category. Moreover, we document substantial dispersion in household-level inflation rates and show that low-income households experienced higher cumulative inflation than their high-income counterparts between 2009 and 2023. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1076 |
| By: | Farrukh Nematov (The Central Bank of Uzbekistan) |
| Abstract: | This paper develops a risk-based stress-testing framework for emerging microfinance banks using a structural vector autoregressive (SVAR) approach. The model captures the dynamic transmission of key macroeconomic shocks, including economic activity, monetary policy, and exchange-rate movements, to supervisory-relevant banking indicators, including nonperforming loans, capital adequacy, and lending behaviour. The empirical analysis focuses on identifying macro-financial transmission channels that are particularly relevant for supervisory stress testing in newly established banking segments. Impulse response functions are used to derive baseline and adverse macroeconomic scenarios and to evaluate how shocks propagate to banking-sector risk indicators over time. The results highlight the important role of external and monetary shocks in shaping asset quality and capital resilience, underscoring the relevance of macro-financial linkages for the supervision of microfinance banks. The framework proposed in this study provides a transparent and operational tool for translating macroeconomic disturbances into supervisory risk indicators and supports the implementation of risk-based supervision as the microfinance banking sector develops in Uzbekistan. |
| Keywords: | stress testing; SVAR; macro-financial linkages; microfinance banks; exchange rate shocks; capital adequacy; non-performing loans |
| JEL: | C32 E44 E58 F31 G21 G28 |
| Date: | 2026–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp12-2026 |
| By: | Marcel Barmeier (Oesterreichische Nationalbank) |
| Abstract: | As TLTRO programs provide a direct incentive to increase lending, investigating the level of prudence applied by banks in making lending decisions is of high relevance. Relying on loan-level data, I evaluate the riskiness of lending by applying estimations in a difference-in-differences setting around the cut-off of the TLTRO lending period. Investigating various risk-taking strategies, I show that participation in TLTRO operations is not associated with an increase in PDs, defaults or loans overdue. Even banks that only narrowly fulfilled the lending requirements to benefit from the lowest interest rate applied to TLTRO funding did not engage in higher risk-taking. |
| Keywords: | Monetary policy transmission, funding-for-lending, risk-taking channel, financial stability, TLTRO |
| JEL: | E44 E51 E52 E58 G21 |
| Date: | 2025–03–17 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:264 |
| By: | Zsofia Döme (Financial Market Authority Liechtenstein); Michael Sigmund (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division) |
| Abstract: | Since 2014, several countries have implemented the Basel III countercyclical capital buffer (CCyB) to enhance the banking sector’s resilience against risks arising from excessive credit growth. We analyze the CCyB decision-making process of macroprudential authorities across Europe. Our findings indicate that macroprudential authorities neither follow the Basel Committee on Banking Supervision (BCBS) guide, based on the credit-to-GDP gap, nor do they rely on the variables recommended by the European Systemic Risk Board when setting the CCyB rate. However, we demonstrate that had the BCBS CCyB guide been applied prior to the global financial crisis of 2007–2008, capital reserves within the European banking sector would have been sufficient to cover the 240 billion euros in government support used to stabilize financial institutions. Our results show that CCyB decision rates are predominantly influenced by a positive cycle-neutral CCyB approach and the funding structure of banking supervision. |
| Keywords: | Countercyclical capital buffer; Macroprudential policies; Financial cycles |
| JEL: | E32 E58 E61 G21 G28 |
| Date: | 2025–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:269 |
| By: | Carlos A. Medel |
| Abstract: | This article examines the determinants of the anchoring of inflation expectations in Chile, both within and beyond the two-year policy horizon. Despite the heightened sensitivity of expectations to actual inflation developments following the recent inflation surge, evidence from linear and non-linear time-series models, as well as binaryoutcome analyses, suggests that confidence in the Central Bank's official inflation forecasts can persist, even in the presence of exogenous influences such as global and domestic economic policy uncertainty and geopolitical tensions. The findings indicate that, notwithstanding observed deviations from the inflation target, full confidence in the monetary policy stance can be maintained. Robustness checks confirm the baseline results when incorporating the full set of responses from the widely used inflation expectations survey. Nonetheless, financial market participants tend to anchor their expectations more firmly to the target, in contrast to experts and academics, who respond more strongly to new data. Members of the corporate sector appear to lie between these two groups in their expectations behaviour. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1056 |
| By: | Bowden, Roger |
| Abstract: | Recently concerns have been raised about the effectiveness of monetary policy in controlling inflation while avoiding damage to the economy from high exchange rates. This paper examines the basis for concern and identifies the problem as a failure in the primary instrument, namely the Reserve Bank's operating cash rate, to adequately impact further along the term structure curve, which has become the more sensitive area for aggregate demand. This means that direct control over expenditure is weak, and too much leeway is left to the housing and other asset markets to sustain demand in the economy. Globalisation of credit availability and financial technology have helped to blunt the policy instrument in this respect, shifting the adjustment burden on to the exchange rate. Deft management of interest and currency expectations can help, but the problem may require closer coordination and cooperation between monetary and fiscal policy, restoring a stabilisation role for the latter. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:vuw:vuwecf:33499 |
| By: | Juan Pablo Cova; Daniela Muñoz; Camilo Poblete; Claudio Sandoval |
| Abstract: | This document provides a historical review of the statistics and context that shape the evolution of the balance sheet of the Central Bank of Chile (CBC) in its centennial year, covering the period from 1925 to 2024. The document is organized into five macro-periods defined by the main changes in its legal framework, and examines the evolution of the Bank’s assets and liabilities and their relationship with the prevailing mandate, its degree of autonomy, and the available policy tools. The analysis spans from its initial role as an issuing authority under the gold standard to its current configuration as an autonomous central bank with an inflation-targeting regime and a floating exchange rate. Throughout the document, the main economic, financial, and regulatory milestones that have influenced the structure of the CBC’s balance sheet are described, including episodes of crisis, institutional reforms, and modernization processes. It also provides a detailed analysis of the set of measures adopted between 2019 and 2024 in response to extraordinary events—the 2019 social unrest and the economic crisis resulting from the COVID-19 pandemic—examining their impact on the balance sheet, as well as the subsequent normalization process following these events. The study concludes by highlighting the institutional evolution of the Central Bank toward an autonomous entity, with a balance sheet aligned with its policy objectives and a strong capacity to respond to complex scenarios. The international comparison, including during the pandemic, reinforces this view, showing convergence with the practices of central banks in advanced economies. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchee:146 |
| By: | Martin Summer (Oesterreichische Nationalbank, Economic Studies Division) |
| Abstract: | As central banks explore issuing digital currencies for public use, a critical design challenge is how to protect the privacy of the granular data trails digital payments leave behind. While privacy is widely recognised as a goal, policy debates often frame it as a trade-off with crime prevention—limiting ambition and reinforcing legacy design choices that assume privacy and enforcement are fundamentally in compatible. This risks replicating the data practices of commercial platforms in public infrastructure. This paper charts an alternative approach. Recent advances in privacy-enhancing technologies (PETs) now enable both strong privacy protec tions and verifiable compliance through programmable, rule-based auditability. By embedding such capabilities directly into system architecture, central banks can make privacy a built-in feature of digital money—strengthening institutional trust. Building on recent advances in cryptography and strategic analysis, we offer a con ceptual framework that treats privacy and auditability as distinct design dimen sions, and distil three design principles for privacy-protective CBDCs that remain compatible with enforcement needs. We also introduce a “PET dashboard” that maps specific technologies to CBDC system layers, highlighting where collaboration across central banks, academia, and industry is most needed. |
| Keywords: | CBDC, privacy-enhancing technologies (PETs), economics of privacy |
| JEL: | E42 G28 D82 O33 |
| Date: | 2026–03–20 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:278 |
| By: | César Carrera (Banco Central de Reserva del Perú); Marko Razzo (Banco Central de Reserva del Perú) |
| Abstract: | This paper examines how labor-market informality alters the estimation and policy interpretation of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) in an emerging-market context. Using quarterly Peruvian data from 2007 to 2024, we estimate a time-varying parameter unobserved-components model with stochastic volatility following Chan, Koop, and Potter (2016). Bayesian MCMC techniques jointly recover trend inflation, the NAIRU, and the Phillips-curve slope under two alternative measures of slack: the standard unemployment rate and an extended measure incorporating informal workers. The conventional specification implies a rising NAIRU and persistent inflationary pressure. In contrast, the informality-adjusted NAIRU declines, and the Phillips-curve slope flattens, indicating that informal employment absorbs slack and dampens inflationary dynamics. These results suggest that ignoring informality overstates inflation risks and the power of monetary policy, with significant implications for inflation-targeting frameworks in economies with large informal sectors. |
| Keywords: | NAIRU, Informal employment, Phillips curve, Monetary policy, Inflation dynamics, Emerging markets, State-space model, Bayesian estimation |
| JEL: | C11 C32 E24 E31 E32 E52 O17 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-001 |
| By: | Nicolás Leiva; Carlos A. Medel |
| Abstract: | This study presents a system for forecasting cash demand in Chile, both for total currency in circulation and by denomination. The framework considers three families of models: time-series specifications; cointegrated VAR models with macroeconomic fundamentals grounded in a money demand framework (activity, inflation, and interest rates); and stationary conjunctural models based on expectations of those fundamentals. For each family, the mean, the median, and the best-performing model are evaluated, allowing for a comparison of predictive performance and the identification of more accurate methodologies, while controlling for parametric and functional uncertainty through forecast combinations. Forecasting results at one-, two-, and three-year horizons show that predictive accuracy differs across model families and denominations, and that forecast combinations outperform individual models in several cases. In particular, time-series models exhibit a robust and relatively superior performance, especially in the case of coins, while cointegrated VAR models perform well for several banknote denominations, albeit with a loss of accuracy during periods of higher volatility. Conjunctural models, while incorporating additional information, do not systematically outperform time-series specifications and display, on average, a similar level of performance. The system constitutes an operational input for the Central Bank of Chile and is potentially applicable to other central banks, as it supports treasury management and the planning of printing, minting, and logistics. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1077 |
| By: | Greitens, Jan |
| Abstract: | This paper critically examines the relationship between Georg Friedrich Knapp's "State Theory of Money" and today's Neo-Chartalism, often associated with Modern Monetary Theory (MMT). Several contributions have questioned whether the Neo-Chartalists are right to claim Knapp as their predecessor. However, these analyses do not pay sufficient attention to the historical context in which Knapp wrote. This includes contemporary debates and the monetary history of his time. The Neo-Chartalists' reception of Knapp's ideas was almost exclusively through the 1924 translation of the "State Theory of Money". Problematically, this translation has many shortcomings, in particular a narrow focus on the legislative state. But Knapp's focus was on country-specific examples of currencies, in particular the 1892 currency reform in Austria-Hungary. There are significant differences between Knapp's published and unpublished writings. Archival findings reveal Knapp's reflections on inflation, which align him with the Real Bills Doctrine and a proto-Fiscal Theory of the Price Level. He argued that monetary state financing should be used only as a last resort. Contrary to MMT's advocacy for state-funded expenditures, Knapp supported a balanced budget, expressing concern over the impact of monetary inflation on exchange rates. Apart from fairly general principles such as the nominality of money, the similarities between Knapp and the Neo-Chartalists diminish as one critically examines Knapp's writings. Therefore, the claim that MMT is based on Knapp should be rejected. |
| Keywords: | Neo-Chartalism, Georg Friedrich Knapp, Modern Monetary Theory (MMT), Real Bills Doctrine, Fiscal Theory of the Price Level |
| JEL: | B31 E42 B50 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:340197 |