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on Central Banking |
| By: | Nicolò Bandera (Bank of England and Centre for Macroeconomics); Kristina Bluwstein (Bank of England); Michael Kumhof (Centre for Macroeconomics); Mauricio Salgado-Moreno (Bank of England); Jacob Stevens (Bank of England) |
| Abstract: | Non-bank financial institutions (NBFIs) account for an increasingly large share of credit provision and play a central role in quantitative easing (QE). We develop a DSGE model with banks, NBFIs and a central bank interacting through wholesale deposits, bonds and reserve markets to study how monetary transmission changes as the size of NBFIs expands. We estimate the model on UK data to evaluate key parameters in the financial sector. We find that the transmission of conventional interest rate policy to output and inflation is essentially unaffected by the size of the NBFI sector. Conversely, the transmission of QE is strongly altered by the size of the NBFI sector and the source of its expansion. When the NBFI sector expands due to firm funding preferences, this amplifies QE. When it expands due to an increased cost of obtaining bank finance, transmission is largely unchanged. The results underscore that monetary policymakers retain rate control regardless of financial structure, but that the effectiveness of balance sheet policies depends on the composition and behaviour of the non-bank sector. |
| Keywords: | Monetary policy tools;QE;reserves;NBFIs;DSGE estimation |
| JEL: | C13 E51 E52 E58 G23 |
| Date: | 2026–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023907 |
| By: | Christoph E. Boehm; Husang Kim; T. Niklas Kroner |
| Abstract: | We propose a novel procedure to identify a main monetary policy (MMP) shock as the linear combination of monetary policy surprises that best explains macroeconomic fluctuations. Implemented with two standard high-frequency yield-curve surprises and the Boehm and Kroner (2024) non-yield shock, the MMP shock explains nontrivial business-cycle variation over the last 30 years, in contrast with prior findings. Moreover, the MMP shock differs markedly from a textbook monetary policy shock: a contractionary shock leaves interest rates mostly unchanged but persistently lowers headline prices and appreciates the dollar, while temporarily tightening financial conditions and depressing industrial production. |
| Keywords: | federal reserve, monetary policy, stock market, exchange rates, asset prices, risk premia, information effects, high-frequency identification |
| JEL: | E43 E44 E52 E58 F31 G10 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13117 |
| By: | Ani Asoyan (Central Bank of Armenia); Jared Laxton (AI-powered Learning) |
| Abstract: | Since the pandemic, the global economic environment has been characterized by elevated uncertainty driven by overlapping shocks. Under these circumstances, the CBA adopted the Prudent Risk Management Approach to Price Stability (PRMAPS) in 2024, designed to better incorporate uncertainty and nonlinearities while supporting monetary policymaking as a risk-management exercise. PRMAPS adds several improvements to the previous framework, including policy navigation in uncertain environments, the growing importance of tail-risk events, and the role of central bank credibility in influencing expectations and the effectiveness of monetary policy. To support this framework, the paper introduces the Endogenous Credibility (EndoCred) model as a workhorse tool for scenario-based policy analysis. Building on the canonical Quarterly Projection Model (QPM), EndoCred extends the traditional framework by incorporating endogenous monetary policy credibility, nonlinear inflation dynamics, and richer transmission mechanisms, including the role of long-term interest rates as well as credibility-driven risk premium and dollarization effects relevant for small open economies. By allowing credibility to evolve in response to policy performance, the model endogenizes its impact on inflation expectations and policy transmission. These features make the model particularly suitable for economies exposed to volatile external conditions. The framework provides a practical analytical foundation for implementing risk-based monetary policymaking and improving the assessment of policy trade-offs under uncertainty. |
| Keywords: | Central Banking, Credibility, Nonlinearities, Small Open Economy, Monetary Policy, Macroeconomic models |
| JEL: | E52 E58 E37 F41 C53 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2026-03 |
| By: | Charles de Beauffort (National Bank of Belgium, Economics and Research Department); Ansgar Rannenberg (National Bank of Belgium, Economics and Research Department) |
| Abstract: | We develop a two-asset HANK model to examine the effects of various unconventional monetary policies, including Quantitative Easing, Operation Twist, Reserve Management Purchases and Liquidity Facilities. Our analysis focuses on the macrofinancial implications of these policies, as well as their impact on wealth and income inequality through shifts in portfolio composition between liquid and illiquid assets. The model features a financial sector with mutual funds and banks that invest in short- and long-term bonds, reserves, and credit to firms. Calibrating the model to the US economy, we find that Operation Twist has weaker effects than standard QE interventions, although all strategies are qualitatively similar in their impact on output, inflation, and the composition of liquid and illiquid assets. Quantitative Easing and Liquidity Facilities are more effective at the zero lower bound, and are the two policies that raise wealth inequality most. |
| Keywords: | Unconventional monetary policy, Quantitative easing, Operation Twist, Heterogeneous agents, Zero lower bound, Wealth and income inequality. |
| JEL: | E52 E58 E44 E12 D31 G23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202610-504 |
| By: | Eric T. Swanson; Wang Renxuan; Yanbin Wu |
| Abstract: | When the Federal Reserve raises interest rates, standard macroeconomic models and VARs predict that output, employment, and inflation should fall over the next several quarters. However, monthly-frequency professional macroeconomic forecast revisions are sometimes positively correlated with Fed interest rate changes, leading to a debate about what could explain these puzzling correlations. We bring to bear new high-frequency data on this question from macroeconomic event contracts traded on Kalshi, a CFTC-licensed, U.S.-based event trading exchange and prediction market. These high-frequency event contracts allow us to isolate and estimate the effects of monetary policy and other announcements on Kalshi market-implied macroeconomic expectations. Our results are consistent with standard transmission channels from monetary policy to the macroeconomy, with little or no role for a “Fed Information Effect”. |
| JEL: | E43 E52 E58 G14 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35968 |
| By: | Michal Kobielarz (KULeuven); Christian Probsting (KULeuven) |
| Abstract: | Standard monetary policy in currency unions targets aggregate averages, ignoring crosssectional business cycle dispersion. Incorporating downward nominal wage rigidity into a multi-country New Keynesian framework, we analyze optimal monetary policy when asymmetric shocks generate regional labor market slack. Optimal policy pursues a capped “grease-the-wheels” strategy, balancing the benefits of eroding rigid real wages against price dispersion costs. Crucially, for a given level of aggregate unemployment, optimal policy is strictly less inflationary under cross-sectional shocks than under aggregate shocks. This occurs because inflating the union imposes costly price dispersion across all member states while easing slack in only a subset, and because terms-of-trade leakage further diminishes inflation’s effectiveness in constrained regions. Consequently, optimal monetary policy must look beyond union-wide averages and condition its stance on the share of constrained member states. |
| Keywords: | Optimal monetary policy, Currency unions, Downward nominal wage rigidity, Asymmetric shocks, Grease-the-wheels |
| JEL: | E24 E52 F41 F45 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202610-499 |
| By: | Schnattinger, Philip; Srivastava, Prachi |
| Abstract: | We study the drivers of household inflation uncertainty using microdata from the Federal Reserve Bank of New Yorks Survey of Consumer Expectations from 2013 to 2025. Exploiting rounding behavior in sectoral price forecasts, we construct household-level measures of inflation uncertainty for food, gasoline, rent, medical care, and education. Combining these measures with BLS micro-price dispersion, we document a transmission channel from sectoral price dispersion to household sector-specific uncertainty and, ultimately, to aggregate inflation uncertainty. Food-price uncertainty explains the largest share of aggregate uncertainty, while gasoline uncertainty becomes increasingly important after 2020. Using identified monetary policy shocks, we show that contractionary policy lowers sector-specific inflation uncertainty and compresses price-change dispersion almost exclusively in food and gasoline. We interpret these findings through a noisy-information two- sector New Keynesian model in which price dispersion affects the precision of households price signals. With its transmission parameters estimated on these empirical responses, the model implies that optimal policy differs across moments: central banks should look through flexible food and gasoline price-level fluctuations, but lean against uncertainty originating in these sectors, while placing greater weight on price-level stabilization in stickier sectors. |
| Keywords: | Inflation Uncertainty; Household Expectations; Monetary Policy; Food Prices |
| Date: | 2026–11–04 |
| URL: | https://d.repec.org/n?u=RePEc:awi:wpaper:0772 |
| By: | Kordzo Sedegah (Pretoria, South Africa); Nicholas M. Odhiambo (Pretoria, South Africa); Simplice A. Asongu (Pretoria, South Africa) |
| Abstract: | This study reviews the extant methodologies in research focusing on the nexus between external shocks and monetary policy effectiveness. It is premised on the argument that the adopted methodology to examining the empirical validity and plausibility of estimated models is fundamental in monetary policy effectiveness in the light of external shocks. Hence, the choice of the methodological approach translates the effectiveness of corresponding monetary policy rules and institutions. It is established in the review that the extant literature converges on a set of methodological underpinnings that are relevant in assessing the effects of external shocks on monetary policy effectiveness. Such convergence is documented in this study by assessing country-specific and panel-oriented studies focusing on non-WAEMU (West African Economic and Monetary Union) countries, especially in terms of information criteria motivating the choice of extant methodologies. |
| Keywords: | Methodology; External Shocks; Monetary Policy |
| JEL: | C10 C50 F15 F36 F42 O55 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:agd:wpaper:26/038 |
| By: | Felix Ward (Erasmus University Rotterdam); Florian van Genderen (Erasmus University Rotterdam); Yao Chen (Erasmus University Rotterdam) |
| Abstract: | Governments press central banks for lower interest rates on the premise that easy money wins elections. We test this premise for 385 elections in 18 countries, 1900–2020, using exogenous interest rate changes. We find no evidence that monetary easing helps incumbents. At the point estimate, a typical easing leaves the incumbent’s vote share unchanged; the one-sided 95 percent confidence bound on the gain is 0.90 percentage points. Of 104 incumbent defeats, such an easing would have reversed none at the point estimate and 15 at the bound, all in close races. Easy money offers incumbents no reliable electoral return. |
| JEL: | D72 E52 E58 F42 |
| Date: | 2026–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260085 |
| By: | David Baqaee; Ariel Burstein; Joao Guerreiro |
| Abstract: | We study optimal monetary policy in a general heterogeneous-agent New Keynesian (HANK) economy. Instead of maximizing a social welfare function, the policymaker maximizes the joint surplus of all households, without taking a stance on how that surplus should be distributed. This is the policy that maximizes resources left over if winners from reform were to compensate losers. We derive the approximate optimal policy using linear-quadratic methods. The quadratic objective function nests the standard New Keynesian loss function and adds losses from incomplete markets and heterogeneous labor wedges. We show that optimal policy is the sum of time-dependent and state-contingent components. When labor wedges are homogeneous, monetary policy cannot improve household insurance: the time-dependent component is zero, and optimal policy coincides with the representative-agent New Keynesian (RANK) benchmark. Departures from RANK arise from heterogeneous labor wedges. In that case, the time-dependent component temporarily alleviates incomplete-market distortions but vanishes over time. The state-contingent component solves a dual-mandate problem, as in RANK, but with a higher weight on output-gap stabilization relative to inflation stabilization. In a calibrated model, heterogeneous labor wedges raise this weight by about 37 percent. We also find that a dual mandate with this higher weight achieves almost all of the aggregate-surplus gains from the full optimal policy and requires no compensatory transfers between winners and losers. |
| JEL: | E3 E52 E61 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35967 |
| By: | Artur Doshchyn (University of Bristol Business School); Martin Ellison (University of Oxford, CEPR); Rigas Oikonomou (UCLouvain, University of Surrey) |
| Abstract: | The maturity of government debt affects inflation when bond-market arbitrage is limited. We develop a tractable model in which risk-averse arbitrageurs absorb duration risk, generating a term premium that rises with the supply of long-term debt. Lengthening maturity therefore raises the return on government debt relative to the policy rate. We show analytically that the resulting inflation dynamics depend on the monetary–fiscal regime. Under monetary dominance, inflation falls at every horizon despite monetary easing. Under fiscal dominance, inflation falls on impact but later turns positive, leaving the price level permanently higher. Lower bond prices require the initial deflation to maintain fiscal solvency, while higher borrowing costs eventually require inflation. In a calibrated New Keynesian model, a persistent lengthening of debt duration by one month raises the term premium by 17 basis points, lowers inflation by almost 0.2 percentage points, and contracts output under both regimes. Inflation takes around five years to turn positive under fiscal dominance. |
| Keywords: | Maturity structure; limits to arbitrage; preferred habitat; fiscal theory of the price level; monetary–fiscal interactions; quantitative easing |
| JEL: | E31 E43 E44 E63 G12 H63 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202610-498 |
| By: | Prettner, Klaus; Stojanovikj, Martin |
| Abstract: | This paper offers a distinct standpoint on the growth effects of monetary policy in the presence of a spirit of capitalism, that is, an independent gratification conveyed through asset accumulation. Using a monetary Schumpeterian growth model with an endogenous market structure, we generalize the main insights of previous literature. In particular, we show that a higher nominal interest rate can have a negative effect on steady-state economic growth, challenging the result of long-run neutrality of monetary policy. The direction of the effect is governed not only by the presence of the spirit of capitalism as such, but by where liquidity is constrained. When the cash-in-advance constraint binds on the financing of market entry rather than on paying for consumption, a higher nominal interest rate raises the cost of creating startups and depresses long-run economic growth. We further show that welfare on the balanced growth path is decreasing in the nominal interest rate, so the Friedman rule is optimal in such an economic setting. A structural calibration to the United States economy, disciplining liquidity exposures with independent evidence on startup finance and transaction-money holdings instead of targeting growth responses to monetary policy, places the economy comfortably in the region in which a higher nominal interest rate lowers long- run growth. |
| Keywords: | Spirit of capitalism; Monetary policy; Economic growth; Endogenous market structure |
| Date: | 2026–11 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wus005:92323069 |
| By: | Domenico Giannone; Giorgio Primiceri |
| Abstract: | Post-covid inflation was predominantly driven by unexpectedly strong demand forces---both in the United States and in the Euro Area. We establish this result using a sequence of structural VARs with progressively richer specifications, interpret it through the lens of standard AD-AS analysis and an estimated DSGE model, and provide independent support for this conclusion using survey forecasts and real-time data. These demand forces reflected a combination of surprisingly robust pent-up demand following the pandemic restrictions, stronger-than-expected expansionary fiscal policies, and an unusually accommodative monetary stance. Together, they mitigated the recessionary effects of adverse supply shocks and supported the recovery, albeit at the cost of higher inflation. The economic intuition is simple: When a central bank responds forcefully to inflationary pressures, as the Fed and the ECB have done in recent decades, the aggregate demand curve is relatively flat, so supply disturbances move real activity much more than inflation. A large inflation surge, therefore, requires a shift or rotation of the aggregate demand curve. |
| JEL: | E31 E52 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35980 |
| By: | Michela Baretti; Umberto Collodel; Jacopo Zacch\'e |
| Abstract: | We provide the first systematic evidence on whether financial markets price political pressure on the Federal Reserve as a signal of future monetary policy. Using approximately four decades of Reuters newswire articles from 1988 to 2025, classified by an open-weight large language model ensemble into dovish and hawkish pressure, we estimate the daily response of interest rate expectations across the term structure, the US dollar, inflation compensation, and market volatility. Dovish pressure lowers near-term rate expectations by roughly one basis point per pressure event---equivalent to a four-percent increase in the implied probability of a rate cut at the next FOMC meeting---with the effect decaying monotonically and vanishing beyond the three-month horizon. Hawkish pressure has no detectable effect. Furthermore, excluding the Trump presidencies does not weaken the estimate, ruling out the possibility that the result is confined to an idiosyncratic recent episode. The response is accompanied by dollar depreciation, with stable inflation compensation and market volatility. We interpret the pattern as markets pricing anticipated monetary accommodation, rather than a credibility tax on the nominal anchor. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.32300 |
| By: | Gabriel de Macedo Santos |
| Abstract: | This paper develops a monthly framework for classifying Brazilian monetary policy that distinguishes the level of monetary restraint, changes in that stance, and statistical regimes associated with Selic adjustments. The framework combines a seven-state deterministic classifier, an empirical Markov chain, a Gaussian hidden Markov model, and Markov-switching regressions. Project outputs provide 145 classified observations from May 2014 to May 2026, with a partial final month. Under the implemented nominal neutral rate convention, restrictive states account for 88.3% of observations. A four-state HMM achieves a lower BIC, whereas the three-state model records a lower temporal validation loss. Switching regressions select three Selic adjustment regimes after solutions with degenerate variances are excluded. An additional sensitivity exercise reduces the restrictive share to 51.0% when the neutral benchmark is interpreted as real, demonstrating how strongly the results depend on benchmark measurement. The contribution is an auditable comparative application for monetary monitoring. The findings describe historical patterns conditional on the data and specifications; they do not establish predictive superiority or causal identification. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.33291 |
| By: | Antipa, Pamfili; Rieder, Kilian |
| Abstract: | What are the consequences of making central bank deposits accessible to actors beyond the banking sector? We collect novel micro data on deposit accounts historically held with the Bank of England by indi viduals and firms other than banks to study their role in the financial panic of 1866. We document that the use of deposit accounts at the cen tral bank soared during the crisis, while commercial banks permanently lost funding. The expansion in the number of active accounts was fu eled by individuals, but the intensive margin increase in balances came almost entirely from firms. Recourse to central bank deposits was het erogeneous and persisted well beyond the panic, reflecting easy access, low opportunity costs, and positive network externalities. At the same time, retail borrowers seeking liquidity support from the Bank during the crisis preferred receiving loan proceeds in the form of cash rather than deposits. |
| Keywords: | Bank of England;CBDC;central bank retail deposits;crisis of 1866;financial panic;financial stability;flight to safety;Overend & Gurney |
| JEL: | E58 G11 G20 N13 N20 |
| Date: | 2026–11–04 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140944 |
| By: | Atanas Pekanov (WIFO); Serguei Kaniovski; Elisabeth Hofbauer (WIFO) |
| Abstract: | We extend Auclert's (2019) sufficient-statistics decomposition of the consumption response to monetary policy to an open economy in which households hold foreign assets and liabilities. Each foreign channel then splits into a level component, driven by the aggregate foreign position, and a redistribution component, driven by how foreign exposures are distributed across households. Using Austrian household survey data, we find that redistribution raises the consumption response to a rate cut by 18 percent relative to a redistribution-free benchmark, mostly through households with variable rate mortgages. Income-GDP elasticities from quantile regressions decline steeply with income, but because marginal propensities to consume (MPC) are only weakly related to income, the earnings-heterogeneity channel adds about 3 percent with a profile based on personal gross earnings and 0.4 and 0.5 percent with household-income profiles. In an illustrative calibration, the foreign channels add about 13 percent, mostly as a level effect from the revaluation of net foreign assets that a representative household would also experience. Relative to an open-economy redistribution-free benchmark, heterogeneity amplifies the response by 17.5 percent. |
| Keywords: | MPC, Household balance sheets, Monetary policy transmission, Consumption dynamics, Open economy, Net foreign assets |
| Date: | 2026–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:wfo:wpaper:y:2026:i:736 |
| By: | Alessandro Piergallini |
| Abstract: | The existing literature on monetary-fiscal policy interactions emphasizes that an active monetary/passive fiscal policy regime causes global indeterminacy of equilibrium, supporting liquidity traps and self-fulfilling hyperinflations as possible equilibrium outcomes. In a nonlinear New Keynesian model with costly price adjustment, I show that an analogous critique, with different global macroeconomic dynamics, extends to a passive monetary/active fiscal policy regime whenever the fiscal response to government liabilities is below the steady-state real interest rate but positive. In this case, although the equilibrium is locally unique according to the Blanchard-Kahn conditions, there exist multiple inflation paths originating around the saddle path that converge asymptotically to the central bank's target rate while satisfying the private sector's transversality condition. I demonstrate that global determinacy instead requires a pure regime of fiscal dominance, with primary surpluses set independently of the real value of government liabilities. Only then are all nonlinear off-saddle trajectories ruled out as equilibria, for they violate the private sector's transversality condition or its no-Ponzi game condition, or imply an infeasible allocation. The transversality condition coincides with the government debt valuation equation, in which primary surpluses are discounted at the endogenous real interest rate, and pins down a unique initial jump in inflation onto the saddle path, leading to the unique steady state. The results imply that, when globally determinate, inflation is a fiscal phenomenon, shaped by the central bank's interest-rate policy. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.32963 |
| By: | Sarah Herwald (Paderborn University) |
| Abstract: | At present, the European Union (EU) is considering a regime in which small, non-complex institutions (SNCIs) would no longer be subject to the risk-based Tier 1 capital ratio requirement. Under such a regime, the risk-insensitive leverage ratio (LR) would remain the sole regulatory capital requirement. Employing unconsolidated balance sheet and income statement data on 4, 105 savings, cooperative, and commercial banks operating in the EU-15 from 2015 to 2024, this study empirically investigates whether the LR is able to ensure the risk-bearing capacity and stability of small banks when employed as a sole prudential measure. Our results suggest that, under the current dual regulatory framework, a higher LR is associated with stronger risk-taking, whereas the Tier 1 capital ratio appears to restrain it. For small banks, a stability-increasing effect induced by the LR appears to outweigh this additional risk-taking. However, the outweighing effect is only observed for small banks exhibiting an LR of at least 6%. Moreover, the effect is evident for small cooperative and commercial banks but not for small savings banks. Against this background, our findings contribute to the ongoing policy debate on proportionality in European banking regulation. They offer important implications for both the calibration of a standalone LR and the eligibility criteria for such a framework. |
| Keywords: | Banking, Capital regulation, Stability, Risk-taking, Leverage Ratio |
| JEL: | G21 G28 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:186 |
| By: | Daniel R. Sanches |
| Abstract: | The total money supply of a modern economy is a combination of publicly and privately issued monies. This paper develops a theory of inflation dynamics and optimal policy for a system in which public fiat money and collateral-backed private liabilities jointly circulate. Private money finances investment projects, and its supply depends on the issuer’s net worth and collateral constraints. The resulting feedback mechanism can generate persistent oscillations and stable banking cycles without aggregate shocks. For some public money growth rates, a dual-money steady state coexists with a boundary regime in which private money displaces fiat money. Policy affects liquidity and investment. When the collateral constraint is slack, the Friedman rule attains the first best; when it binds, a public money growth rate above the Friedman rule can be optimal. The Ramsey problem considers the transitional dynamics in the net worth of banks. |
| Keywords: | Private money; public money; inflation dynamics; collateral constraints; banking cycles; Friedman rule; optimal monetary policy |
| JEL: | E42 E51 E52 E31 C62 |
| Date: | 2026–11–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:104010 |
| By: | Luca Papi (Universita' Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali, MoFiR) |
| Abstract: | A century after the Italian banking reforms of 1926, this article reassesses them as a decisive but incomplete stage in the making of the Banca d'Italia as a modern central bank. Drawing on legislation, the Bank's annual reports, published correspondence, and archive-based scholarship, it distinguishes three processes that advanced at different speeds. Monetary centralization was immediate: the May 1926 decree ended the issuing rights of the Banco di Napoli and Banco di Sicilia more than four years before their scheduled expiry and gave the Banca d?Italia control of interbank clearing. Legal centralization converted long-standing functional dominance into monopoly through a "managed" process, negotiated in Naples and contested in Palermo. Informational centralization (registration, reporting, authorization, and inspection) was gradual and uneven, and the largest mixed banks escaped early on-site scrutiny. Issue unification also created the consolidated balance sheet on which the parity and reserve rule of December 1927 were imposed, without conferring monetary-policy autonomy. Two propositions are advanced as hypotheses for archival testing: that external financial negotiations precipitated the timing of unification, and that the Bank's own credit exposures shaped supervisory forbearance. |
| Keywords: | Central banking; note issue; bank supervision; Banca d'Italia. |
| JEL: | E58 N14 N24 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wpaper:511 |
| By: | Tiza Mimun, Anisa; Dalloul, Ami |
| Abstract: | This paper studies the European Central Bank’s (ECB) perception of non-bank financial intermediaries (NBFIs) and how this perception is publicly communicated. We construct a perception index based on ECB speeches over the period 1998–2025. Sentiment in references to non-banks is classified by a large language model that we fine-tune on our own hand-labeled dataset constructed for this purpose. The resulting index reveals a predominantly negative and declining perception over time, particularly since the Global Financial Crisis. Negative sentiment is primarily associated with concerns related to financial stability and regulatory needs, whereas positive sentiment reflects the role of non-banks in fostering financial innovation and supporting market functioning. The index is made publicly available for future research. JEL Classification: E44, E52, C80 |
| Keywords: | ECB speeches, large language models, machine learning, non-bank financial intermediation, sentiment analysis |
| Date: | 2026–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263304 |
| By: | Martin Feldkircher; Bernd Prostmaier; Paul Hofmarcher; Pierre Siklos |
| Abstract: | Social scientists routinely convert text into covariates like topic shares, ideal points or sentiment scores, and insert them into statistical models of interest. This two-step design is convenient, but it is rarely guided by theory: little tells the analyst which text-based covariates to construct or include. Each approach embodies contestable measurement choices, and competing operationalizations of the same construct can support different conclusions, so a single research question gives rise to a menu of competing regression models. Which text constructed covariates belong in a model, and in what functional form, is thus a problem of model uncertainty. We propose spike-and-slab generalized additive models (SSGAMs), which jointly select covariates and determine whether their effects are linear or nonlinear. We illustrate the approach with the communication of a powerful unelected institution, asking which of 45 competing text indicators from 224 monthly European Central Bank press conferences, spanning late 2002 to mid-2025, track professional inflation expectations. A sparse set is selected; widely used alternatives, and every tested nonlinear effect, carry no incremental information. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.19720 |
| By: | Fernando Arce (Inter-American Development Bank); Yaakov Levin (Boston College); Monica Tran-Xuan (IMF) |
| Abstract: | Emerging markets with greater inequality tend to have fewer capital controls. We propose a novel dynamic real-exchange-rate distributional externality as a potential explanation. Our model features nonhomothetic preferences, collateral- constrained high-income borrowers, and low-income hand-to-mouth households. Borrowing generates intertemporal redistribution through the real exchange rate. A planner can improve redistribution by manipulating the terms of trade in favor of the poor. We decompose the optimal borrowing tax into Fisherian and distribu- tional components. Incorporating inequality can substantially lower the average optimal macroprudential tax, even generating a subsidy. Our mechanism remains quantitatively significant in a production economy as long as wages are flexible. |
| Keywords: | Inequality; Macroprudential policy; Nonhomothetic preferences; Sudden Stops |
| JEL: | E32 F34 F41 H23 |
| Date: | 2026–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1118 |
| By: | Jef Boeckx (National Bank of Belgium, Economics and Research Department); Leonardo Iania (UCLouvain, CORE, KULeuven); Joris Wauters (National Bank of Belgium, Economics and Research Department) |
| Abstract: | We develop a decomposition of debt-to-GDP dynamics that distinguishes infla tion compensation, real interest rates, and compensation for bearing interest-rate and sovereign risk. Using security-level data from the Eurosystem’s Securities Hold ings Statistics, we apply it to the five largest euro-area sovereign issuers. We find that low ex ante real interest rates relative to real GDP growth substantially re duced debt ratios, whereas short-term inflation surprises contributed only modestly. Compensation for interest-rate and sovereign risk was economically important and varied markedly across countries and over time. News about future inflation gen erated sizeable return surprises, driving a wedge between realised returns and the compensation for interest-rate risk priced ex ante. Finally, central-bank bond hold ings transferred interest-rate and sovereign-risk exposure from private investors to the consolidated public sector. This transfer initially reduced consolidated debt ratios, but subsequently raised them as policy rates and bond yields increased. |
| Keywords: | Public debt dynamics, sovereign bond returns and fiscal- monetary interactions |
| JEL: | E43 E62 H63 G12 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202610-497 |
| By: | Christian Schmieder; Renzo Corrias; Oliver Wuensch |
| Abstract: | Who will perform banking’s core functions a decade from now, and how will risks and profitability evolve? Our framework structures expert judgement rather than forecasts. It examines how technology, regulation and consumer preferences could reshape banking models, focusing on profitability, liquidity and solvency. We classify 9, 000 banks across more than 150 jurisdictions into three traditional business models and three emerging technology-based models. Across four scenarios, traditional banks retain roughly three-quarters of banking-system assets, while emerging technology-based models capture 3–27%, compared with about 3.5% under the trend baseline at the ten-year horizon. However, the technology-driven business models could contest roughly 40% of the revenue pool, increasing earnings volatility as fee and platform revenues replace net interest income. Digitalisation may also accelerate deposit outflows, increase reliance on data driven risk assessment and weaken customer relationships. Regulation will influence the extent to which intermediation shifts between traditional banks and emerging bank models as well as non-bank providers. Solvency will depend on sustainable profitability, operational resilience and ecosystem dependencies. The framework identifies supervisory priorities that apply across all scenarios, alongside priorities and indicators specific to each scenario. |
| Keywords: | bank business models, digital banking, platform finance, financial stability, scenario analysis, sensitivity analysis |
| JEL: | G21 G28 G32 O33 |
| Date: | 2026–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1391 |