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on Central Banking |
| By: | Ting Lan; Lerong Li; Mr. Minghao Li |
| Abstract: | This paper documents that households with higher marginal propensities to consume (MPCs) tend to consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation and experience higher inflation following an expansionary monetary policy shock. We embed this MPC-price stickiness relationship into a tractable multi-sector Two-Agent New Keynesian (TANK) model and analytically demonstrate that it dampens the effectiveness of monetary policy, reducing its efficacy by about 15% relative to a benchmark model with homogeneous consumption baskets. Introducing heterogeneous baskets also generates an inherently inefficient flexible-price equilibrium, which gives rise to a novel trade-off between stabilization and redistribution. The optimal monetary policy therefore differs qualitatively from the standard TANK policy prescription. |
| Keywords: | TANK; HANK; Monetary transmission; Redistribution channel; Price stickiness; Optimal monetary policy; Inequality; Multi-sector model |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/264 |
| By: | Miguel Acosta; Andrea Ajello; Michael D. Bauer; Francesca Loria; Silvia Miranda-Agrippino |
| Abstract: | This paper introduces the U.S. Monetary Policy Event-Study Database (USMPD), a novel, public, and regularly updated dataset of financial market data around Federal Open Market Committee (FOMC) policy announcements, press conferences, and minutes releases. Using the rich high-frequency data in the USMPD, we document several new empirical findings. Large monetary policy surprises have made a comeback in recent years, and post-meeting press conferences have become the most important source of policy news. Monetary policy surprises have pronounced negative effects on breakeven inflation based on Treasury yields. Risk assets, including dividend derivatives, also respond strongly and negatively to monetary policy surprises, consistent with conventional channels of monetary transmission. Press conferences have stronger effects than FOMC statements on most asset prices. Finally, the term structure evidence shows peak effects on market-based inflation and dividend expectations at horizons of several years. |
| Keywords: | Federal Reserve; monetary policy surprises; high-frequency event studies |
| JEL: | E43 E52 E58 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102219 |
| By: | Milena Djourelova; Filippo Ferroni; Leonardo Melosi; Alessandro Villa |
| Abstract: | We analyze 481 speeches by FOMC members since 2007, excluding official press conferences. Combining high-frequency financial data with text analysis, we identify monetary policy surprises and measure each speech’s similarity to the Chair’s press conference preceding it. On average, monetary surprises around these speeches have no significant effect on inflation expectations or stock prices. Yet, speeches closely aligned with the Chair’s press conference amplify policy transmission, while less coordinated remarks dilute earlier effects on yields, inflation expectations, and equities. A general equilibrium model with incomplete information rationalizes these findings. |
| Keywords: | monetary policy communication; FOMC; Text Analysis; Central bank; Market expectations |
| JEL: | C55 D83 E52 E58 G14 |
| Date: | 2025–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:102273 |
| By: | Xudong An; Saket Hegde; Harren Jan; Mete Kilic; Rodney Ramcharan |
| Abstract: | This paper shows that monetary policy influences bank credit policy through the risk-taking channel. Using option prices on Federal Open Market Committee (FOMC) announcement days, we measure the impact of monetary policy on bank equity tail risks and link them to loan-level regulatory data. Banks that experience a decline in tail risk lend more to riskier firms and ease loan terms in the three weeks after the FOMC announcement. These effects are concentrated among banks with short-term compensation structures and in competitive credit markets. Our results isolate the impact of bank risk-taking in loan supply from confounding forces such as endogenous credit demand and highlight how institutional frictions mediate the risk-taking channel of monetary policy |
| Keywords: | Fed put; risk-taking channel; credit policy; monetary policy; bank equity tail risk |
| JEL: | E52 G12 G21 |
| Date: | 2025–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:102288 |
| By: | Andreas Schrimpf; Markus Sihvonen |
| Abstract: | We generalize the yield spanning condition in the bond literature to non-linear models and to exchange rates. In standard macro-finance models, no variable should predict yield or exchange rate changes once standard yield curve factors are controlled for. We provide novel evidence that this spanning condition is violated, with inflation as a common unspanned predictor of both bond and exchange rate returns. Investors' incomplete information about the Federal Reserve's monetary policy rule emerges as the key driver of this result. We find high inflation to be followed by unexpected monetary policy tightening, which leads to dollar appreciation and low bond returns. We explain these findings by a simple model that departs from full information rational expectations. |
| Keywords: | inflation, bond markets, exchange rates, central bank reaction function, investor expectations |
| JEL: | G12 E43 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1320 |
| By: | Grodecka-Messi, Anna (Financial Stability Department, Central Bank of Sweden); Kliem, Martin (Deutsche Bundesbank); Muller, Gernot J. (University of Tübingen, CEPR and CESifo) |
| Abstract: | Are central bank losses inflationary? We address this question at two levels. First, we revisit the theory and show that central bank losses constrain the conduct of monetary policy and are indeed inflationary provided the central bank is (a) not automatically recapitalized by the government and (b) concerned about its net worth. Second, we collect 350 years of data on the world’s oldest central bank, the Sveriges Riksbank. We construct a time series for its return on assets and a narrative measure of profitability shocks. We find that inflation increases strongly and persistently in response to exogenous declines in central bank profits. |
| Keywords: | Inflation; Central Banks; Central Bank Profitability; Central Bank Losses; Sveriges Riksbank |
| JEL: | E52 E58 N13 N14 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0457 |
| By: | Leila Aghabarari; Sophia Chen; Deniz Igan; Bernardus Van Doornik |
| Abstract: | We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:636 |
| By: | Aurélien Guillou; Albin Salmon; Paul Vertier |
| Abstract: | Survey data covering 100 “non-advanced economies” show a negative correlation between inflation and trust in the central bank, which is more pronounced under inflation-targeting regimes. While this trust is affected by a number of factors and also influences inflation, it depends on the central bank's ability to meet its monetary policy objectives. <p> Des données d’enquêtes couvrant cent « économies non-avancées » permettent d’établir une corrélation négative entre inflation et confiance en la banque centrale, plus marquée en régime de ciblage d’inflation. Si cette confiance est affectée par divers facteurs et influence aussi l’inflation, elle dépend de la capacité de la banque centrale à respecter ses objectifs de politique monétaire. |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:423 |
| By: | Cristina Badarau (University of Bordeaux); Eleonora Cavallaro (Sapienza University of Rome); Stefania Stancu (University of Bordeaux,) |
| Abstract: | We analyse how corporate debt structure can shape the transmission of monetary policy in a general equilibrium model. We endogenise firms’ choice between bond and loan financing in a dynamic setting, building on the analytical framework of the financial accelerator and show that the corporate structure of firms is not irrelevant. We assume that banks have an informational advantage over other market participants in evaluating firms’ projects. This results in a lower cost of bank finance compared to market finance in a steady state, given institutional factors and market size. Over time, shocks to the cost of finance or liquidity shocks feed back into the dynamics of firms’ net worth, investment and output. In our framework, monetary policy can have asymmetric effects. On one hand, higher banks’ refinancing costs due to more stringent conventional monetary policies have a greater impact on firms that cannot easily substitute loans for bonds. Firms with easier access to the bond market have a competitive advantage over firms that can only rely on bank financing. On the other hand, shocks that increase the liquidity in the bond markets, such as unconventional monetary policies, benefit firms with a more diversified corporate debt structure. From this perspective, the development of bond markets can have important macroeconomic implications for building resilience. |
| Keywords: | Corporate debt structure, investment, monetary policy transmission |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.21 |
| By: | Mathilde Dufouleur |
| Abstract: | The pegging of stablecoins to currencies or commodities is designed to mitigate the price volatility of crypto-assets. Billed as stable, easy to use, anonymous and with low transaction costs, stablecoins offer an alternative to fiat currency that lies outside the authority of central banks. However, their use raises concerns over a possible loss of control over monetary policy. <p> L’adossement des stablecoins à une monnaie ou matière première vise à pallier la volatilité des crypto-actifs. Supposés stables, faciles d’utilisation, anonymes, avec de faibles coûts de transaction, ils constituent une alternative à la monnaie légale, en dehors de l’autorité monétaire centrale. Leur utilisation interroge sur une possible perte de contrôle de la politique monétaire. |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:416 |
| By: | Duk Gyoo Kim (Yonsei University); Ohik Kwon (Korea University); Seungduck Lee (Sungkyunkwan University) |
| Abstract: | This study investigates the public demand for retail Central Bank Digital Currency (CBDC) and its implications for financial intermediation by focusing on its potential substitution effects on existing digital payment methods and viability as a store of value. Using an information-provision survey experiment, we analyze public responses to technically various CBDC issuance types, including online and offline applications and a physical card type, with and without interest payments. The survey experiment finds that, while CBDC design features do not significantly influence its demand as a payment method, offering positive interest payments can enhance its appeal as a store of value. Moreover, it indicates that payment practices and trust in central banks would have a greater impact on demand for CBDC than its technical design features. |
| Keywords: | CBDC, Privacy, Demand for CBDC, Issuance Type, Survey Experiment |
| JEL: | E41 E58 G11 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-274 |
| By: | Sami Alpanda; Serdar Kabaca |
| Abstract: | We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases, using an estimated dynamic stochastic general equilibrium macro-finance model with nominal and real rigidities and portfolio rebalancing effects. The latter arise from imperfect substitutability between stocks and short- and long-term government bonds in mutual funds’ portfolios. Since households’ consumption-savings decisions are tied to expected portfolio returns, the required returns on all three assets affect overall demand in the economy. The model shows that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity. Since stocks comprise a larger share in asset portfolios and are less substitutable for short-term securities than long-term bonds are, the effects of stock purchases on aggregate demand are larger than those of similar-sized bond purchases. |
| Keywords: | Business fluctuations and cycles, Economic models, Monetary policy transmission |
| JEL: | E32 E44 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-38 |
| By: | Benjamin Born; Nora Lamersdorf; Jana-Lynn Schuster; Sascha Steffen |
| Abstract: | Using modern natural language processing, we construct a high-frequency inflation expectations index from German-language tweets. This index closely tracks realized inflation and aligns even more closely with household survey expectations. It also improves short-run forecasts relative to standard benchmarks. In response to monetary policy tightening, the index declines within about a week, with the effects concentrated in tweets by private individuals and during the recent period of elevated inflation. Using 117 million online transactions from German retailers, we show that higher inflation expectations are followed by lower household spending on discretionary goods. By linking these shifts in demand to stock returns, we find that, during periods of elevated inflation, firms operating in discretionary sectors experience significantly lower stock returns when inflation expectations rise. Thus, our Twitter-based index provides market participants and policymakers with a timely tool to monitor inflation sentiment and its economic consequences. |
| Keywords: | inflation expectations, social media (Twitter/X), large language models (LLMs), NLP, household consumption, stock returns, monetary policy |
| JEL: | E31 D84 E58 C45 C81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12361 |
| By: | Collin Eldridge; Miguel Faria-e-Castro |
| Abstract: | An analysis suggests banks with significant exposure to unrealized bond losses rely more on deposits, hold less-liquid assets and have smaller capital buffers. |
| Keywords: | unrealized losses; monetary policy tightening; bank solvency; bank risk |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:102222 |
| By: | Marcin Kolasa; Oliver Vogt; Pawel Zabczyk |
| Abstract: | We investigate the optimal time-consistent use of foreign exchange interventions (FXI) in a small open economy model driven by endowment and portfolio flow shocks, with endogenous FX market depth and a lower bound constraint on FX reserves. In a competitive equilibrium, large capital flows increase conditional exchange rate volatility and make FX markets more shallow. Unlike in the unconstrained case, the central bank's optimal interventions are not solely targeted at offsetting inefficient fluctuations in the UIP premium but also incorporate a forward-looking element due to the risk of depleting reserves. We show that this environment engenders optimal time-consistent FXI policy that is state-dependent. FX sales are more effective than FX purchases, and the policy may respond less or more than one-for-one to capital outflows, depending on their size and the economy's net foreign asset position. Adopting the policy delivers sizable welfare gains, significantly exceeding those from a simple rule directed at stabilizing current capital flows, but only if the initial level of FX reserves is sufficiently far from its effective lower bound. |
| Keywords: | Capital Flows; FX Interventions; Lower Bound on FX Reserves; Time-Consistent Policy |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/261 |
| By: | Lucia Gurrieri; Chase P. Ross; Ben Schmiedt; Alexandros Vardoulakis; Vladimir Yankov |
| Abstract: | We examine whether access to the Federal Reserve's Overnight Reverse Repo Facility (ON RRP) affects money market fund flows during flight-to-safety episodes. We find that funds with ON RRP access serving sophisticated investors experience about a 1 percentage point increase in net daily flows over total assets during the March 2020 flight-to-safety episode relative to similar funds without access. The effect aligns with theoretical predictions and explains more than half of the inflows in those funds. Our results show that access to central bank deposit facilities amplifies flight-to-safety behavior. |
| Keywords: | Central bank account access; Flight-to-safety; Regulation D |
| JEL: | E58 G01 G21 G23 |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-100 |
| By: | Thomas Winberry; Adrien Auclert; Matthew Rognlie; Ludwig Straub |
| Abstract: | The Heterogeneous-Agent New Keynesian literature has revisited the transmission of monetary and fiscal policy to consumption using models where heterogeneous households face idiosyncratic income risk and borrowing constraints. We show that the key lessons from this literature also apply to investment using a model where heterogeneous firms face idiosyncratic productivity risk and financial frictions: constrained firms’ investment depends on their free cash flow, generating indirect effects of monetary policy and implying that transfer payments stimulate investment demand. Quantitatively, the strength of these new mechanisms is governed by firms’ marginal propensities to invest (MPIs), similar to the role of marginal propensities to consume (MPCs) for households. But unlike MPCs, we currently lack quasi-experimental evidence about MPIs that we can use to directly discipline the new mechanisms. |
| JEL: | D1 D2 E21 E22 E31 E32 E43 E52 E62 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34611 |
| By: | Juan Pablo Di Iorio (Department of Economics, Universidad de San Andrés) |
| Abstract: | This study examines the effects of incorporating fiscal dominance, based on the Fiscal Theory of the Price Level, into a New Keynesian Small Open Economy (NK-SOE) model. This framework enables a comparison between the responses of an economy characterized by fiscal dominance and those of canonical NK-SOE models when faced with monetary or external shocks. Notable differences emerge in nominal variables, such as inflation rates and nominal devaluation, as well as in household consumption and the real exchange rate. I show that introducing fiscal dominance into an otherwise standard NK-SOE model can help explain two important puzzles in the literature:the “price puzzle” and the “exchange rate response puzzle.” Furthermore, the model is expanded to account for government debt issued in foreign currency, introducing a fiscal channel related to the currency composition of the government’s debt.Additionally, the structure of taxes and government expenditures—particularly fiscal revenues tied to the non-tradable sector—plays a significant role in shaping the economic response when the government issues debt in foreign currency. |
| Keywords: | - |
| JEL: | E31 E43 E62 F31 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:sad:ypaper:19 |
| By: | Michał Łesyk (Narodowy Bank Polski); Grzegorz Wesołowski (Narodowy Bank Polski) |
| Abstract: | We examine the demand for retail treasury bonds and time deposits in Poland, a typical small open economy with an independent monetary policy. To this end we first employ instrumental variable, OLS and two GMM regressions based on asset demand functions derived from the microfounded household utility maximization model. We find that bonds and deposits are imperfect substitutes with the elasticity of substitution somewhat higher than the US counterpart. Next, we construct an asset aggregate consisting of bonds and deposits and find that it depends negatively on interest rate in Poland consistent with theoretical predictions with the price elasticity being close to the one estimated for the United States. Our findings suggest an effective monetary policy transmission to household assets as well as a need for active bond issuance policy of the government in countries like Poland. |
| Keywords: | demand for deposits and government bonds, substitutability between bonds and deposits |
| JEL: | E43 G11 G23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:nbp:nbpmis:378 |
| By: | Richard Kima; Keagile Lesame |
| Abstract: | We estimate the macroeconomic effects of shifting to a lower inflation target for South Africa, within a Structural Vector Autoregressive (SVAR) framework identified using the Max Share Identification strategy and estimated with Bayesian methods. We find that a decrease of 1% (in terms of percentage points change) in the inflation target leads to output expanding over the next few quarters after an initial muted response, with a peak of about 1.20% after about two years and remains positive and statistically significant for nearly three years after the shock. |
| Keywords: | Inflation targeting, Macroeconomics, Econometric models (Monetary policy), South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-106 |
| By: | Wieland, Volker; Hegemann, Hendrik |
| Abstract: | The euro area experienced an unprecedented surge of inflation in 2021 and 2022 followed by a decline in 2023 and 2024. The ECB raised policy rates too late. Simple rules would have prescribed an earlier response. The policy easing since summer 2024, however, is quite in line with such rules. This experience provides a number of lessons that could lead to improvements in the policy strategy that is currently under review. The current level of policy rates appears appropriate. However, there are some important upside risks to inflation. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2025. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:333884 |
| By: | Federico Ravenna |
| Abstract: | We study the implications for the business cycle and monetary policy of loan securitization in a DSGE model where information asymmetries lead to adverse selection across financial intermediaries. Securitization is an endogenous equilibrium outcome when the resources saved by acquiring incomplete information about some risk-classes of borrowers outweigh the cost of being selected against by mortgage originators. Adverse selection results in a time-varying market share of individually risk-priced loans held by banks, and of securitized loans held by the secondary market. We analyze the impact of conventional monetary policies and credit market policies in response to an increase in default risk, and discuss its welfare implications. Overall securitization allows more efficient funding of loans, at the expense of increased volatility in risky interest rates, consumption, and inflation over the business cycle. |
| Keywords: | Securitization, Credit market imperfections, Monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:751 |
| By: | Marc Blatter; Joséphine Molleyres |
| Abstract: | In this paper, we analyze the effects of the introduction of the liquidity coverage ratio (LCR) on banks' funding behavior. We use changes in regulatory liquidity requirements in Switzerland as a natural experiment. Using data for the period before and after the LCR was applied for all banks in Switzerland, our dataset allows us to analyze how the introduction of the LCR affects the banks' funding structure. Our results show that the LCR had its intended effects as banks reduced their exposure to short-term funding. At the same time, we find evidence for optimization of the LCR by banks. Banks optimize their LCR by extending the maturities of liabilities slightly over 30 days, which leads to an improvement in the LCR by 10 percentage points on average. Our results imply that it makes sense to complement the 30-day LCR with longer-term liquidity requirements to reduce cliff risks. |
| Keywords: | Regulatory arbitrage, Liquidity regulation, Contractual maturity mismatches, Funding structure |
| JEL: | G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-18 |
| By: | Hegemann, Hendrik; Wieland, Volker |
| Abstract: | This study reviews new perceptions of an imminent decline of the international role of the US dollar and implications for the euro. It considers developments in international reserves, invoicing, debt and payment systems. Strengths and weaknesses of the US and euro area economies are discussed along with new policy initiatives and proposals. The study concludes that a quick decline of the US dollar or a shift towards a multipolar currency system with similarly important reserve currencies is highly unlikely. For the foreseeable future, the euro's role is likely to remain one of primarily regional importance. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 6 October 2025. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:333885 |
| By: | Kinda Hachem |
| Abstract: | Why does the banking industry remain prone to large and costly disruptions despite being so heavily regulated? Is there a need for more regulation, less regulation, or simply different regulation? Our recent Staff Report combines insights from academic research in economics, finance, and accounting to provide a deeper understanding of the challenges involved in designing and implementing bank regulation, as well as opportunities for future exploration. This post focuses on the regulation of bank capital, but the ideas are applicable more broadly. |
| Keywords: | bank regulation; accounting discretion; shadow banking; regulatory arbitrage; financial stability; optimal policy |
| JEL: | D62 E44 G21 G28 M41 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:102211 |
| By: | Hakhverdyan, Davit; Kalantaryan, Hayk |
| Abstract: | The complex nature of international capital flows remains a central topic in academic debate. Despite extensive research, the relationship between capital inflows and financial system vulnerabilities remains complex and influenced by both global, regional and domestic factors that necessitate nuanced approaches when considering such relationships. This paper contributes to the ongoing debate by shedding light on the buildup of financial vulnerabilities stemming from capital inflows. Using a panel dataset covering 128 advanced and emerging economies and employing two-stage GMM estimation techniques, the paper examines the channels through which cross-border capital inflows contribute to financial vulnerability build-up. Our findings suggest that capital inflows, namely portfolio and cross-border bank inflows, remain a key driver of credit expansion and positively influence the risk-taking behaviour of commercial banks. Importantly, the underlying drivers of these flows are also critical in explaining such vulnerabilities. By using regional flows as an instrument for capital flows, we emphasise the role of regional and pull factors, while the distinction between natural-level and gap-driven inflows in the paper highlights important policy implications for economies exposed to external shocks. Finally, we find that capital flow control measures play a mitigating role in vulnerability build-up associated with external financing. |
| Keywords: | capital flows, cross-border bank flows, portfolio flows, financial vulnerability, credit growth, capital adequacy, capital controls, regional flows, pull factors, natural level of capital |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:opodis:333913 |
| By: | Ursel Baumann; Annalisa Ferrando; Dimitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt |
| Abstract: | Using data from the euro area SAFE, a novel survey of firms’ inflation expectations including a randomized controlled trial (RCT), we show that firms’ inflation expectations exhibit significant heterogeneity, challenging the predictions of full-information rational expectations models. At the same time, we document that firms update beliefs rationally but under incomplete information, with geographic location playing a dominant role in shaping expectations. Firms extrapolate from regional and national inflation to form euro area inflation expectations. A basic “Lucas island” model calibrated to euro area data replicates key empirical moments and highlights the structural “pass-through” from national to aggregate expectations. Our findings underscore challenges in anchoring inflation expectations in a heterogeneous monetary union. |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102218 |
| By: | Roxana Khabazzadeh Moghadam |
| Abstract: | Almost fully isolated from global finance, Iran has turned to crypto-assets to bypass sanctions, building a parallel payment system outside traditional banking, tariff enforcement, and capital controls backed by its central bank. This parallel strategy foreshadows the opacity risks of a fragmented global finance. <p> Presque entièrement isolé de la finance mondiale, l’Iran s’est tourné vers les crypto-actifs pour contourner les sanctions, créant un système de paiement parallèle hors du système bancaire traditionnel, de l’application des droits de douane et des contrôles de capitaux garantis par sa banque centrale. Cette stratégie parallèle préfigure les risques d’opacité d’un système financier mondial fragmenté. |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:415 |
| By: | Diogo Abry Guillen; Victor Monteiro |
| Abstract: | We build a general equilibrium setup that embeds the organizational structure and its misalignment of incentives in the firm’s pricing decision. On the firm level, such a mechanism endogenously generates discrete prices and explains price stickiness. On the macro level, we derive a Phillips curve where the incentive-provision and the number of divisions of the firms drive its slope. Empirically, we take the model into a novel Brazilian retail daily database to estimate the parameters of the theoretical mechanism. Our model matches price-setting facts, such as the length of price spell, heterogeneity of price distribution, existence of small changes, and sales behavior. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:638 |
| By: | David M. Arseneau; Elizabeth C. Klee; Antonis Kotidis; Michael Siemer |
| Abstract: | The Bank Term Funding Program (BTFP) was an emergency liquidity facility set up by the Federal Reserve in March 2023 following the failure of Silicon Valley Bank which experienced a classic bank run driven by weak fundamentals. This paper provides an in-depth discussion of the design and implementation of the BTFP and presents some evidence on program outcomes. It also quantifies how the lending terms compare to those of the Discount Window—the Federal Reserve’s main standing liquidity facility. The BTFP successfully acted as a backstop source of funding for depository institutions with large unrealized securities losses and heavy reliance on uninsured deposits and, in doing so, helped to avert a potential systemic banking crisis. The program ceased issuing new loans in March 2024 and closed one year later as the last loans matured. All outstanding loan balances were repaid in full. |
| Keywords: | Banking stress; Emergency liquidity facilities; Lender of last resort |
| JEL: | E58 E65 G21 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-99 |
| By: | Oscar Botero-Ramírez; Andrés Murcia; Hernando Vargas-Herrera |
| Abstract: | Foreign investor participation in Colombia’s domestic sovereign bond market surged after 2014, lowering yields, and supporting local-currency debt issuance and local market liquidity. However, it also increased the market’s sensitivity to global financial shocks. Empirical analysis suggests that during periods of high foreign participation in the local sovereign debt market (2014–2022), global risk factors had a stronger impact on domestic financial conditions, while the recent decline in foreign participation since 2023 has somewhat reduced this sensitivity. The Central Bank’s flexible inflation-targeting regime, supported by a fully flexible exchange rate regime and robust external buffers, has helped manage these risks, as demonstrated during the Covid-19 pandemic. The evolving composition of foreign investors remains a key channel for the transmission of global shocks to Colombia’s financial conditions. *****RESUMEN: La participación de inversionistas extranjeros en el mercado local de deuda soberana de Colombia aumentó significativamente después de 2014, reduciendo los rendimientos y apoyando la emisión de deuda en moneda local y la liquidez del mercado. Sin embargo, esto también incrementó la sensibilidad del mercado a los choques financieros globales. El análisis empírico sugiere que, durante los periodos de alta participación extranjera en el mercado local de deuda soberana (2014–2022), los factores de riesgo global tuvieron un impacto más fuerte sobre las condiciones financieras internas, mientras que la reciente disminución en la participación extranjera desde 2023 ha reducido parcialmente esta sensibilidad. El régimen de metas de inflación flexible del Banco Central, respaldado por un régimen cambiario totalmente flexible y sólidos colchones externos, ha ayudado a gestionar estos riesgos, como se demostró durante la pandemia del Covid-19. La composición cambiante de los inversionistas extranjeros sigue siendo un canal clave para la transmisión de choques globales a las condiciones financieras de Colombia. |
| Keywords: | sovereign bond markets, foreign investors, benchmark-driven investors, global risk transmission, financial conditions, original sin, inflation-targeting, exchange-rate flexibility, central banking, Colombia, mercados de deuda soberana, inversionistas extranjeros, inversionistas indexados, transmisión del riesgo global, condiciones financieras, pecado original, metas de inflación, flexibilidad cambiaria, banca central |
| JEL: | E44 E52 F30 F32 F34 F31 F38 G12 G15 G18 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1336 |