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on Central Banking |
| By: | Zuzana Gric; Jan Janku; Simona Malovana |
| Abstract: | We show that divergences between Czech and euro-area policy rates reshape the currency composition of corporate lending. Using loan-level data from AnaCredit for 2019–2024, we document that a widening PRIBOR–EURIBOR spread triggers a sharp reallocation toward euro-denominated credit, concentrated in new loans. The effect is asymmetric: strong when the differential widens, but only partially reversible when it narrows. It is driven mainly by large, less-capitalised banks and by larger, lower-leverage firms, while exchange-rate movements play virtually no role. These findings imply that persistent positive differentials weaken domestic monetary transmission and increase foreign-currency exposures, underscoring the need for macroprudential attention in small open economies with rising euroisation. |
| Keywords: | AnaCredit, bank lending, corporate credit, credit channel, euroization, monetary policy |
| JEL: | E51 E52 E58 G21 G28 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2026/07 |
| By: | Lorenzo Menna (Banco de México); Martín Tobal (Banco de México); Alejandro Werner (Georgetown Americas Institute) |
| Abstract: | We provide the first micro-level evidence on the mechanisms through which monetary policy transmits in an emerging market. Using high-frequency identification and a dataset covering over 10 million firm-month bank-loan observations, we move beyond only documenting policy effects to identify the transmission itself in Mexico. Credit falls earlier, more sharply, and persistently for young firms, SMEs, and firms with recent delinquencies, consistent with a financial-frictions channel. Credit to durable-goods producers also declines more, consistent with an interest-rate channel. However, unlike the pattern documented for advanced economies, the financial-frictions channel dominates. Further evidence suggests that this dominance extends to employment growth. |
| Keywords: | monetary policy, financial frictions, emerging markets; credit growth; bank capitalization |
| JEL: | E52 E51 E44 O54 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:394 |
| By: | Francesco Grigoli; Damiano Sandri; Yuriy Gorodnichenko; Olivier Coibion |
| Abstract: | This paper studies how households perceive the transmission of monetary policy and how these perceptions affect their decisions. Using a large-scale survey of over 25, 000 U.S. households combined with randomized information treatments, we measure how households expect changes in the federal funds rate to affect economic conditions and their own behavior. Households report that higher interest rates lead them to reduce their spending, particularly on durable goods. However, the mechanisms underlying this response differ markedly from those in standard macroeconomic models. Respondents expect monetary tightening to raise borrowing costs and inflation. In turn, consumption function estimates identified using information treatments reveal that households respond to higher expected inflation by reducing consumption. Household inflation expectations also emerge as a central driver of portfolio reallocations following monetary policy changes. |
| JEL: | E3 E4 E5 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35127 |
| By: | Hanjo Odendaal; Monique Reid; Pierre Siklos |
| Abstract: | Inflation expectations surveys are an essential tool for monetary policy, especially within an inflation-targeting policy framework. |
| Date: | 2026–05–06 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11103 |
| By: | Arrigoni, Simone; Ferrari Minesso, Massimo |
| Abstract: | This paper provides novel evidence on how income inequality shapes the heterogeneity of US monetary policy spillovers to GDP across foreign economies. Using state-dependent local projections and exploiting variation in disposable income inequality across 87 countries over 1966-2020, we show that household heterogeneity influences how foreign GDP responds to a US monetary tightening. GDP contracts up to one and a half times more when inequality is above average. However, while higher inequality amplifies negative spillovers in advanced economies, it mitigates them in emerging markets. To rationalise this finding, we use a three-country open economy Two-Agent New Keynesian (TANK) model, which suggests this divergence is driven by differences in participation in international financial markets. Households in emerging markets face greater barriers to international investment, limiting their ability to re-balance portfolios towards higher-return foreign bonds after the shock. JEL Classification: D31, E21, E52, E58, F42 |
| Keywords: | income inequality, local projections, spillovers, state-dependence, US monetary policy |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263221 |
| By: | Volha Audzei; Michal Franta |
| Abstract: | The paper examines international spillovers of euro area (EA) monetary policy to the real economy of an advanced small open economy with a high degree of credit euroization and close trade links with the EA. We focus on Czechia, as it has a similar degree of trade and financial integration with the EA as the rest of the non-EA countries in the region. Based on firm-level data and high-frequency identified monetary policy shocks, we assess the channels of EA monetary policy spillovers. More precisely, we estimate the responses of investment by Czech firms to EA monetary policy shocks using panel local projections and compare the responses for various groups of firms. The results suggest the presence of the trade channel of spillover transmission. Some evidence is found for the balance sheet channel. The foreign currency borrowing cost channel is detected after 2014, suggesting that the high degree of credit euroization in Czechia has altered the transmission of spillovers of EA monetary policy. Importantly, the overall spillovers from the EA have weakened significantly since 2014. |
| Keywords: | Credit euroization, Investment of firms, Small open economy, Transmission channels |
| JEL: | C23 D22 E52 F41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2026/05 |
| By: | Libertucci, Massimo; Dzezulskis, Skirmantas; McPhilemy, Samuel |
| Abstract: | This paper describes and evaluates the European Union (EU) banking sector capital framework, focusing on how the international standards set by the Basel Committee on Banking Supervision have been implemented within the EU. Using granular supervisory data for significant institutions under the Single Supervisory Mechanism (SSM), we quantify the capital impact of EU-specific regulatory choices, supervisory measures and macroprudential policies. We show that most EU capital requirements stem from Basel standards, which encompass both prescriptive “Pillar 1” components and elements that are expected to be designed and calibrated at the jurisdictional level. The paper describes the evolution of capital ratios and requirements since the inception of the SSM and discusses the relationship between changes in capital levels and indicators of banking sector performance. To provide a comparative perspective, a model-based counterfactual exercise compares capital requirements of EU banks with those that would arise if EU banks were subject to the main prudential regulations that currently apply in the United States, which vary depending on the size of the bank. The results show that for the largest EU banks, the current US rules would entail stricter requirements, whereas mid-sized EU banks would be subject to less stringent requirements. Our findings show that EU capital requirements are broadly comparable to those in other jurisdictions and are largely in line with international standards. When assessing broader indicators of bank performance, we highlight the importance of considering not only private costs and benefits, but also intended effects and broader societal objectives. [...] JEL Classification: G21, G28, F36 |
| Keywords: | bank capital regulation, banking supervision, Basel III, European Union banking sector, supervisory policy |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026387 |
| By: | Martin Bruns; Helmut Lütkepohl; James McNeil |
| Abstract: | Several recent studies consider a set of proxies to identify different monetary policy shocks for different regions in the world. We show that the way the proxies are used to identify the monetary policy shocks may lead to correlated shocks and dubious structural analysis and we demonstrate how to overcome the problem of correlated shocks. We illustrate that, if correlated shocks are used in applied studies, key statistics of interest such as impulse responses and forecast error variance decompositions can be severely distorted and we consider benchmark studies on monetary policy in the euro area (EA), the US and the UK to demonstrate the problems. |
| Keywords: | Structural vector autoregression, proxy VAR, GMM, correlated structural shocks |
| JEL: | C32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2163 |
| By: | Khawaja, Jawad; Raza, Hamid |
| Abstract: | While mainstream macroeconomics has long treated distributional issues as secondary, often dismissing them as outside the purview of monetary policy, the post-Keynesian tradition emphasizes that income distribution, financial positions, and class dynamics are central to understanding macroeconomic outcomes. Drawing on this rich theoretical framework, this paper empirically investigates the distributive and sectoral consequences of monetary policy, an important but often neglected area within post-Keynesian empirical research. Using data for three Nordic countries (Denmark, Sweden, and Finland), we provide empirical evidence on how contractionary monetary policy shocks propagate through functional income shares, compress private demand, and reconfigure financial balances of the institutional sectors. Our paper bridges the gap between post-Keynesian theoretical insights and the empirical rigour essential in policy development. The results show that interest rate changes are not only non-neutral but fundamentally distributive, systematically redistributing income and reshaping balance sheets. |
| Keywords: | Monetary Policy, Income Distribution, Sectoral Balances, Financialization |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cessdp:340842 |
| By: | Wataru Hagio (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: wataru.hagio@boj.or.jp)); Daisuke Ikeda (Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp)); Koji Takahashi (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouji.takahashi-2@boj.or.jp)); Keisuke Yoshida (Research and Statistics Department, Bank of Japan (E-mail: keisuke.yoshida@boj.or.jp)) |
| Abstract: | Prolonged low interest rates can be stimulative while leading agents to believe rates will remain lower for longer than central banks intend. When rates rise, however, agents may perceive this as surprise tightening, causing economic contraction. To articulate this unintended effect, this paper develops a New Keynesian model with learning and forward guidance. It finds that prolonged low rates lower agents' perceived nominal neutral rate, and the correction of their belief during rate hikes precipitates economic downturns. Low credibility about forward guidance amplifies this impact. Empirical support is provided by estimating a perceived monetary policy rule using professional forecast data. |
| Keywords: | Low-for-long interest rates, learning, neutral nominal rates, forward guidance, imperfect credibility |
| JEL: | E52 E71 E32 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:26-e-02 |
| By: | Giancarlo Corsetti; Keith Kuester; Gernot J. Müller; Sebastian Schmidt; Ben Schumann; Gernot Müller |
| Abstract: | We confront the notion that flexible exchange rates insulate countries from external disturbances with new evidence for the euro area (EA) and 20 of its neighbors. Using high-frequency data, we first establish that countries with flexible exchange rates ("floats") let their currencies depreciate in response to EA monetary policy shocks, while "pegs" raise interest rates. Yet at business cycle frequency, these depreciations do not translate into insulation: floats contract just as much as pegs—not only in response to monetary policy shocks but also to other shocks originating in the EA. This result appears puzzling in light of received wisdom, but we show that it can be rationalized within a state-of-the-art HANK model and flesh out the underlying transmission channels. |
| Keywords: | exchange-rate regime, Insulation, external shock, exchange-rate disconnect, monetary policy |
| JEL: | F42 E31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12635 |
| By: | David-Jan Jansen (Vrije Universiteit Amsterdam) |
| Keywords: | financial stability, financial literacy, education, central bank communication |
| JEL: | A20 G01 |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250070 |
| By: | Tomas Sestorad; Jan Vlcek; Karel Musil |
| Abstract: | This paper examines how alternative definitions of the output gap influence the dynamics and monetary policy prescriptions of New Keynesian DSGE models used in inflation-targeting regimes. Using the Czech economy as an example of a small open economy, we compare one exogenous and seven endogenous output-gap measures, including flexible equilibrium concepts, statistical filters, and structural approaches. The results show that endogenous identification is essential for ensuring internal consistency among business cycle fluctuations and other macroeconomic variables, while only structurally identified gaps fully exploit the advantages of the DSGE framework. Technology-augmented output emerges as the most operationally robust and conceptually coherent measure for real-side policy analysis. The findings further highlight that the policy implications of output-gap stabilization are determined by the chosen measure, which should align with the policymaker's preferences. Because these mechanisms are structural rather than country-specific, the conclusions extend to other small open economies with similar characteristics. |
| Keywords: | Business cycle, DSGE model, flexible equilibrium, HP filter, monetary policy, output gap, real marginal costs, technological growth |
| JEL: | D58 E32 F41 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2026/03 |
| By: | Taisuke Nakata (The University of Tokyo); Yoshiyuki Nakazono (Yokohama City University); Kento Tango (Economic and Social Research Institute, Cabinet Office) |
| Abstract: | We analyze how household inflation expectations respond to macroeconomic news using a daily survey in Japan in 2023-24, around the transition from a low- to high-inflation regime. The responses of inflation expectations vary widely across news events. responses of inflation expectations to news are sometimes correlated with surprise components of the news implied by private-sector inflation forecasts or financial markets. Long-run inflation expectations are no less responsive to inflation data releases—but are less responsive to monetary policy announcements—than short-run inflation expectations. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf624 |
| By: | Christine Desan (Harvard Law School) |
| Abstract: | The surge of executive power unleashed by the Supreme Court has reached the Federal Reserve, provoking a crisis that the justices seem suddenly anxious to avoid. But the drama is long overdue. The central bank has a constitutional stature that poses a direct challenge to unitary executive theory, the principle animating the Court's recent case law. Congress established the Federal Reserve System to carry out a critical legislative prerogative, making the sovereign money supply. Congress used an institutional form, national banking, innovated precisely to secure sovereign money-making from executive (originally monarchical) interference. Congress in turn assigned a vital responsibility, the capacity to make money out of debt in the people's name, to the Fed. The constitutional conclusion follows: Congress's prerogative over money-making clearly secures the Fed's independence from presidential interference. That conclusion is lost in current scholarship that treats the Fed as fundamentally like other independent agencies. The Court has assumed, similarly, that the unitary executive presides over a relatively homogeneous regulatory field. The case of the Fed exposes the separation of powers as a more complicated project. Legislatures built democratic sovereignty by struggling for prerogatives that, like money-making, protected their lawmaking authority. The prerogatives claimed by Congress inform the work of each agency and official, including within the executive branch. The Court dismantles democratic sovereignty when it denies the reach of those prerogatives. |
| Keywords: | Federal Reserve; central bank independence; money creation; democratic sovereignty; legislative prerogative; Congress; unitary executive theory; separation of powers; constitutional political economy; monetary architecture |
| JEL: | E42 E58 K23 P16 |
| Date: | 2026–03–29 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp247 |
| By: | Daisuke Ikeda (Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp)); Hidehiko Matsumoto (Associate Professor, Faculty of Economics, Keio University (E-mail: hmatsu.hm@gmail.com)) |
| Abstract: | Banking crises are infrequent macroeconomic events with the potential to inflict significant and lasting harm on the real economy. Drawing from the empirical literature, this paper highlights five facts on banking crises from a macroeconomic perspective. It conducts a targeted review of the literature on financial frictions and banking crises in a dynamic general equilibrium framework, and introduces a dynamic general equilibrium model of bank runs. The model's ability to account for the five facts is examined, alongside its implications for policy. Finally, the paper explores the challenges of integrating macroprudential policy into the model. |
| Keywords: | Banking crises, macroeconomic models, macroprudential policy |
| JEL: | E32 E44 G21 G28 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:25-e-17 |
| By: | Ran Huang |
| Abstract: | Large monetary expansions do not necessarily generate consumer-price inflation, challenging scalar views of "money supply." Here we propose that monetary function is phase-dependent: newly issued base money can occupy distinct functional compartments with different coupling to prices. Starting from an accounting framework that separates reproduction, consumption, and reservation, we operationalize a measurable order parameter, phi=RB/MB, the reserve-share fraction of the monetary base. Using Japan's monthly record (1971-2026), we identify a compositional phase transition after 2013 from a cash-dominated to a reserve-dominated regime, quantitatively captured by a Landau-type order-parameter transition. Phase-conditional local projections using unexpected (residual) base-growth shocks show that, in Japan, unexpected base expansions are absorbed primarily as reserve balances-phi rises significantly-rather than entering the consumption-goods transaction sector; consequently, the core CPI inflation response is strongly attenuated and can even reverse sign. This demonstrates that increases in monetary supply do not necessarily cause inflation: the key is the "phase" in which incremental money accumulates (reservoir versus circulation). We further define function-specific efficiencies for reservation absorption and CPI transmission and provide an operational distinction between circulation-driven and reservation-dominant inflation regimes. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.24035 |
| By: | Manu García; Carlos Garriga |
| Abstract: | We analyze over 30 million home purchase mortgage applications from 2018-2024 using publicly available Home Mortgage Disclosure Act (HMDA) data to study the determinants of mortgage denial. We establish three primary findings. First, credit access is highly sensitive to monetary policy; the 2022-2023 tightening drove aggregate denial rates from 12.2% to 15.7% via the debt-to-income (DTI) channel. Second, we identify a critical nonlinearity in underwriting: While the 43% qualified mortgage (QM) threshold---below which lenders receive legal safe harbor from ability-to-repay claims---is non-binding in practice, denial rates jump by 15-17 percentage points at the 50% DTI mark, marking the functional market boundary. Third, substantial racial disparities persist; controlling for lender fixed effects and financials, Black applicants are 7.8 percentage points more likely to be denied than White applicants. Observable characteristics explain at most 41% of this gap. These results demonstrate how monetary tightening interacts with structural inequalities to disproportionately restrict credit access for vulnerable populations at the extensive margin. |
| Keywords: | mortgage lending; credit access; housing finance; homeownership; underwriting; monetary policy |
| JEL: | G21 R21 R31 D14 E52 |
| Date: | 2026–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:103090 |
| By: | Mr. Andre O Santos |
| Abstract: | This paper describes the 2023 euro area consultation top-down stress test that focused on the resilience of 91 systemically important banks’ capital buffers as of end-2022 to macro baseline and adverse scenarios over the period 2023-25. As a result, the paper is an illustration of a top-down stress test framework with an application to euro are banks. The 2023 euro area consultation top-down stress test included unbiased dynamic panel data estimators based on Lancaster (2002) for projecting profitability components and information on Pillar 3 disclosures (exposure-at-default, probability of default, loss-given-default, expected losses). The paper also expands the 2023 euro area consultation top-down stress test by considering risk-weight functions with Skew-Normal and Transmuted-Normal probability distributions for the idiosyncratic and systemic risk factors. The results of the stress test with both distributions indicate that most euro area banks were resilient under the 2023 euro area consultation baseline and adverse scenarios as of July 2023 (publication of the Staff report). |
| Keywords: | Bank capital; Bank profitability; Capital adequacy requirements; Corporate risk; ECB analysis; ECB-Banking Supervision; Europe; Nonperforming loans; Stress test; Working capital; Transmuted- Normal distribution |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/089 |
| By: | Almekinders, Sophie; Bouveret, Antoine; Ferrari, Massimo; Grill, Michael; Schmidt, Daniel Jonas; Pividori, Mattia; Proietti, Roberto |
| Abstract: | This paper applies a tailored clustering approach to identify cohorts of investment funds for financial stability assessment. To define clusters, we use regulatory data on asset class exposures reported under the Alternative Investment Fund Managers Directive (AIFMD). We applied our approach to more than 10, 000 alternative investment funds (AIFs) holding €3.7 trillion in assets, revealing 12 economically interpretable fund cohorts, including traditional bond and equity funds, liability-driven investment (LDI) funds, and private asset funds. Our cluster-based approach substantially outperforms traditional AIFMD categories in explaining fund return variance and points to material vulnerabilities, notably concentrated leverage in GBP-denominated LDI funds and widespread liquidity mismatches. The dispersion of these cohorts across EU jurisdictions underscores the need for oversight and cross-border coordination in ensuring the macroprudential oversight of the investment fund sector. This framework provides regulators, supervisors and macroprudential authorities with a practical framework for identifying funds whose collective behaviour could amplify systemic risks during periods of market stress. JEL Classification: G01, G11, G18, G23, C38 |
| Keywords: | clustering, collective behaviour, financial stability, investment funds, macroprudential policy, portfolio similarity |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkops:202630 |