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on Central Banking |
| By: | Scalone, Valerio; Tenreyro, Silvana |
| Abstract: | How does the effectiveness of monetary policy vary over the policy cycle? Do tightenings and loosenings have symmetric effects on the macroeconomy? This paper addresses these questions using a nonlinear empirical framework that allows financial exposure to evolve endogenously in response to macroeconomic conditions and monetary policy changes. We provide new evidence on how monetary policy effectiveness varies over the policy cycle and across economic states. We find that i) monetary policy transmits more strongly to the real economy in periods of elevated private-sector financial exposure; ii) tightening cycles increase financial exposure in the short run, which in turn amplifies the effect of further interest rate increases, whereas loosening cycles lower financial exposure, increasingly dampening the effect of interest rate cuts; iii) tightening during economic downturns further intensifies debt-servicingpressures, making monetary policy even more potent; instead, when the tightening occurs during expansions, monetary policy effectiveness is not materially affected. JEL Classification: E3, E44, G01, G21 |
| Keywords: | monetary policy, monetary policy transmission, non-linear models |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263281 |
| By: | William Pagel (University of Oxford and Bank of England) |
| Abstract: | What is the socially optimal long-run size of the central bank balance sheet, once interest rates are away from the effective lower bound and the balance sheet is no longer needed for monetary stimulus? I introduce a central bank into a model in which banks are liquidity mismatched and prone to sudden ‘bank runs’. Supplying central bank reserves reduces the likelihood and severity of runs, but comes at a cost: constraints on the set of securities the central bank can hold mean a larger balance sheet crowds out private investment and misallocates capital. I calibrate the model to pre-financial crisis conditions and empirical estimates of the non-linear reserve demand curve, and compute optimal policy. Under full information, it is optimal to expand reserve supply to the point where reserve demand is satiated, but no further. However, because under-supplying reserves is more costly than over-supplying them, robustness to parameter uncertainty calls for an additional buffer in reserve supply. But even for high degrees of robustness, the buffer needed is no larger than two and a half percentage points of bank assets. The policy prescription remains restrained: robustness moves the balance sheet modestly beyond satiation, but fails to justify an open-ended provision of abundant reserves. |
| Keywords: | Reserve supply;central bank reserves;optimal policy;bank runs |
| JEL: | E44 E52 E58 G21 |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023578 |
| By: | Barbon, Andrea; Barthélemy, Jean; Nguyen, Benoît |
| Abstract: | Does the Federal Reserve’s monetary policy influence the rates on USD-pegged stablecoins? While major stablecoin issuers do not pay interest, investors can earn returns by depositing stablecoins in Decentralized Finance (DeFi) protocols. We document unusually large and persistent spreads between traditional short-term interest rates and DeFi deposit rates, as well as a weak and unstable transmission of policy rate changes. We show that, in the short run, monetary policy shocks can move stablecoin rates in the opposite direction of policy rates, delaying a convergence that occurs only over the medium run. Both the sign of the short-run effect and the speed of convergence depend on the intensity of deleveraging induced by crypto-price reactions relative to the standard interest-rate arbitrage channel — an effect shaped by investors’ limited ability to bridge traditional and decentralized finance. JEL Classification: G14, G23, G29 |
| Keywords: | crypto, DeFi, stablecoin |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263280 |
| By: | Aydin Yakut, Dilan (Central Bank of Ireland); Byrne, David (Central Bank of Ireland); Goodhead, Robert (Central Bank of Ireland) |
| Abstract: | A large literature on monetary policy transmission has emphasised many potential non-linear drivers. Transmission strength has been shown to vary with the business cycle, financial frictions, and uncertainty, amongst other mechanisms. However, most studies focus on a small number of channels at a time. Our study takes a “big data†approach to non-linearity, allowing us to rank the relative importance of a wide range of non-linear transmission channels. We focus on asset price responses to central bank statements. Using a large, mixed-frequency macro-financial dataset, we show that US monetary policy surprises feature a small number of important non-linear drivers, relating especially to financial variables. Monetary transmission to long-term interest rates is weaker at times of high interest rates and high credit growth, consistent with diminishing effectiveness over a hiking cycle. While non-linearity over the interest rate cycle appears to dominate other channels, we find some evidence that monetary policy is weaker in booms. Using euro area data, we find a prominent role for sovereign risk in state-dependent transmission. |
| Keywords: | Monetary policy, state-dependence, non-linearity, event study, big data. |
| JEL: | E52 C32 C11 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:09/rt/26 |
| By: | Varela Garcia, Nicolas |
| Abstract: | The development of a modern interbank money market in Spain as a mechanism of liquidity redistribution and a channel of monetary policy transmission dates back to the monetary reforms of the early 1970s. However, Spanish banks recorded traditionally substantial interbank positions. Did the system of interbank relationships play any role in liquidity management before the creation of a proper market? To answer this question, I assembled monthly data about interbank assets and liabilities of Spanish private banks, both at aggregate and bank level, from primary sources from the mid-1950s to the early 1970s. Aggregate data are based on the Statistical Bulletin of theBank of Spain, published since March 1960. Bank-level data have been hand-collected from monthly balance sheets reported by individual banks to the Bank of Spain. These balance sheets, available at the Historical Archive of the Bank of Spain, are used here for the first time for historical research. In the paper I analyze the rising relevance of interbank positions, both domestic and international, between the 1960s and theearly 1970s. I also explore the characteristics and use of interbank positions in a sam-ple of private banks for the period 1954-1969. For that purpose I calculate a set ofindicators that re ect di erences across banks in terms of net position, the share of interbank over total assets, the relevance of interbank liabilities as a source of funding, and the existence of dominant positions in interbank relationships. Finally I test empirically the response of interbank positions to contractionary monetary policy shocks in a cross-section of private banks. The results suggest differential effects depending on the monetary instrument used for policy purposes, the type of banks and their liquiditysituation. |
| Keywords: | Interbank market; Monetary policy; Bank liquidity; Francoist Spain |
| JEL: | E51 E52 G21 N14 |
| Date: | 2026–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:cte:whrepe:50765 |
| By: | Aydan Dogan; Ozgen Ozturk |
| Abstract: | We study how the financing of innovation shapes the transmission of monetary policy to productivity. Using US firm balance-sheet data matched to loan contracts, we show that contractionary monetary policy shocks reduce cash flow similarly across firms but lower R&D more among those without access to cash flow-based borrowing, where credit is extended against earnings rather than collateral. In a New Keynesian endogenous growth model with heterogeneous access to external finance, we show that a 25 basis point tightening lowers output persistently by 0.12%. Extending access to all firms reduces this loss by one third. The loss falls disproportionately on firms without access, which are younger and produce more and higher-quality patents. |
| JEL: | E22 E32 E44 E52 G32 |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023581 |
| By: | Jonathan Acosta-Smith (The Organisation of Economic Co-Operation and Development); Marzio Bassanin (Bank of England); Ivy Sabuga (International Monetary Fund.) |
| Abstract: | We assess the macroeconomic effects of the output floor, a new regulatory constraint introduced as part of the Basel III framework. The output floor is designed to provide a backstop against excessively low risk-weighted assets (RWA) modelled by banks relative to the riskiness of the underlying exposures. Our model shows that it counteracts the downward pressure on modelled RWA during economic expansions and, in turn, reduces the cyclicality of risk-weighted capital requirements. This mitigates increases in the credit-to-GDP ratio and supports the objectives of the macroprudential authority. Our analysis also uncovers important sectoral effects. Estimating the model for the UK economy, we find that during an expansion the output floor dampens the growth of mortgage lending but amplifies the expansion of lending to firms, although the latter effect is more than offset by the former. |
| Keywords: | Capital regulation;output floor;macroprudential policy;DSGE models |
| JEL: | E32 E44 E58 |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023582 |
| By: | Per Asberg-Sommar; Mathias Drehmann; Denise Hansson; Vatsala Shreeti |
| Abstract: | What determines banks' demand for holding reserves at the central bank overnight? This has become a critical question for central banks that are shrinking their balance sheets. We exploit the unique operational framework in Sweden and quantify the factors that drive banks' demand to hold excess reserves at the central bank. Using granular data, we document significant fragmentation in interbank markets with a set of banks that never trade in interbank markets (inactive banks) and others that do (active banks). Active banks' excess reserves increase with their payment flow volatility and the cost of borrowing in interbank markets. Furthermore, excess reserve holdings shrink when aggregate interbank activity is high. Inactive banks' excess reserves also increase with their payment flow volatility but show greater persistence over time, underlining their passivity. Our findings not only shed light on the bank-level drivers of excess reserve demand but also on likely dynamics in untested demand-driven floors. |
| Keywords: | excess reserves, reserve demand, interbank markets, demand-driven floor |
| JEL: | E41 E58 E52 G21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1376 |
| By: | Vegard H. Larsen; Leif Anders Thorsrud |
| Abstract: | Central banks publish projection paths, but these need not be optimal summaries of the information used to form them. We reframe conditional macroeconomic forecasting as an input problem: a fixed, pre-trained multivariate foundation time-series model reads the institution's historical predictions and announced future paths alongside target histories, rather than imposing the path as a model-consistent restriction inside a locally estimated system. The mapping nests the Mincer-Zarnowitz and Granger-Ramanathan regressions as its parametric-linear special case. Reading just Norges Bank's published path triple and target histories, the map cuts mean squared error against the Bank on inflation across horizons, and the nested combination regression puts the conditional weight on the map, not the path. A hard-conditioned VAR matched on the same future paths, but blind to the prediction record, is consistently outperformed on the rate and inflation, and the result survives the asymmetric-loss specifications that best rationalise the path. The VAR contrast replicates on Sweden and New Zealand; the institutional comparison only on New Zealand, with parity at best on Sweden. An institutional-learning regression rationalises the split: the Riksbank absorbs its recent misses more aggressively than Norges Bank and the RBNZ, leaving less residual signal to extract. |
| Keywords: | foundation models, conditional forecasting, central bank forecasts, information efficiency, Chronos-2 |
| JEL: | C53 E37 E47 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12972 |
| By: | Sriya Anbil; Alyssa G. Anderson; Lucy Cordes; Romina Ruprecht |
| Abstract: | As the Federal Reserve (Fed) navigates periods of balance sheet expansion and reduction, it has become increasingly important to understand how changes in the size and composition of Fed assets affect short-term funding markets. The overnight Treasury repo market is central to this relationship since it is a transmission channel through which balance sheet policy can affect money market conditions and, ultimately, the Fed's policy rate, the effective federal funds rate (EFFR). |
| Date: | 2026–08–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103714 |
| By: | Goodhart, Charles (London School of Economics and CEPR); Peiris, M. Udara (Department of Economics, Oberlin College); Tsomocos, Dimitrios (University of Oxford); Wang, Xuan (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | Corporate borrowing creates safe claims for some households and concentrates residual risk in equity for others. This portfolio heterogeneity drives a supply-side channel through which corporate leverage conditions monetary transmission. Tightening erodes equity holders’ wealth while safe-asset holders are cushioned; the resulting income effect makes aggregate labor fall more at high leverage, raising the sacrifice ratio. A static model yields a closed-form hump in leverage, with the US range on the rising side, disciplined by Survey of Consumer Finances portfolio shares. A calibrated dynamic model roughly doubles the sacrifice ratio, and US local projections agree in sign, shape, and timing. |
| Keywords: | Household heterogeneity, Monetary policy, Corporate leverage, Phillips curve, Labor supply |
| JEL: | E31 E32 E52 G11 G51 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:cxv:wpaper:2602 |
| By: | Krüger, Ulrich; Wong, Lui Hsian |
| Abstract: | The introduction of a digital euro (D€) would allow euro area residents to exchange bank deposits for digital currency, thus offering an efficient addition to the European payment sector. It is currently being discussed how the D€ impacts liquidity outflows from banks and financial stability. To mitigate these risks, the European Commission's legislative proposal permits the ECB to impose limits on the use of the D€ as a store of value. This study contributes to the calibration of appropriate holding limits for a D€. We examine how banks adjust their liquidity buffers and funding structures in response to the D€. We explore banks' potential strategies to minimise funding costs, including raising deposit rates and expanding wholesale funding, and approximate a market equilibrium. Applying our model to the German banking system, we find that imposing a holding limit of €3, 000 would reduce the return on equity by approximately 0.2 percentage points and the Liquidity Coverage Ratio by about 7 percentage points in the most adverse scenario. These findings suggest that the long-term impact remains relatively contained. |
| Keywords: | Central Bank Digital Currency, Digital Euro, Holding Limit, Liquidity, Funding Costs, Financial Stability |
| JEL: | G21 G32 G38 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:343079 |
| By: | Fruzza, Raoul (Central Bank of Ireland); King, Philip (Central Bank of Ireland) |
| Abstract: | Our analysis indicates that the macroprudential measures introduced by the Central Bank have been effective at maintaining the resilience of Irish domiciled sterling denominated LDI funds to a range of interest rate shocks. The LDI fund cohort appears resilient to shocks along both liquidity and solvency dimensions. While the size of the cohort has decreased since 2022, it continues to play a significant role in the UK gilt market, especially in the index-linked gilt segment. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:stafin:9/si/26 |
| By: | Christopher Ulph (PolicyWonk) |
| Abstract: | In 2025-26 the United Kingdom spent 96.9 billion pounds on central government net debt interest on the Office for National Statistics measure, and 109.7 billion pounds on the Office for Budget Responsibility measure. The OBR forecasts 137.1 billion pounds by 2030-31. Debt interest is the second largest item of public spending and the only one that funds no public service. Three things drive the bill. Index-linked gilts stood at 672.7 billion pounds in uplifted nominal value at 31 March 2026, 23.9 per cent of the portfolio, the highest share in the G7 and about twice the next highest. Central bank reserves, which averaged 664.9 billion pounds in 2025-26, earn Bank Rate, so Bank Rate is now the effective interest rate on roughly a quarter of the national debt. And the Asset Purchase Facility, which returned about 124 billion pounds to the Exchequer while Bank Rate sat below the coupons it held, is now indemnified at an estimated lifetime net cost of 164 billion pounds by the end of 2036. This paper sets out ten measures, models them as a unified plan against the OBR's March 2026 baseline to 2050-51 under five scenarios, states who bears what cost, and drafts the legislation that would be required. Every formula is written out in an appendix and the model is published in full, so the results can be checked rather than taken on trust. |
| Keywords: | public debt; debt interest; gilts; index-linked gilts; central bank reserves; reserve remuneration; quantitative tightening; GDP-linked gilts; fiscal rules; debt management |
| JEL: | H63 E62 E58 E43 H61 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:cut:wpaper:public-debt-interest-reduction-plan |
| By: | Kristen Payne; Mary-Frances Styczynski |
| Abstract: | The money supply is defined as a group of safe assets with stable values that households and businesses can use to make payments or to hold as short-term investments. In the U.S., the Federal Reserve measures the money supply using officially defined monetary aggregates, which classify assets according to their liquidity and function—a store of value versus a medium of exchange. |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103750 |
| By: | Mihai-Vasile Cîrja (Banca Nationala a României); Jordi Romeu Granados (Banco de España) |
| Abstract: | Central banks and financial supervisory authorities make decisions that affect people, markets and the economy as a whole. Although legitimacy and public trust in public institutions generally depend on their ability to explain what they do, why they act and how they can be held to account through transparent and accountable governance, these considerations are especially important for central banks and financial supervisory authorities. Given their independence from day-to-day political direction and the limited direct political oversight to which they are subject, openness, effective communication and meaningful stakeholder participation play a critical role in maintaining their credibility and democratic legitimacy. Building on this premise, this paper examines the role of transparency and accountability in shaping institutional culture, strengthening legitimacy and fostering trust in this type of independent authority. While a substantial body of literature has examined transparency in specific policy areas, particularly monetary policy and financial stability, this paper adopts a broader governance perspective. It explores how national central banks and national competent authorities promote openness, communicate with stakeholders and the wider public and remain accountable in their day-to-day activities. In this context, transparency is understood not merely as the disclosure of information, but as a core governance function that underpins effective communication, meaningful public engagement and robust accountability arrangements. The analysis combines theory with comparative evidence from a structured questionnaire answered by 30 institutions in EU Member States and five institutions from non-EU jurisdictions. The questionnaire covered legal frameworks, internal arrangements, communication practices, access to information, participation mechanisms and accountability relationships. The findings show that transparency is increasingly more than a legal obligation to publish information. Most participating institutions go beyond minimum legal requirements by publishing additional material, using digital channels, adapting messages to different audiences, supporting financial literacy and creating opportunities for public engagement. At the same time, accountability is shown to operate through a multilayered set of relationships, including reporting duties, parliamentary and audit oversight, review and complaint mechanisms, public explanation and feedback channels that connect institutions both to formal oversight bodies and to society. The study also identifies areas where progress remains uneven, including the evaluation of transparency after publication, the measurement of communication effectiveness, and the transparency of processes supported by artificial intelligence. It concludes that transparency and accountability can drive institutional change when they are embedded in strategy, communication, internal governance, oversight and evaluation. The paper proposes a framework of good practices and a maturity index to help institutions move from compliance-driven transparency towards a more trust-based, evaluative and citizen-oriented approach to accountability, while preserving their independence. |
| Keywords: | central banks, financial supervisory authorities, transparency, accountability, institutional independence, communication, public information, citizen participation |
| JEL: | E58 G28 H11 H83 D73 K23 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2617e |
| By: | Schwind, Patrick; Weinand, Sebastian |
| Abstract: | In the euro area, inflation is measured by the Harmonised Index of Consumer Prices (HICP). Contributions of specific products to the overall inflation rate are derived by what is known as the Ribe approach. While this approach can be applied to the monthly HICP indices, it cannot be used for the annual HICP averages published by statistical offices, nor can it be used to calculate contributions to inflation over multiple years. This paper develops a generalization of Ribe's approach that overcomes both limitations. For annually chain-linked Laspeyres-type indices and their quarterly and annual averages, the proposed method allows contributions to price changes to be derived over arbitrary time periods. The resulting contributions consistently sum to the overall price change. As such, the method provides a useful tool for long-term monetary policy analysis. An application to HICP data shows that services have been the main driver of inflation in the euro area since 2002. |
| Keywords: | chain index, HICP, inflation measurement, Ribe approach |
| JEL: | E31 C43 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubtps:343533 |
| By: | Müller, Henrik; Schmidt, Torsten; Schmidt, Tobias; Rieger, Jonas; Jentsch, Carsten |
| Keywords: | inflation, uncertainty, macro economics, monetary policy, forecasting, topic modeling, narratives, media |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:docmaw:343546 |
| By: | Pratap Singh, Anuj (Central Bank of Ireland); Stradi, Francesco (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland) |
| Abstract: | In response to the 2023 recalibration of Loan-to-Income limits first-time buyers increased their mortgage borrowing which resulted in broader market access, with younger and lower-income borrowers improving their ability to purchase a property. There were noticeable differences in the response across regions. In supply-constrained Greater Dublin, middle-income borrowers purchased more expensive homes and reduced consumer borrowing. Elsewhere, borrowers reduced downpayments whilst maintaining unsecured credit access, suggesting less binding constraints. The findings highlight the importance of understanding regional heterogeneous impacts, as regional conditions can shape how changes in national macroprudential policy affect household behaviour. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:stafin:13/si/26 |
| By: | Ferreira da Gama, Marcelo |
| Abstract: | The 2026 amendments to Brazil's deposit insurance framework — administered by the Fundo Garantidor de Créditos (FGC) — introduced through CMN Resolution No. 5, 295/26 and BCB Resolution No. 572/26, created the Reference Asset (Ativo de Referência, AR) as a third, independent trigger for the mandatory allocation of federal government bonds (MATPF), alongside existing thresholds based on the ratio between the Reference Value (VR) and Adjusted Net Equity (PLA). Computing the AR through the official route requires contract-level asset-to-liability matching, economic hedge treatment, and fund look-through granularity rarely available to small and mid-sized institutions. This paper draws on minutes from a meeting between the Central Bank of Brazil and the Brazilian Banking Association to show why proportional allocation is both regulatorily prohibited and methodologically unsound, and proposes an alternative named-deduction method: aggregating the asset blocks admitted under the rule, then subtracting only the items it expressly names, with a closing test against total balance-sheet assets. The methodology is applied to a reference case computed from internal data and tested on five additional institutions of similar profile — wholesale banks serving corporate clients, with credit as their core product — using only publicly available audited financial statements. Results show that proportional allocation produces an unpredictable sign error, ranging from −29.4% to +60.6% relative to the named-deduction method, distorting the regulatory buffer in both directions. The named-deduction approach, by contrast, proves auditable, low-cost to implement, and applicable directly from published financial statements — enabling third parties, including investors, treasury desks, and credit departments, to estimate these indicators for institutions that do not disclose them. |
| Keywords: | Deposit insurance fund, reference asset, banking regulation, liquidity risk management, small and mid-sized banks, Brazilian Central Bank regulation, additional contribution to deposit guarantee fund |
| JEL: | G21 G28 G32 |
| Date: | 2026–09–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:130973 |
| By: | Federico Forte (BBVA Research) |
| Abstract: | This paper introduces a higher-order network framework based on hypergraphs for assessing systemic risk in bank-firm credit relationships. Unlike conventional network approaches, which rely on pairwise connections, hypergraphs explicitly represent groups of financial institutions jointly exposed to the same borrower as a multilateral interaction. We compare traditional centrality metrics with hypergraph-specific measures to identify systemically important financial institutions, applying these techniques empirically to credit registry data from the Central Bank of Argentina. An adjusted version of the H-eigenvector centrality measure is also proposed, which nonlinearly combines each creditor’s lending amount with the centrality of its co-lenders participating in the same higher-order interactions. We then assess the systemic impact associated with distress shocks to the top-ranked entities selected by each metric. The proposed hypergraph-based measure consistently identifies sets of institutions whose distress generates greater amplified systemic impact than those selected by traditional centrality measures. To the best of our knowledge, this paper provides the first application of hypergraphs to modern bank-firm credit networks for systemic risk assessment. The results show that explicitly accounting for higher-order interactions reveals dimensions of systemic relevance not fully captured by dyadic metrics, providing financial supervisors with a complementary tool for identifying systemically important institutions. This framework can also be readily applied to different countries and financial systems. |
| Keywords: | Systemic risk, Hypergraphs, Financial institutions, Credit networks, Financial stability |
| JEL: | D85 G21 G28 C63 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:406 |