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on Central Banking |
| By: | Petr Mach (The University of Finance and Administration) |
| Abstract: | Reserve requirements belong to the portfolio of instruments of many central banks. Although many central banks do not use reserve requirements actively as an instrument of monetary policy, the changes in the reserve requirements affect the volume of deposits, of the money stock and thus of the price level. In this contribution, the effective deposit multiplier that takes into account both the optimal reserve ratio of commercial banks as well as the minimum reserve requirements is formulated and the iteration process is illustrated in which the volume of deposits converges to an equilibrium. It can be argued that once minimum reserves exist, they can be used as an efficient instrument of monetary policy by its gradual decrease leading to a smooth desirable increase in the money stock aimed at maintaining price stability. |
| Keywords: | Reserve requirements. Deposit multiplier. The money stock. Monetary policy. |
| JEL: | E59 E51 E50 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15817033 |
| By: | Vaishali Garga; Rajeswari Sengupta |
| Abstract: | Backward-looking Taylor rules, widely used to characterize central bank behavior, can misrepresent policy when central banks base decisions on forecasts. This mischaracterization affects the assessment of credibility, defined as alignment between a central bank’s words and actions. We examine this issue in the context of India’s adoption of flexible inflation targeting (FIT) in 2015. Text analysis shows that the Reserve Bank of India’s (RBI) communication became more inflation-focused and forward-looking after FIT adoption. Yet backward-looking Taylor rules show no robust increase in responsiveness to realized inflation, suggesting lack of credibility. This misalignment disappears when we analyze policy-relevant information through a forward-looking lens. Using the RBI’s real-time inflation and output forecasts, we find significant responsiveness to expected inflation post-FIT. Hybrid reaction functions show that post-FIT policy responds to both expected and realized inflation. The analogous evolution in communication and conduct points to the RBI’s credibility. More broadly, our results demonstrate that hybrid reaction functions may better characterize emerging-market central bank behavior than purely backward- or forward-looking specifications. |
| Keywords: | commitment; communication; credibility; emerging markets; forecasts; forward-looking; inflation targeting; monetary policy; Reserve Bank of India; Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:103582 |
| By: | Stefano Gnocchi; Matteo Cacciatore |
| Abstract: | Rising macroeconomic volatility and structural transformations—such as deglobalization, climate risks, and rapid AI adoption—are reshaping inflation dynamics and the trade-offs faced by monetary policy. Drawing on existing literature, internal modelling, and new experimental evidence, we assess the conditions under which policymakers may accommodate supply-driven inflation. We find that the current framework retains sufficient flexibility to balance inflation and output stabilization, provided inflation expectations remain well anchored, and policy responses appropriately reflect the size and persistence of supply shocks, as well as prevailing economic conditions. |
| Keywords: | Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission; Structural challenges; Climate change; International trade, finance and competitiveness |
| JEL: | E E3 E31 E32 E5 E52 E58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-34 |
| By: | Oliver de Groot; Gustavo Mellior; |
| Abstract: | We study how heterogeneity in bank balance sheets and bank-customer relationships shapes the pass-through of interest rates to deposit rates and affects monetary policy. Using US branch-level deposit rates, we document two new stylized facts about the heterogeneous response of deposit rates to financial and monetary shocks. First, banks with the largest deposit bases reduce their relative deposit rates after both financial uncertainty shocks and contractionary monetary policy shocks. Second, highly leveraged banks respond differently across shocks: they lower their relative deposit rates after financial uncertainty shocks, but raise them after contractionary monetary policy shocks. To explain these facts, we develop a continuous-time general equilibrium heterogeneous-bank model in which banks face an occasionally binding leverage constraint, have market power in deposit markets, and accumulate customer capital through deep habits in household demand for banking services. The model is consistent with the cross-sectional distribution of banks and qualitatively reproduces the empirical impulse responses. It shows that customer capital amplifies the aggregate effects of financial and monetary shocks. |
| Keywords: | Balance sheet channel, Interest rate margin, Financial frictions, Customer capital |
| JEL: | C63 E44 E52 G21 |
| URL: | https://d.repec.org/n?u=RePEc:liv:livedp:202601 |
| By: | Pereira, Ana; Tereanu, Eugen; Minnella, Enrico |
| Abstract: | This paper develops an agent-based framework (DeTail) to assess the state-contingent tail effects of releasable macroprudential capital buffers. The model features heterogeneous firms, households, and banks, and a single central bank, all interacting in a fully integrated, stock-flow consistent framework which generates endogenous credit cycles. Using this approach, we evaluate how time-varying capital requirements affect the time-varying distributions of credit growth, firm and household default rates, and bank losses along the credit cycle. Policy experiments show that releasing capital buffers during economic downturns preserves credit supply by improving risky (lower-tail) credit outcomes, reduces both household and firm defaults, and supports macro-financial resilience by limiting tail bank losses. At the same time, capital buffer accumulation during upturns imposes minimal costs and does not significantly constrain lending. These findings support the active use of releasable buffers to mitigate systemic risk and smooth credit cycles without weakening the banking system. JEL Classification: C63, E44, E58, G28 |
| Keywords: | agent-based modelling, and state-dependent effects, credit cycles, macro-financial linkages, macroprudential policy |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263257 |
| By: | Etienne Farvaque (University of Lille, CNRS, IESEG School of Management, Lille; CIRANO, Montréal); Alexander Mihailov (Department of Economics, University of Reading); Piotr Stanek (Department of International Economics, Krakow University of Economics) |
| Abstract: | This paper examines how monetary policy rules operate under conditions of institutional reform, external constraints, and war in Ukraine as a case of prospective European monetary integration. Using monthly data from 2009 to 2026, we estimate Taylor-type reaction functions for the National Bank of Ukraine, allowing the setting of the policy rate to respond to inflation gaps, industrial-production activity gaps, exchange-rate pressure, interest-rate smoothing, and regime-specific wartime interactions. We then compute deviations between actual and model-implied policy rates and test whether these deviations are associated with institutional shifts, geopolitical shocks, conflict intensity, and social disruption. The results show that Ukrainian monetary policy remained partly rule-like even during periods of extreme stress. Interest-rate smoothing is strong, exchange-rate pressure enters the effective reaction function, and the largest deviations cluster around moments of nonlinear constraints: the 2015 currency crisis, the initial full-scale-invasion policy freeze, and the June 2022 credibility-restoring interest rate hike. These findings suggest that wartime central banking is not best understood as a suspension of rules. Rather, war generates constraint-contingent rule adaptation, in which credibility is preserved through temporary modifications of the instruments, coefficients, and state variables governing policy. The paper contributes to debates on rules versus discretion by showing how monetary-policy credibility can coexist with resilience-oriented adjustment in an emerging market economy exposed to geopolitical rupture. It also speaks to Ukraine’s European trajectory: eventual monetary integration will depend not only on nominal convergence, but on the demonstrated capacity to preserve rule-based credibility under extreme political and security shocks. |
| Keywords: | Taylor-type rules, Ukraine, exchange-rate stabilization, inflation targeting, geopolitical risk, wartime monetary policy, National Bank of Ukraine |
| JEL: | E52 E58 F31 F41 O52 P34 |
| Date: | 2026–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2026-08 |
| By: | Lehmus, Markku; Pitkäranta, Juho |
| Abstract: | Central bank independence has recently come under increasing political pressure. In this article, we examine measures of central bank independence to better understand how de jure independence is associated with the de facto independence of central banks. We then use the Lohmann (1992) framework to analyse the main risks facing the ECB and other Western central banks in the short to medium term. We argue that the expansion of central banks' secondary mandates poses a key risk to de facto central bank independence. These risks are further amplified by the growing potential for fiscal dominance, which may constrain central banks' ability to pursue price stability in line with their primary mandates. |
| Keywords: | central bank, commitment, mandate, inflation |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofecr:342409 |
| By: | Tatjana Dahlhaus; Alexander Ueberfeldt; Malik Shukayev |
| Abstract: | Natural disasters pose complex challenges for monetary policy in resource-rich small open economies. Using an open-economy dynamic stochastic general equilibrium model calibrated to Canada, we embed stochastic disaster shocks affecting capital, productivity, and the commodity sector. Drawing on detailed historical data, we quantify disaster-specific transmission channels and show that most disasters act as supply shocks, reducing output and modestly raising inflation. The magnitude and persistence of these effects depend on disaster type, sectoral exposure, and spillovers through global trade and terms-of-trade channels. The framework provides a forward-looking assessment of climate-related risks and their implications for monetary policy. |
| Keywords: | Models and tools; Economic models; Monetary policy; Monetary policy framework and transmission; Structural challenges; Climate change |
| JEL: | C C1 C11 C3 C32 D D6 D63 E E5 E52 Q Q5 Q54 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-28 |
| By: | Arnoud Stevens (National Bank of Belgium, Economics and Research Department.); Pavel Tretiakov (National Bank of Belgium, Economics and Research Department) |
| Abstract: | We study the evolution of public perceptions of monetary policy and show that Bayesian learning provides a structural account of their time variation. Using a medium-scale DSGE model estimated on U.S. data, we first document substantial and persistent time variation in agents’ perceived monetary policy reaction coefficients. We then show that a Bayesian learning framework, in which agents gradually infer policy conduct under incomplete information, provides a compelling explanation for these dynamics and delivers a markedly better empirical fit than rational expectations. Learning about the inflation reaction coefficient plays a central role. Finally, we demonstrate that evolving perceptions generate state-dependent transmission: weaker perceived inflation responsiveness amplifies and prolongs inflationary responses to shocks, while stronger perceived responsiveness stabilizes inflation, with implications for real activity that depend on the type of shock. Monetary policy actions themselves feed back into beliefs, implying that credibility evolves endogenously and acts as an additional propagation channel. |
| Keywords: | DSGE model, Monetary policy, Bayesian learning, Bayesian estimation. |
| JEL: | C11 D83 D84 E52 E58 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202608-494 |
| By: | Tatjana Dahlhaus (Bank of Canada); Malik Shukayev (University of Alberta); Alexander Ueberfeldt (Bank of Canada) |
| Abstract: | Natural disasters pose complex challenges for monetary policy in resource-rich small open economies. Using an open-economy dynamic stochastic general equilibrium model calibrated to Canada, we embed stochastic disaster shocks affecting capital, productivity, and the commodity sector. Drawing on detailed historical data, we quantify disaster-specific transmission channels and show that most disasters act as supply shocks, reducing output and modestly raising inflation. The magnitude and persistence of these effects depend on disaster type, sectoral exposure, and spillovers through global trade and terms-of-trade channels. The framework provides a forward-looking assessment of climate-related risks and their implications for monetary policy. |
| Keywords: | Natural Disasters; Climate Shocks; Monetary Policy Trade-offs; DSGE Model; Terms-of-trade Effects |
| JEL: | E52 Q54 F41 E12 E31 C68 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:023232 |
| By: | Joshua Brault; Maryam Haghighi; Jing Yang |
| Abstract: | We study the monetary policy response to AI adoption in a two-sector New Keynesian model with a task-based microfoundation, sticky prices, and downward nominal wage rigidity. We distinguish between two forms of AI-driven technological change: augmentation, which raises the productivity of labor within existing tasks, and automation, which displaces labor by reallocating tasks from workers to machines, contracting the set of tasks requiring human input. In the short run, both shocks lower labor demand on net, and with downward nominal wage rigidity, unemployment emerges unless monetary policy provides accommodation. But because monetary policy operates through aggregate demand and cannot target sectors differentially, accommodation that reduces unemployment in the AI-affected sector raises inflationary pressure in the unaffected one, opening a sectoral wedge between the policy rates required to clear the two labor markets. Since, for output-equivalent shocks, automation generates a larger decline in labor demand, the associated wedge is wider and the Phillips curve lies above and to the right of the curve for augmentation---restoring full employment comes at a greater cost of inflation. In addition to the nature of the shock, the aggregate inflationary consequences depend on the breadth of AI adoption across the economy. Under augmentation, as the AI-affected sector grows, its falling sectoral price increasingly offsets the inflation generated elsewhere by monetary accommodation---making aggregate inflation an unreliable signal of the underlying trade-off. For automation both sectoral prices rise and no such offset exists. In our framework, sector-specific AI adoption poses an unambiguous short-run labor market stabilization problem, while its implications for aggregate inflation depend on the nature of technological change, the breadth of adoption, and the response of monetary policy. |
| Keywords: | Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission; Structural challenges; Digitalization and productivity |
| JEL: | E E2 E24 E3 E31 E32 E5 E52 J J2 J23 O O3 O33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-27 |
| By: | Bremer, Björn (Central European University); Chwieroth, Jeffrey; Mancosu, Anita |
| Abstract: | Climate change presents unelected central banks with an acute dilemma: acting on climate change risks charges of mandate overreach, while failing to act risks charges of institutional failure. Yet public opinion on green central banking remains un- studied. We address this gap with two survey experiments in Germany and the Netherlands. A conjoint experiment shows that adding environmental condition- ality to corporate bond purchases significantly increases support for quantitative easing, suggesting that greening can rehabilitate contested unconventional policies. A framing experiment reveals that institutional objections about price stability and democratic legitimacy erode support more than distributive objections about job losses or asset devaluation, inverting expectations from the climate politics literature. Respondents who trust the central bank most are paradoxically most responsive to arguments for and against it. Public trust in delegated institutions is thus not a blank check; it is a license granted on terms, policed most attentively by the institution’s own supporters. |
| Date: | 2026–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:jmru2_v1 |
| By: | Karlo Kotarac (Valcon); Davor Kunovac (Croatian National Bank, University of Rijeka, Faculty of Economics and Business); Ozana Nadoveza (University of Zagreb, Faculty of Economics and Business) |
| Abstract: | We estimate a Structural Dynamic Factor Model for 165 NUTS 2 regions across 11 euro area countries over 2000–2023, decomposing regional GDP growth into common euro area, countryspecific, and regional components. This is the first structural shock decomposition at the regional level for the euro area, suitable to evaluate optimum currency area (OCA) properties along both shock-similarity and monetary policy transmission dimensions. Four findings emerge. First, the relative importance of common euro area shocks has increased steadily at both the country and union levels, indicating improving OCA properties, while country-specific components - most pronounced in peripheral economies - have declined, pointing to a gradual erosion of the border effect. Second, aggregate business cycle synchronization conceals substantial within-country heterogeneity, implying that the costs of relinquishing monetary policy autonomy are distributed unevenly across regions and countries. Third, euro area regional dynamics are driven predominantly by endogenous OCA convergence rather than specialization-induced divergence; regions with atypical sectoral compositions do face greater exposure to idiosyncratic shocks, but this reflects structural or geographic distinctiveness rather than integration-driven specialization. Fourth, monetary policy shocks generate smaller and more homogeneous regional output responses than demand or supply shocks, and transmission heterogeneity - while modestly increasing over the sample - reflects within-country regional divergence rather than cross-country fragmentation. Taken together, OCA properties at the regional and country levels are broadly comparable, and heterogeneous monetary transmission does not constitute a major threat to policy effectiveness. |
| Keywords: | Regional divergence, Regional heterogeneity, Monetary policy, SDFM |
| JEL: | E32 E52 F45 |
| Date: | 2026–07–23 |
| URL: | https://d.repec.org/n?u=RePEc:hnb:wpaper:76 |
| By: | Sara Casella; Jesús Fernández-Villaverde; Stephen Hansen; Ryohei Oishi; Minchul Shin |
| Abstract: | Standard macroeconomic data do not cleanly separate the systematic and nonsystematic components of monetary policy. We show that incorporating unstructured text data into the structural estimation of a DSGE model can sharpen this distinction. We augment a standard state-space model with a non-core measurement block that links structural shocks to time series derived from FOMC transcripts, using a spike-and-slab prior to let the data select which series are informative. In a medium-scale New Keynesian model for the U.S., incorporating text improves predictive performance and materially alters structural inference: the new model estimates a lower response of the policy rate to inflation, higher price stickiness and lower price indexation, implying a flatter and less backward-looking price Phillips curve. |
| Keywords: | unstructured data; text as data; DSGE models; spike-and-slab priors; monetary policy; Phillips curve; FOMC transcripts |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:103591 |
| By: | Cole, Stephen J. (Department of Economics Marquette University); (Department of Economics Marquette University) |
| Abstract: | This paper uses an adaptive learning framework to study FOMC forecasts from the Summary of Economic Projections (SEP) dataset. FOMC expectations are modeled as the sum of two components: (1) an endogenous learning part and (2) a sentiment part capturing waves of optimism and/or pessimism. The results include key policy takeaways. FOMC forecasts are responsive to incoming macroeconomic information, consistent with adaptive learning, while sentiment is persistent, correlated across GDP growth and inflation forecasts, and becomes quantitatively more important during and around recessions. FOMC participants also rely more on their endogenous/learning model to form expectations, but sentiment plays a larger role during and around recessions. Finally, the model-implied sentiment measure is positively and significantly correlated with an external measure of FOMC sentiment and remains robust across alternative forecasting specifications. |
| Keywords: | summary of economic projections, FOMC, constant-gain learning, sentiment shocks, waves of optimism and pessimism, evolving beliefs, monetary policy |
| JEL: | C52 D84 E50 E52 E58 E60 E70 E71 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:mrq:wpaper:2026-03 |
| By: | Ampudia, Miguel; Schobert, Franziska; von Landesberger, Julian; da Silva, Pedro Formoso; Hesse, Simon; Pütz, Alexander; Wohlert, Alexander |
| Abstract: | Elevated repo rate specialness for German government bonds in 2016–17, and particularly in 2022-23, has often been linked to the absorption of these securities by the ECB’s asset purchase programmes. We provide the first evidence on how the debt management office mitigates these effects by jointly analyzing daily secondary-market trades and repo operations of the Deutsche Finanzagentur (DFA) alongside Eurosystem transactions in Bunds from 2015–2024. We find two points: first, that Eurosystem purchases depress repo rates about four times more than DFA purchases (0.4 bp vs 0.1 bp per 1% of free float), while DFA repo lending raises repo rates by roughly 0.2 bp per 1% of outstanding volume. Our evidence suggests that DFA interventions helped mitigate scarcity-induced specialness. Second, with elevated hedge fund demand for bonds, the overall alleviating impact was constrained by segmentation in the repo market and by the design of the facilities themselves, which aimed to prevent collateral shortages and fails-to-deliver rather than to provide price support. JEL Classification: E43, E52, E58, G12, G21, H63 |
| Keywords: | asset purchases, collateral scarcity, debt management, repo market, repo specialness |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263259 |
| By: | Iñaki Aldasoro; Leonardo Gambacorta; Enisse Kharroubi; Matthias Rottner |
| Abstract: | The AI boom is driving a large, increasingly debt-financed investment surge and boosting trade and equity markets, generating sizeable terms-of-trade and wealth effects that differ across countries. The productivity payoff from AI, though potentially large, remains uncertain and uneven, across both sectors and countries. By simultaneously affecting demand and supply, AI blurs cyclical signals, complicating central banks' assessment of underlying economic conditions and monetary policy calibration. |
| Date: | 2026–07–28 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:130 |
| By: | Giovanni Di Bartolomeo |
| Abstract: | We study a currency union facing a common structural transformation. In a stylized two-country framework with reduced-form import leakage, incomplete nominal adjustment, and sectoral capacity constraints, the same union-wide shift can move national reallocation frontiers differently. Countries may then disagree over the preferred common monetary stance even though the primitive disturbance is common. Locally, the common-instrument cost is proportional to the squared distance between national preferred stances, weighted by country size and frontier curvature. Fiscal capacity operates through two distinct margins: transfers compensate countries along given frontiers, whereas procurement and capacity investment can move those frontiers and reduce the underlying monetary disagreement. |
| Keywords: | optimum currency areas, currency union, monetary conflict, fiscal capacity, structural transformation, sectoral reallocation, policy costs |
| JEL: | E52 E58 F33 F45 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ter:wpaper:00207 |
| By: | Beyer, Andreas; Kund, Arndt-Gerrit |
| Abstract: | Banks use their internal models to estimate capital requirements in a risk-sensitive way, subject to a set of rules laid down in banking regulation. However, these models are not flawless as the usage of models suffers from imperfections, such as oversimplifications or wrong assumptions. As a result, risks may be underestimated. This is particularly troublesome, where models are used to assess risks to banks’ solvency. In this paper we address an important gap in the literature with regard to such model risk. We find that a small set of high severity deficiencies in models is responsible for the majority of the counterfactual RWA burden imposed by supervisory capital add-ons. We trace the underlying non-compliances to a subset of CRR articles that mostly govern the handling of IRB-relevant data by banks. Our results help improve the supervision of IRB-banks by proposing more efficient use of scarce supervisory resources. JEL Classification: G21, G28, G29 |
| Keywords: | banking supervision, internal models, margin of conservatism, microprudential regulation, model risk |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263268 |
| By: | Santosh Anagol; Shing-Yi Wang |
| Abstract: | We harmonize survey data on interest rates paid by approximately 15, 000 small and medium enterprises across 125 firm surveys and 285, 000 households across 83 household surveys spanning developing and rich countries to study the relationship between monetary policy rates and borrowing costs faced by SMEs and households. Using within-country variation in policy rates over time, we find that pass-through to firm and household borrowing rates is stronger in richer countries than in poorer ones. |
| JEL: | E52 O57 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35439 |
| By: | Zuzana Gric; Simona Malovana; Dominika Ehrenbergerova |
| Abstract: | Borrower-based mortgage limits are designed to make lending safer, but they may not affect all households in the same way. We study how tighter loan-to-value and debt-service-to-income limits are associated with access to new mortgages across the income distribution. We combine household-level data from the Household Finance and Consumption Survey with hand-collected information on policy actions in 17 European countries over 2008-2019. We find that middle-income households are disproportionately affected. Following tightening, they are approximately 2 percentage points less likely than households in the top income decile to obtain a first mortgage on their main residence. The pattern is driven mainly by loan-to-value tightening. Among middle-income households, the differential effect is stronger for younger households, which typically have less accumulated savings and housing equity. |
| Keywords: | Borrower-based measures, distributional effects, household borrowing, macroprudential policy, household finance and consumption survey |
| JEL: | E58 D31 G21 G28 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2026/10 |
| By: | Sebastián Katz (Central Bank of Argentina) |
| Abstract: | Among the diverse impacts of digital technologies, one of the most significant concerns their repercussions on the evolution of payment systems. Consequently, the methods by which value is stored, recorded, and transferred, as well as the manner in which transactions are conducted, areundergoing accelerated transformation. Several recent developments merit particular attention. On one hand, numerous economies have witnessed an intensification of pre-existing trends toward the reduction of cash usage in transactional activities. On the other hand, the emergence of the crypto ecosystem presents substantial opportunities alongside significant challenges and risks.A pertinent question in this regard is whether these shifts in the payment landscape—which involve the rise of new actors, markets, and potential institutional arrangements—entail more profound changes in the operational logic of the monetary and credit systems. This is the central inquiry of the present study, which examines how these developments interact with the established monetary and financial system, the policy responses and initiatives of regulatory authorities (e.g., CBDC, Fast Payment Systems, and the impetus toward tokenization), and the eventual consequences for the morphology of money and credit as they are currently understood. |
| Keywords: | banks, digitalization, money, payment systems |
| JEL: | E02 E42 E51 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bcr:wpaper:2026119 |
| By: | Brunella Bruno (Bocconi University); Francesco Corielli (Bocconi University); Imma Marino (University of Naples Federico II and CSEF); Giacomo Nocera (Audencia Business School) |
| Abstract: | We examine when a regulatory measure of bank asset risk, the ratio of risk-weighted assets to total assets (RWATA), aligns with a market-based measure of risk, namely the volatility of bank assets estimated using option-pricing techniques. We argue that the informational content of RWATA is conditional on the framework used to generate risk weights. Using a unique hand-collected dataset on the adoption and scope of internal ratings-based (IRB) models, we show that RWATA is unrelated to market-based asset risk on average, but becomes significantly associated with asset volatility among banks that use internal models. The relationship strengthens with the intensity of IRB adoption, particularly when advanced internal models are applied to corporate exposures, and persists among relatively weakly capitalized banks and during periods of financial stress. |
| Keywords: | Bank risk, Asset volatility, Capital regulation, Internal ratings. |
| JEL: | G20 G21 G28 G32 |
| Date: | 2026–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:791 |