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on Central Banking |
| By: | Eduardo Amaral |
| Abstract: | Can a central bank tighten monetary policy and real interest rates fall under monetary dominance? Introducing endogenous capital into the New Keynesian model allows real interest rates to move in any direction at the impact of a positive persistent monetary policy shock. This raises concerns that the real interest rate channel is only observational - not structural - in these models. This paper demonstrates that the puzzle goes beyond capital. It emerges when the elasticity of an endogenous state variable to a persistent shock is high enough to sink inflation expectations, inducing the endogenous (or systematic) component of the monetary policy rule to sufficiently offset its exogenous component. The channel is indeed structural, but conventional definitions of the natural interest rate (r-star) and real interest rate gap can be misleading, particularly following events that significantly disrupt investment, such as pandemics, financial crises or trade wars. As an alternative sign-consistent gauge of the monetary policy stance, I propose the real interest rate gap that neutralizes the effect of shocks on endogenous state variables. From 1965Q1 to 2023Q3, it was often a better predictor of future inflation and helped telling the history of monetary policy in the United States. |
| Keywords: | monetary policy, new Keynesian model, natural interest rate |
| JEL: | E43 E52 E58 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1288 |
| By: | Hanfeng Chen; Maria Elena Filippin |
| Abstract: | We study the implications of a central bank digital currency (CBDC) for the transmission of household preference shocks and for welfare in a New Keynesian framework where the CBDC competes with bank deposits for household resources and banks have market power. We show that an increase in the benefit of CBDC has a mildly expansionary effect, weakening bank market power and significantly reducing the deposit spread. As households economize on liquid asset holdings, they reduce both CBDC and deposit balances. However, the degree of bank disintermediation is low, as deposit outflows remain modest. We then examine the welfare implications of CBDC rate setting and find that, compared to a non-interest-bearing CBDC, the gains with standard coefficients for a CBDC interest rate Taylor rule are modest, but they become considerable when the coefficients are optimized. Welfare gains are higher when the CBDC provides a higher benefit. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.15048 |
| By: | Greppmair, Stefan; Paludkiewicz, Karol; Steffen, Sascha |
| Abstract: | We show that central bank lending against lower quality collateral can improve conditions in the repo market. For identification we take advantage of a pandemic- related temporary extension of the collateral framework of the European Central Bank (ECB), which allows banks to pledge previously ineligible credit claims as collateral for refinancing operations. We use a difference-in-differences approach and exploit banks that do not mobilize credit claims ex ante as a control group. We find that banks affected by the temporary extension pledge newly eligible credit claims in order to reduce the encumbrance of high-quality marketable assets. Treated banks lend out these marketable assets as collateral in the repo market, which helps to alleviate asset scarcity. |
| Keywords: | asset scarcity, money markets, monetary policy, collateral framework |
| JEL: | E43 E44 E58 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:324664 |
| By: | Shalva Mkhatrishvili |
| Abstract: | The key function of banks in the real world is endogenously creating (inside) money. But they do so facing solvency, liquidity and maturity risks and being subject to regulatory and demand constraints. These five aspects, representing the eventual breaks on banks’ money-creation abilities, are tightly and nonlinearly interlinked. Yet, there is no tractable quantitative macro framework that models endogenous money creation while simultaneously addressing these interlinkages. In this paper we develop a tractable macro-banking model trying to fill this gap, emphasizing two key frictions: the capital adequacy constraint (generating a credit risk premium) and the central bank’s collateral base constraint (generating a liquidity risk premium). The model simulations produce conclusions, about both normal times as well as stress episodes, many of which were frequently overlooked. For instance, it shows how – within capital requirements – setting lower risk weights on secured loans may lead to an expansion of unsecured loans. It also reveals subtle interactions between capital and liquidity regulations. The model also creates a certain bridge between a money-centered view of the price level and the fiscal theory of the price level. |
| Keywords: | Endogenous Money Creation; Monetary Policy; Macroprudential Policy; Fiscal Theory of the Price Level; Macro-Banking Modeling |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/166 |
| By: | Cristiano Cantore; Haroon Mumtaz; Filippo Ferroni; Angeliki Theophilopoulou |
| Abstract: | We study the interaction between monetary policy and labor supply decisions at the household level. We uncover evidence of heterogeneous responses and a strong counter-cyclicality of hours worked in the left tail of the income distribution following a monetary policy shock in the U.S. Specifically, while aggregate hours and labor earnings decline after a monetary tightening, individuals at the bottom of the income distribution increase their hours worked. Moreover, this positive labor supply response is quantitatively significant, substantially dampening the decline in aggregate hours worked. We show that the empirical patterns are consistent with a standard one-asset HANK model featuring endogenous labor supply. The model reveals that strong income effects at the bottom of the distribution can account for the observed countercyclical labor responses, highlighting how labor supply adjustments act as an additional margin through which households smooth consumption. Comparing this specification to a model with a homogeneous labor supply, we find that labor supply heterogeneity reduces the aggregate MPC and attenuates the transmission of monetary policy through aggregate demand. As a result, the output cost of disinflation is lower in economies where poorer households can flexibly adjust their labor effort, easing the trade-off faced by the central bank. |
| JEL: | E52 E32 C10 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bol:bodewp:wp1210 |
| By: | Egemen Eren; Denis Gorea; Daojing Zhai |
| Abstract: | We study how firms respond to quantitative easing (QE) and quantitative tightening (QT) policies of the Federal Reserve. We construct a novel time series of maturity-specific central bank balance sheet shocks covering multiple QE and QT programs. In response to central bank purchases of government bonds, we find that, on average, firms adjust their debt maturity structure, reduce interest expenses and accumulate cash, while their total debt, capital and employment remain largely unchanged. The impact of these policies differs depending on the targeted maturity segment and the credit quality of firms. Policy transmission primarily runs via bond markets. There are positive spillovers to high-rated non-US firms. Our findings can inform the design of balance sheet policies. |
| Keywords: | quantitative easing, quantitative tightening, debt, maturity, real effects |
| JEL: | E44 G11 G12 G23 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1286 |
| By: | Bellifemine, Marco; Couturier, Adrien; Jamilov, Rustam |
| Abstract: | This paper develops a multi-country Heterogeneous-Agent New Keynesian (HANK) model of a monetary union with ex-ante heterogeneity in legacy public debt across member states. We calibrate the model to the euro area and show that, following symmetric aggregate shocks, the systematic monetary policy reaction induces heterogeneous national outcomes, driven by differences in fiscal space. This generates a trade-off between union-wide macroeconomic stabilization and cross-country synchronization of economic activity for the central bank. We characterize a possibility frontier between union-wide inflation stability and cross-country synchronization, which is traced out by varying the degree of the central bank's hawkishness towards inflation. We study the role of deficit caps, fiscal and political unions, and augmented Taylor rules as instruments to navigate the stabilization–synchronization trade-off. |
| Keywords: | fiscal space; fiscal union; heterogeneous agents; monetary union |
| JEL: | E52 F41 F42 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128186 |
| By: | Fabio Milani |
| Abstract: | This paper estimates a New Keynesian model with heterogeneous agents to study the interactions among monetary policy, macroeconomic shocks, and the distribution of income between capital and labor. The model assumes two types of households: workers, who supply labor to firms and receive wage income, and capitalists, who own the firms and enjoy the corresponding profits. There are nominal rigidities in both the goods and labor markets. The structural model is estimated using Bayesian methods to match U.S. data on consumption, corporate profits, wages, inflation, and nominal interest rates, on a sample spanning more than six decades. The empirical results show that contractionary monetary policy and inflationary price-markup shocks lead to increases in inequality. Negative wage markup shocks, which proxy for declining workers' bargaining power, are major drivers of peaks in inequality over the sample; together with price markup shocks, they also account for a significant share of the changes in inequality after COVID. |
| Keywords: | Heterogeneous-Agent New Keynesian model, income distribution between capital and labor, monetary policy and inequality, inflation and inequality. |
| JEL: | E25 E31 E32 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12065 |
| By: | Ina Hajdini; Adam Hale Shapiro; Andrew Lee Smith; Daniel Villar Vallenas |
| Abstract: | This paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response. Measures of short-term inflation expectations increased alongside realized inflation, especially those of households and firms, which may have contributed to inflation’s persistence through price- and wage-setting behavior. However, measures of longer-term inflation expectations remained generally well anchored, which likely prevented a larger or more lasting increase in inflation. The stability of longer-term inflation expectations, together with easing supply and demand imbalances, allowed inflation to fall from its peak in mid-2022 without a large increase in unemployment. We conclude by reviewing some lessons learned from this episode as well as potential risks to inflation going forward. |
| Keywords: | inflation; inflation expectations; covid19; monetary policy |
| JEL: | E31 E52 E58 E70 |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:101543 |
| By: | Gregorio Impavido |
| Abstract: | This paper assesses the effectiveness of monetary policy in Kazakhstan using a small macro model and identifies alternative plausible economic structures consistent with priors on the sign of responses of macro variables to structural shocks. Monetary policy effectiveness has increased over time. |
| Keywords: | Monetary policy effectiveness; SVARs; parametric restrictions; sign restrictions |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/173 |
| By: | Takuya Iinuma; Yoshiyuki Nakazono; Kento Tango |
| Abstract: | This paper investigates how social identity influences the assimilation of monetary policy information. We conduct a randomized control trial in Japan to test whether consumers respond more strongly to inflation forecasts from the Bank of Japan (BOJ) when the message is delivered by a narrator who shares their social identity. Respondents are randomly assigned to hear the BOJ’s forecast in either standard Japanese or the Osaka dialect, both narrated by a female speaker. We find that individuals are significantly more likely to revise their inflation expectations toward the BOJ’s forecast when the narrator shares the respondent’s gender, dialect, or political alignment. Women are more responsive to forecasts delivered by a female narrator; Osaka residents react more strongly to messages in the Osaka dialect; and government supporters exhibit greater belief updating in response to BOJ forecasts. These findings suggest that central banks can enhance the effectiveness of their communication by tailoring messages to align with the social identities of target audiences, although it is essential to recognize potential risks. |
| Date: | 2025–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:74 |
| By: | Mrs. Marina Conesa Martinez |
| Abstract: | This paper analyzes how central banks' communication influences corporate financial decisions and instruments. Empirically, we find that more active central bank communication is associated with a rise in firms' green bond issuance. The effect seems to be particularly strong among commercial banks, firms closely monitoring central bank climate communication, and firms with higher exposure to weather-related risks and opportunities. This likely reflects strategic responses to anticipated regulatory and market shifts. |
| Keywords: | Central banking; Communication; Climate change; Green bonds; Sustainable finance; Natural language processing |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/169 |
| By: | Jung, Alexander; Mongelli, Francesco Paolo |
| Abstract: | We would like to thank Philipp Lane, Klaus Adam, Michael Ehrmann, Christophe Kamps, Timo Reinelt, Annalisa Ferrando, Philippine Cour-Thimann, Felix Hammermann, Davide Romelli, Andreas Kapounek, and colleagues from DG Communication for for their valuable feedback on earlier versions of this paper. This paper was presented at the 2025 AEA Conference in San Francisco, and we appreciate the feedback and suggestions received from the participants. We would also like to thank colleagues from 11 Business Areas of the ECB for their presentations to visitors, as well as colleagues from DG Communications for their support in conducting the surveys with the visitor groups, especially Alexandra Kroppenstedt, Nadia Bates, Christian Scherf, and Emma-Katharina David. This experiment is pre-registered in the AEA RCT registry (ID: AEARCTR-0012902). Declaration of Interest: Jung is employed by the European Central Bank. The views expressed in this article are those of the authors and do not necessarily reflect those of the ECB. The authors remain responsible for any errors or omissions. JEL Classification: C83, C93, D83, D84, E31, E58 |
| Keywords: | behavioral economics, central bank communication, inflation expectations, monetary policy knowledge, randomized controlled trial |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253103 |
| By: | Wenhao Li; Yiming Ma; Yang Zhao |
| Abstract: | We demonstrate the passthrough of Treasury supply to bank deposits through bank market power. We show that a larger Treasury supply crowds out deposits with disproportionate effects in more competitive deposit markets. A larger Treasury supply further curtails bank lending and affects bank funding structure. The explanatory power of Treasury supply is not driven by other shocks to deposit demand and supply. In comparison, monetary policy rate hikes have a larger impact on deposit funding in more concentrated markets, consistent with the deposits channel of monetary policy. Our empirical findings are rationalized in a model of imperfect deposit competition. |
| JEL: | E50 G21 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34154 |
| By: | Yixiao Tan; Dimitrios P. Tsomocos; Xuan Wang |
| Abstract: | Climate change affects the effectiveness of monetary policy, particularly in maintaining price stability. In a two-period theoretical model with heterogeneous agents, monetary policy and climate externalities, we establish that a trade-off exists between climate change and inflation. In addition, lower interest rates for green investments enhance economic growth and aggregate social welfare when carbon tax is not at the optimal level. Our analysis suggests that green monetary policy and carbon emission taxes are complementary rather than substitutes. Our findings provide policy implications for balancing climate change mitigation and economic stability for the South African Reserve Bank. |
| Date: | 2025–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11089 |
| By: | Maximiliano San Millán |
| Abstract: | We examine the cross-border effects of bank capital requirements using a two-country DSGE model with financial frictions, calibrated to match Euro Area banking flows. Regulation follows a host country principle, applying uniformly to all bank exposures within a country, regardless of the banks' nationality. We find that increasing capital requirements in one country leads to a short run credit contraction in interconnected countries. However, long run credit spillovers are negligible. Instead, we find positive long run welfare spillovers, primarily due to higher bank dividend payouts to foreign bank owners, rather than increased financial stability in the foreign country. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1046 |
| By: | Sophia Kazinnik; Tara M. Sinclair |
| Abstract: | We develop a a multi-agent framework for modeling the Federal Open Market Committee (FOMC) decision making process. The framework combines two approaches: an LLM-based simulation and a Monte Carlo implementation of a generalized Bayesian voting model. Both begin from identical prior beliefs about the appropriate interest rate for each committee member, formed using real-time data and member profiles. In a simulation replicating the July 2025 FOMC meeting, both tracks deliver rates near the 4.25–4.50\% range's upper end (4.42\% LLM, 4.38\% MC). Political pressure scenario increases dissent and dispersion: the LLM track averages 4.38\% and shows dissent in 88\% of meetings; the MC track averages 4.39\% and shows dissent in 61\% of meetings. A negative jobs revision scenario moves outcomes lower: LLM at 4.30\% (dissent in 74\% of meeting), and MC at 4.32\% (dissent in 62\% of meeting), with final decisions remaining inside the 4.25-4.50\% range. The framework isolates small, scenario‑dependent wedges between behavioral and rational baselines, offering an \textit{in silico} environment for counterfactual evaluation in monetary policy. |
| Keywords: | Generative AI; Multi-Agent Systems; Large Language Models, Federal Open Market Committee; Monetary Policy; Simulations |
| JEL: | E52 E58 C63 D83 C73 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2025-005 |
| By: | Eiblmeier, Sebastian |
| Abstract: | This paper uses German microdata to test whether the ECB's quantitative easing (QE) spurred bank lending to non-financial firms. Bank-firm loan data allow me to control for loan demand at firm level. The share of bonds in banks’ total assets before QE serves as treatment proxy. While the effects are positive and statistically significant, they are small: Increasing the bond/asset share in a firm's lender bank by one standard deviation increases the de-trended outstanding bilateral loan volume by 3-5% of its within-sample mean. At firm level, no unambiguous effect can be observed. |
| Keywords: | Unconventional monetary policy, Germany, bank lending, portfolio rebalancing, panel regression |
| JEL: | C23 E51 E52 G11 G21 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:han:dpaper:dp-740 |
| By: | Imad Bassite (Laboratoire de performance économique et logistique Faculté des Sciences Juridiques, Économiques et Sociales (FSJES) - Mohammedia Université Hassan II de Casablanca); Younes El Khattab (Enseignant chercheur - Laboratoire de performance économique et logistique Faculté des Sciences Juridiques, Économiques et Sociales (FSJES) - Mohammedia Université Hassan II de Casablanca) |
| Abstract: | This article examines the impact of monetary policy, inflation and the real effective exchange rate (REER) on the output gap in Morocco, in an economic context marked by recurring internal and external shocks. Using an ARDL model on annual data covering the period 1990-2023, the study distinguishes between the short-term and long-term effects of the main macroeconomic variables on the output gap. The results show that money supply has a significant short-term effect, reflecting the relative effectiveness of monetary policy in stimulating demand and mitigating cyclical gaps. In contrast, in the long term, only the TCER has a positive and significant influence, highlighting the crucial role of external competitiveness in reducing the output gap. Inflation, on the other hand, has no statistically significant impact, reflecting the caution of Moroccan monetary policy in the face of inflationary risks. The article recommends close coordination between monetary and exchange rate instruments, as well as a strengthening of structural policies, in order to ensure greater macroeconomic resilience. |
| Abstract: | Cet article examine l'impact de la politique monétaire, de l'inflation et du taux de change effectif réel (TCER) sur l'output gap au Maroc, dans un contexte économique marqué par la récurrence de chocs internes et externes. En mobilisant un modèle ARDL sur des données annuelles couvrant la période 1990–2023, l'étude distingue les effets à court et à long terme des principales variables macroéconomiques sur l'écart de production. Les résultats montrent que la masse monétaire a un effet significatif à court terme, traduisant l'efficacité relative de la politique monétaire pour stimuler la demande et atténuer les écarts conjoncturels. En revanche, à long terme, seul le TCER exerce une influence positive et significative, mettant en évidence le rôle crucial de la compétitivité externe dans la réduction de l'output gap. L'inflation, quant à elle, ne présente pas d'impact statistiquement significatif, ce qui reflète la prudence de la politique monétaire marocaine face aux risques inflationnistes. L'article recommande une coordination étroite entre les instruments monétaires et de change, ainsi qu'un renforcement des politiques structurelles, afin de garantir une meilleure résilience macroéconomique. |
| Keywords: | ARDL, Morocco, competitiveness, inflation, exchange rate, output gap, monetary policy, monetary policy output gap exchange rate inflation ARDL Morocco competitiveness |
| Date: | 2025–07–28 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05190487 |
| By: | Patrick Gruning (Latvijas Banka) |
| Abstract: | During the recent monetary policy tightening cycle, the pass-through of monetary policy to interest rates offered by commercial banks and the size of bank profits have attracted substantial attention. In this study, I explore the economic effects of reducing the adjustment speed of monetary policy changes to deposit interest rates, using a suitable New-Keynesian dynamic stochastic general equilibrium model. A lower deposit interest rate adjustment speed increases macroeconomic volatility but decreases the volatility of the credit spread (except in the case of a very low adjustment speed). Bank net interest income and aggregate consumption typically increase relative to a model where the deposit interest rate perfectly tracks the monetary policy rate, while aggregate output and investment dynamics deteriorate. Introducing a tax on the interest income earned by setting deposit interest rates below the monetary policy rate leads to amplified short- and medium-run macroeconomic costs. However, the tax improves long-run economic dynamics. |
| Keywords: | Monetary policy, Financial intermediaries, Deposit interest rates, New Keynesian DSGE model, Excess bank interest income tax |
| JEL: | E31 E32 E44 E52 H25 |
| Date: | 2025–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202505 |
| By: | Ricardo Lagos |
| Abstract: | The well-known cashless-limiting result in Woodford (1998) has become the theoretical foundation for a large body of work that treats the costs and benefits of holding money as irrelevant for monetary transmission. I reexamine this result and find that it relies on a peculiar credit-market structure consisting of perfectly competitive, zero-interest deferred payment arrangements. I show that the result breaks down when the microstructure is generalized to allow for an endogenous interest rate and market power in credit intermediation. The tenuousness of this influential result should give pause to the widespread practice of basing monetary policy advice on models without money. |
| JEL: | E5 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34155 |
| By: | Farzad Saidi; Ulf Nielsson; Jesper Rangvid; Fabian Seyrich; Daniel Streitz |
| Abstract: | What stimulus payments replicate the consumption effect of a desired (but potentially infeasible) interest rate cut? Using granular full‐population administrative data, we estimate consumption responses to interest rate changes via adjustable‐rate mortgage resets and lump‐sum cash windfalls from unanticipated inheritances. Combining them, we map a 1 percentage point monetary‐policy rate decrease to equivalent uniform transfers of ~$1, 000 per person paid over 5 years, totaling 1.3% of GDP. This estimate remains robust when accounting for heterogeneity in the cross‐sectional incidence of these macro‐equivalent policies. We find only modest heterogeneity in marginal propensities to consume, limiƟng efficiency gains from targeting transfers. |
| Keywords: | marginal propensity to consume, monetary policy, fiscal policy, mortgages |
| JEL: | D12 E21 E43 E52 E63 G51 H31 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_699 |
| By: | Mikael Juselius; Aurea Ponte Marques; Nikola Tarashev |
| Abstract: | In managing their capital, banks balance the risk of breaching regulatory requirements against the cost of maintaining and speedily restoring "management" buffers. Using 68 quarters of data on 17 US and 17 euro-area banks, we find systematic reductions in steady-state management buffer targets and attendant rises in regulatory risk tolerance (RRT) following the Great Financial Crisis (GFC). This phenomenon is particularly pronounced at banks with higher capital requirements post GFC. In parallel, banks facing more volatile management buffer shocks set higher management buffer targets, suggesting that RRT is a conscious choice. High-RRT banks tend to respond to a depletion of their management buffers by cutting lending, whereas low-RRT banks reduce the riskiness of their assets in other ways - thus highlighting real-economy effects of capital management strategies. |
| Keywords: | capital management, management buffer target, speed of reversion, regulatory regimes |
| JEL: | G21 G28 E51 G31 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1287 |
| By: | Menzie D. Chinn; Jeffrey A. Frankel; Hiro Ito |
| Abstract: | We analyze the determinants of individual central bank holdings of international reserves, as shares of gold, dollar, euro, pound, yen and yuan, over the 1999-2022 period. We augment standard economic determinants of size, exchange rate volatility, currency pegs and bilateral trade with bilateral political/economic variables such as disagreement in UN voting, military alliances, and financial and trade sanctions. These variables augment uncertainty measures such as global Economic Policy Uncertainty, US monetary and trade policy uncertainty, and the VIX. In addition, we investigate whether the US imposition of tariffs in 2018 had any measurable impact on dollar and other holdings. We conclude that financial sanctions and trade policy uncertainty have a statistically and economically significant effect on holdings of the US dollar. US tariffs had an economically – but not statistically – significant impact on shares of foreign exchange reserves: dollar shares fell by 2.1% and other shares rose by 0.8%. These findings can inform the debate regarding some of the benefits and costs of using such geo-economic policies. |
| JEL: | F33 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34177 |
| By: | Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur); Qing Xu (ICL, Junia, Université Catholique de Lille) |
| Abstract: | We examine the potential of upcoming Central Bank Digital Currencies (CBDCs) to be used as a means of transferring remittances. In a simple theoretical model, CBDCs compete with traditional channels provided by specialized intermediaries and with digital transfer options already offered by fintech companies. Their success depends on factors such as anonymity, potential conversion into cash, and the network effects generated by CBDC transactions among recipients' families. |
| Abstract: | Nous examinons le potentiel des futures monnaies numériques de banque centrale (CBDC) en tant que moyen de transfert de fonds. Dans un modèle théorique simple, les CBDC sont en concurrence avec les canaux traditionnels fournis par des intermédiaires spécialisés et avec les options de transfert numérique déjà proposées par les entreprises de technologie financière. Leur succès dépend de facteurs tels que l'anonymat, la possibilité de conversion en espèces et les effets de réseau générés par les transactions en CBDC entre les familles des bénéficiaires. |
| Keywords: | fintech, cross-border payments, E58 Central Bank Digital Currencies, D85, JEL Classification: E42 D85 E58 Central Bank Digital Currencies cross-border payments fintech, Migrants, Fintech, Cross-boarder payments, Central Bank Digital Currencies, JEL Classification: E42 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-05208283 |
| By: | Nicholas Gray (Reserve Bank of Australia); Finn Lattimore (Reserve Bank of Australia); Kate McLoughlin (Reserve Bank of Australia); Callan Windsor (Reserve Bank of Australia) |
| Abstract: | In a world of high policy uncertainty, central banks are relying more on soft information sources to complement traditional economic statistics and model-based forecasts. One valuable source of soft information comes from intelligence gathered through central bank liaison programs – structured programs in which central bank staff regularly talk with firms to gather insights. This paper introduces a new text analytics and retrieval tool that efficiently processes, organises, and analyses liaison intelligence gathered from firms using modern natural language processing techniques. The textual dataset spans around 25 years, integrates new information as soon as it becomes available, and covers a wide range of business sizes and industries. The tool uses both traditional text analysis techniques and powerful language models to provide analysts and researchers with three key capabilities: (1) quickly querying the entire history of business liaison meeting notes; (2) zooming in on particular topics to examine their frequency (topic exposure) and analysing the associated tone and uncertainty of the discussion; and (3) extracting precise numerical values from the text, such as firms' reported figures for wages and prices growth. We demonstrate how these capabilities are useful for assessing economic conditions by generating text-based indicators of wages growth and incorporating them into a nowcasting model. We find that adding these text-based features to current best-in-class predictive models, combined with the use of machine learning methods designed to handle many predictors, significantly improves the performance of nowcasts for wages growth. Predictive gains are driven by a small number of features, indicating a sparse signal in contrast to other predictive problems in macroeconomics, where the signal is typically dense. |
| Keywords: | central banking; macroeconomic policy; wages and labour costs; machine learning; econometric modelling; information retrieval systems; firm behaviour |
| JEL: | C5 C8 D2 E5 E6 J3 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2025-06 |
| By: | Valentin Haddad; Tyler Muir |
| Abstract: | Intermediary asset pricing posits that financial institutions are important players in financial markets, and that their decisions shape asset prices beyond simply reflecting the preferences of the average household in the economy. We explain how the intermediary-asset pricing approach helps make sense of empirical patterns in the data: the excess volatility of asset prices, differences in price movements across asset classes, the cross section of expected returns within asset classes, and specific arbitrages and price dislocations. We also review how this view of price fluctuations has important implications for macroeconomic dynamics, international economics, and policy. In particular, the role of financial regulation and monetary policy in alleviating constraints or removing risk from intermediary balance sheets during periods of stress is central in this approach. We highlight both existing progress and gaps for future research. |
| JEL: | E44 G0 G01 G1 G2 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34146 |