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on Central Banking |
| By: | Adib Rahman (University of Hawaii); Liang Wang (University of Hawaii) |
| Abstract: | We investigate the effects of central bank digital currency (CBDC) issuance in an economy where individuals can evade taxes by using cash. Our tractable model features agent heterogeneity with unobservable idiosyncratic shocks and voluntary exchange, where CBDC and cash compete as payment methods. CBDC's transparency enables governments to collect a labor tax that proves non-distortionary in our quasi-linear environment. Agents with higher marginal utility voluntarily pay fixed fees to access interest-bearing CBDC when their debt constraints bind, allowing the implementation of optimal policy with strictly positive inflation and nominal interest rates. We demonstrate how CBDC enables redistribution between agent types that is not possible in cash-only economies. We conjecture that an optimal CBDC policy involves higher nominal interest rates and lower inflation compared to cash regimes. By reducing tax evasion incentives, the introduction of CBDC can increase both output and aggregate welfare. |
| Keywords: | Cash, CBDC, Labor Tax, Tax Evasion, Monetary Policy |
| JEL: | E42 E58 H21 H26 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202505 |
| By: | Josef Simpartl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This article examines forms of direct monetary policy communication and their impact on inflation expectations and the public’s perception of the central bank. To this end, an experiment was conducted in August 2024 with three groups of respondents representative of the Czech population, the first of which was exposed to a monetary policy statement, the second to a related Facebook post, and the third to no information. Respondents who were exposed to the above-mentioned texts significantly reduced their inflation expectations and the link between the inflation expectations and perceived current inflation. At the same time, their knowledge of the monetary policy of the Czech National Bank´s (CNB) improved somewhat. However, none of the groups of respondents changed their opinion on the CNB, with the exception of a slight improvement in the assessment of its communication in the case of the group exposed to the Facebook post. |
| Keywords: | inflation expectations, central bank, communication, social media, survey |
| JEL: | C83 D84 E31 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_29 |
| By: | Zakaria Savon (University Mohamed V - Souissi) |
| Abstract: | The financial crisis of 2007-2008 compelled economists to reevaluate the impacts and trajectories of monetary policy. It highlighted the new challenges central banks face, particularly in integrating financial stability into the monetary policy-making process. Financial stability is closely connected to monetary policy. The financial sector plays a vital role as a channel for monetary policy to affect the real economy. Numerous studies have investigated the impact of monetary policy on the stability of conventional banking institutions. Nonetheless, a substantial study vacuum persists concerning the impact of monetary policy on the stability of Islamic financial institutions. Our research aims to investigate this matter. The study analyzed a sample of 34 financial institutions across 11 countries with dual banking systems, spanning the years 2013-2022. It utilized a random effects estimator and a system GMM estimator. The findings demonstrate a substantial and negative impact of the monetary policy rate on the stability of Islamic banks. The study's conclusions have significant consequences, especially for infrastructure and monetary policy. The advancement of the Islamic money market signifies a crucial development in the strength and expansion of Islamic financial organizations. Furthermore, monetary policymakers must evaluate the effects of interest rate-oriented monetary policy on the stability of Islamic banks. |
| Keywords: | Stability, Z-score, GMM, Islamic Banks, Monetary Policy |
| Date: | 2025–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05321401 |
| By: | Larsen, Mathias; Jackson, James |
| Abstract: | Climate change has become a concern for central banks, at least rhetorically. Questioning whether the banks walk the talk, a proliferating research agenda covers mandates, motives, expertise, and independence. Yet, it remains unappreciated that the only central bank with actual green monetary policies is not independent, namely, the People’s Bank of China (PBoC). Here, we explore the relation between independence and climate action through an in-depth, interview-based study of the PBoC, in comparison with the U.S. Federal Reserve, the European Central Bank, and the Bank of England. First, we find that Western central banks indirectly promote financial institutions to consider climate issues, whereas the PBoC, most centrally, directly intervenes through monetary policy. Second, by examining legal independence, mandates, and government influence, we find that independence constrains Western central banks, while non-independence forces the PBoC to act. From this, we discuss how the climate era requires revisiting central bank independence. |
| Keywords: | China; finance; environment; governance; state |
| JEL: | H11 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130460 |
| By: | Tevdovski, Dragan; Hadzi-Velkova, Biljana |
| Abstract: | This paper examines the interest rate pass-through in an economy with structurally high banking sector liquidity, using North Macedonia as a case study. Persistent surplus liquidity limits commercial banks’ reliance on central bank and interbank funding, potentially weakening the transmission of monetary policy. Employing a dynamic autoregressive distributed lag and error-correction (ARDL/ECM) framework augmented with a liquidity variable, we estimate the two stages of the transmission process - from the policy rate to the interbank rate, and from the interbank to lending rates. The results show that high liquidity dampens both the strength and speed of pass-through by reducing interbank rate responsiveness and moderating lending rate adjustments. These findings suggest that in banking systems with structural liquidity surpluses, conventional interest rate policy may be insufficient, underscoring the need for complementary instruments to enhance monetary transmission effectiveness. |
| Keywords: | interest rate, lending, liquidity, monetary policy, banking sector. |
| JEL: | E43 E52 G21 O11 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126691 |
| By: | Husnu C. Dalgic |
| Abstract: | Following U.S. monetary policy shocks, exchange rates exhibit two puzzling patterns: they initially depreciate sluggishly (delayed overshooting) before overshooting excessively. I show that incorporating FX speculators with subjective expectations resolves both puzzles by generating short-term momentum and excess volatility in exchange rates. When investors’ expectations are sticky and backward-looking, their trading amplifies the initial sluggishness and subsequent overshooting. In contrast, the participation of investors with rational expectations helps to dampen such volatility. This distinction yields sharp policy implications: limiting the market participation of speculators with subjective expectations significantly lowers exchange rate volatility , while their presence also makes FX interventions and local monetary policy more effective by endogenously reinforcing central bank actions. |
| Keywords: | foreign financiers, capital controls, subjective expectations |
| JEL: | E44 F32 F41 G15 D84 E71 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_723 |
| By: | Anahit Matinyan (Central Bank of Armenia) |
| Abstract: | This paper examines exchange rate pass-through (ERPT) to inflation in Armenia using monthly data from 2008-2023. Combining reduced-form estimation with a structural vector autoregression (SVAR) model, it provides evidence on both average and shock-specific ERPT. The analysis yields three key findings. First, exchange rate fluctuations affect domestic prices primarily through the U.S. dollar exchange rate, confirming the relevance of the dominant currency paradigm. Second, ERPT is highly heterogeneous across consumer price index (CPI) components, with larger effects for tradable and imported goods and limited responses for non-tradables and services. Notably, imported prices display a short-run asymmetry, with depreciations eliciting stronger responses than appreciations of comparable size. Third, ERPT is shock-dependent: monetary policy shocks generate the strongest and most persistent pass-through, underscoring the importance of the exchange rate channel in Armenia's monetary transmission mechanism. The results remain consistent across methods, reinforcing their robustness and offering policy-relevant insights for small, dollarized economies pursuing inflation targeting under external volatility. |
| Keywords: | Inflation, Price Level, Monetary Policy, Exchange Rate Pass-Through |
| JEL: | E31 E52 F31 F41 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-05 |
| By: | Viktoria Alaverdyan (Central Bank of Armenia); Gevorg Minasyan (Central Bank of Armenia); Aleksandr Shirkhanyan (Central Bank of Armenia) |
| Abstract: | This paper examines whether macroprudential foreign exchange (FX) regulations unintentionally shift currency risk to sectors not directly targeted by such measures. Using a difference-indifferences framework and a highly granular dataset combining loan-level credit registry data with bank-level balance sheet information, we analyse how Armenian banks adjusted their portfolios following the introduction of a differentiated loan-to-value (LTV) regulation that imposed stricter limits on FX-denominated mortgages. The results show that the differentiated LTV, while tightening borrowing conditions for FX-denominated mortgages, also led to an increase in the dollarization of business loans and a higher share of foreign-currency bonds in banks' portfolios. These shifts imply that FX-related macroprudential policies can reallocate rather than reduce currency risk, emphasizing the need for system-wide oversight to prevent its build-up in unregulated segments of the financial system. |
| Keywords: | Macroprudential policy; Foreign exchange regulation; Loan-to-value limits; Dollarization; Bank portfolio reallocation |
| JEL: | E58 G21 G28 F31 E44 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-04 |
| By: | Duarte, João B.; Pires, Mariana N. |
| Abstract: | We study how financial integration shapes the transmission of monetary policy to consumer prices and output in the euro area. Using local projections, we document that the effect of financial integration is continuous: greater integration systematically strengthens the pass-through of monetary policy. When integration falls to low levels—around the first quartile of its historical distribution— transmission to both prices and output becomes statistically and economically insignificant. The amplification pattern is pervasive across member states and more pronounced in peripheral economies. These results show that financial integration is a key determinant of monetary policy effectiveness within the euro area. JEL Classification: E44, E52, F36, F45 |
| Keywords: | financial integration, local projections, monetary policy, monetary union |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253165 |
| By: | Pablo Aguilar-Perez |
| Abstract: | This paper examines the effects of monetary policy on the profitability of life insurers during the prolonged low-interestrate period, leveraging a novel dataset of 31 leading French insurers from 2009 to 2018. Following supervisory practice and business-model criteria, we classify firms into bancassurers (insurance subsidiaries of banking groups) and non-bancassurers (the rest of life insurers governed by the French Insurance Code). Our central contribution is to document the income channel for life insurance. Monetary policy easing boosts profitability, but the adverse effect of the low-yield era operates through the spread between portfolio returns and credited (guaranteed) rates: as this guaranteed-yield spread widens, the gain from easing attenuates. We show that this mechanism differs materially across business models. Bancassurers reduce credited rates more rapidly than peers while maintaining above-average premium growth, thereby dampening the income channel’s drag and sustaining margins. Portfolio choices reinforce this advantage: bancassurers’ profitability increases with higher equity shares, in contrast to nonbancassurers, consistent with more diversified portfolios that smooth returns. Taken together, the results reveal pronounced heterogeneity in how life insurers adapt to monetary easing and underscore the importance of business model for the transmission of monetary policy to non-bank financial intermediaries. |
| Keywords: | Low-Interest Rate Environment;Insurance Profitability;Monetary Policy;Financial Stability;Non-Bank Financial Intermediaries |
| JEL: | G22 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2025-22 |
| By: | Tao Liu (Central University of Finance and Economics); Dong Lu (Renmin University of China); Liang Wang (University of Hawaii) |
| Abstract: | There have been two competing views on the structure of the international monetary system: one sees it as a unipolar system with a dominant currency, such as the U.S. dollar, while the other argues that a multipolar system has been the rule, not the exception. We propose a unified theoretical framework to reconcile these two views. In a micro-founded monetary model, we examine the interactions of two essential roles played by international currencies, the medium of exchange and the store of value, and highlight the importance of abundant safe asset supplies. When the two roles reinforce each other, a unipolar equilibrium exists. However, when one currency is unable to serve as sufficient safe assets for international trade transactions, the two roles work against each other, and agents have the incentive to diversify their portfolio, giving rise to a multipolar system. The effects of monetary policy, fiscal policy, and their combinations crucially depend on the total supply of safe assets and the relative importance of the two functions of international currencies. The structure of the international monetary system could be influenced by various policies such as monetary policy, fiscal policy, and financial sanctions. A calibrated model shows that, all else equal, USD could lose its dominance if the US fiscal capacity deteriorates by 34\% or the US economy size shrinks by 32%. |
| Keywords: | International Currency, Money, Multipolar, Safe Assets, Unipolar |
| JEL: | E42 E52 F33 F40 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202504 |
| By: | Le Roux, Thomas |
| Abstract: | Abstract This paper argues that the dominant risk to Euro Area stability has structurally shifted from cyclical inflation to a direct conflict between geopolitically-driven fiscal policy and central bank independence. We construct a novel quarterly dataset of exogenous geopolitical fiscal shocks (GEO_SHOCK) using a narrative approach (Ramey, 2011). A Structural Vector Autoregression (SVAR) for the EA aggregate finds these shocks are persistently inflationary, with a peak impact of +0.08% on the HICP. A Panel SVAR, robust to local projections, finds the shocks drive significant fragmentation: a 1-std-dev shock widens spreads in high-debt (90th percentile) member states by 22 basis points, an effect absent in pandemic-related fiscal shocks. The shock accounts for 34% of medium-term spread variance. A high-frequency event study confirms this, showing an immediate +11.2 bps impact on Italian spreads post-announcement. A counterfactual simulation shows that a TPI "spread cap" would stabilize debt but amplify inflation, quantifying the fiscal dominance trade-off. |
| Keywords: | Fiscal Dominance, Monetary Policy, Geopolitical Risk, TPI, Fragmentation, SVAR, Local Projections |
| JEL: | E52 E58 E62 E63 F45 H63 |
| Date: | 2025–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126750 |
| By: | Pablo Aguilar-Perez |
| Abstract: | This paper examines the global spillovers of US monetary policy through the remittance channel, in both sending and recipient countries. Using a dataset covering 8 remittance-sending and 41 recipient countries from January 1997 to December 2017, we apply a local projections framework to trace the dynamic effects of unexpected US monetary tightening. We find that remittance outflows decline in advanced economies following policy shocks, illustrating the pro-cyclicality of remittances in source countries and their role in amplifying global financial spillovers. Among recipient countries, our results show that in countries with low to moderate remittance dependence, inflows tend to increase following a contractionary shock – consistent with altruistic or insurance-driven motives. In contrast, remittances decline in highly dependent countries, aligning with self-interest or investment-driven behavior. We find that these heterogeneous responses are shaped by migrant profiles: countries with high remittance dependence typically have a larger share of low-skilled migrants and display more strongly pro-cyclical remittance patterns. In contrast, less dependent countries tend to have more skilled or diversified diasporas, resulting in more stable and less cyclical remittance flows. |
| Keywords: | Global Spillovers;Remittances;US Monetary Policy;Emerging Markets |
| JEL: | F24 E52 F41 F44 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2025-21 |
| By: | Kliem, Martin; Metiu, Norbert |
| Abstract: | Financial cycles refer to fluctuations in credit and house prices that extend beyond typical business cycles. Despite its significance for both monetary and macropru- dential policy, the question of how monetary policy shapes financial cycles remains largely unanswered. We extract innovations from a vector autoregression that account for most of the cyclical co-movement between credit and house price growth at medium frequencies. Our findings indicate that systematic monetary policy plays a crucial role in propagating this innovation and can significantly dampen financial cycles, particularly when counteracting house price movements. These stabilizing effects could have substantially mitigated the U.S. financial cycle during the 2000s. |
| Keywords: | Financial cycle, monetary policy, policy counterfactual |
| JEL: | C32 E32 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:333896 |
| By: | Vladimir Yeghiazaryan (Central Bank of Armenia); Arthur Grigoryan (Central Bank of Armenia); Ashot Sargsyan (Central Bank of Armenia) |
| Abstract: | In recent years, macroprudential policy has gained importance as a tool to handle cyclical and structural vulnerabilities in the financial system. These vulnerabilities, if left unmonitored, can amplify during periods of financial stress and pose significant risks to economic growth. This paper attempts to quantify these vulnerabilities and the effects of macroprudential policy on them through the use of an empirical growth-at-risk (GaR) framework. Using Bayesian quantile regression, we assess how systemic risks impact GDP growth and explore the potential costs and benefits of macroprudential policy on its growth distribution. Our findings are consistent with earlier studies suggesting that any policy measure introduces a trade-off between mitigating systemic risks and preserving median GDP growth. We contribute to the existing literature by two main ways 1. we estimate the long term sustainable level of systemic risks relative to the resilience of the financial system using estimates of a panel model with 41 countries, 2. we offer improvements to existing macroprudential policy rule frameworks in the current literature to augment the decision-making process. Lastly, we check whether the outputs of some well-known papers in this field hold in a small open economy like Armenia. |
| Keywords: | Systemic risk, Macroprudential policy, Financial stability, Policy stance |
| JEL: | E58 E44 G21 E61 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-01 |
| By: | Ulrich Roschitsch; Hannes Twieling |
| Abstract: | This paper shows that regional disparities in house price growth are more pronounced during house price busts than during booms. To explain this observation we construct a two-region currency union model incorporating a housing sector and extrapolative belief updating regarding house prices. To solve the model, we propose a new method that efficiently handles extrapolative belief updating in a wide class of structural models. We show that intensified extrapolation in busts and regional housing market heterogeneities jointly explain elevated regional house price growth dispersion in busts and muted dispersion in booms. Consistent with our theory, we provide empirical evidence that house price belief updating is indeed more pronounced in busts and we document that regional heterogeneities on the housing supply side affect regional house prices. Quantitatively, our model can match empirically observed elevated regional house price growth dispersion in busts. Moreover, we demonstrate that a monetary authority targeting house prices may reduce the volatility of output and prices as well as regional house price growth disparities. This policy is welfare-improving relative to an inflation-targeting benchmark. |
| Keywords: | Housing; Monetary policy; Monetary policy transmission |
| JEL: | E31 E32 E52 F45 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-36 |
| By: | Hélène Bruffaerts; Rudi Vander Vennet (-) |
| Abstract: | This paper evaluates the effectiveness of a soft Loan-to-Value (LTV) limit as a borrower-based macroprudential tool. Our analysis is based on detailed loan-level data from a major Belgian bank, covering all new mortgage originations between 2016 and 2021. Using the 2020 Belgian LTV recommendations as a quasi-natural experiment, we analyze how a non-binding framework that allows tolerance margins affects mortgage lending behavior. We develop a hybrid approach combining machine-learning (ML) predictions of counterfactual treatment status with a difference-in-differences (DiD) and triple-differences (DDD) design. The ML model, trained on pre-policy data, identifies borrowers likely to exceed the 90% LTV threshold in absence of the reform, allowing consistent treatment classification across periods. Our results show that the introduction of a soft LTV limit leads to a significant decline in average LTV ratios and in the share of high-LTV loans (higher than 90%), with stronger effects among constrained borrowers. The adjustment occurs gradually, reflecting banks’ progressive adaptation to supervisory expectations rather than abrupt credit rationing. The reduction in leverage is primarily achieved through higher down payments, which leads to lower monthly repayments and thus lower credit risk. When focusing on the exceptions we find convincing evidence that banks especially favor first-time-buyers, since they remain significantly more present in the above 90% mortgage segment compared to non-FTB. Differences in age, savings, and income also lead to differentiated treatment effects, indicating that banks apply the soft limits in a risk-sensitive and targeted manner. These findings demonstrate that soft borrower-based measures can achieve prudential objectives similar to hard caps without exacerbating credit exclusion. From a policy perspective, the Belgian experience highlights that supervisory guidance can effectively curb excessive leverage while maintaining mortgage accessibility. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1125 |
| By: | Lindner, Vincent; Pelizzon, Loriana |
| Abstract: | This paper argues that the European macroprudential regime has evolved into a complex architecture of buffers, national discretion, and instrument-specific controls due to persistent doubts regarding the credibility of the EU bank resolution regime. Moreover, macroprudential controls are structurally constrained by the dynamics of financial innovation, particularly the rapid growth of non-bank financial intermediaries (NBFIs), which continually move risk outside the traditional regulatory perimeter. In such an environment, ex ante macroprudential tools can at best respond to the last innovation but can never anticipate the next one. Thus, macroprudential policy should be lean and focused. If political capital for a major reform is available, it should be directed towards strengthening the resolution regime, which is the only institutional mechanism capable of disciplining risk-taking ex ante and providing stability ex post. |
| Keywords: | Macroprudential Regulation, Resolution Regime, NBFIs |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safepl:333936 |
| By: | Coleman, Andrew; Karagedikli, Özer |
| Abstract: | This paper examines the relative size of the effects of New Zealand monetary policy and macroeconomic data surprises on the spot exchange rate, 2 and 5 year swap rate differentials, and the synthetic forward exchange rate schedule. We find that the spot exchange rate and 5 year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5 year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered. |
| Keywords: | Demand and Price Analysis |
| URL: | https://d.repec.org/n?u=RePEc:ags:motuwp:292650 |
| By: | Christian R. Proano; Naira Kotb |
| Abstract: | In this paper, we investigate the implications of temporal aggregation, i.e. the discrepancy between the Data Generation Process (DGP) and the Data Collection Process (DCP), for the design of monetary policy in a New Keynesian macroeconomic framework with boundedly rational agents. We extend the model by Airaudo, Nistico and Zanna (2015) who investigate if monetary policy should explicitly respond to stock prices due to the presence of a structural linkage between the stock market and the real activity. We stress this rationale in a similar model with agents with heterogeneous boundedly rational expectations by showing that responding to the stock price is further justified when real data is only available at a delay due to temporal aggregation. Under these conditions, reacting moderately to high frequency stock price movements can stabilise both the financial and the real sectors. |
| Keywords: | new Keynesian model, mixed-frequency macroeconomics, behavioural macroeconomics |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-68 |
| By: | Tjantana Barro; Michal Marencak; Giang Nghiem |
| Abstract: | We provide novel causal evidence that macroeconomic narrative framing, whether a policy is described as a supply or demand shock, significantly shapes household beliefs. In a randomized survey experiment conducted within the Bundesbank household panel, participants received identical information about a climate policy that was framed differently across treatments. While both the supply and demand narratives lower growth expectations, we find that the supply framing increases inflation expectations, whereas the demand framing does not reduce them. This highlights that how structural policies are communicated, not just what is communicated, critically influences expectation formation. Our findings offer new insights for central bank and government communication strategies during economic transitions like the green transition or AI adoption. |
| Keywords: | climate change, expectations, survey experiments, RCT |
| JEL: | C33 D84 E31 E52 Q4 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-69 |
| By: | Toshiaki Yamanaka |
| Abstract: | We develop a robust linear-quadratic mean-field control framework for systemic risk under model uncertainty, in which a central bank jointly optimizes interest rate policy and supervisory monitoring intensity against adversarial distortions. Our model features multiple policy instruments with interactive dynamics, implemented via a variance weight that depends on the policy rate, generating coupling effects absent in single-instrument models. We establish viscosity solutions for the associated HJB--Isaacs equation, prove uniqueness via comparison principles, and provide verification theorems. The linear-quadratic structure yields explicit feedback controls derived from a coupled Riccati system, preserving analytical tractability despite adversarial uncertainty. Simulations reveal distinct loss-of-control regimes driven by robustness-breakdown and control saturation, alongside a pronounced asymmetry in sensitivity between the mean and variance channels. These findings demonstrate the importance of instrument complementarity in systemic risk modeling and control. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.04704 |
| By: | Luis Uzeda |
| Abstract: | This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. We find that broad-based inflationary pressures account for most underlying inflation, while sector-specific factors—particularly shelter—have become more inflationary since 2021. Unlike CPI-common, PULSE is less prone to large historical revisions and maintains a strong correlation with economic slack. |
| Keywords: | Econometric and statistical methods; Inflation and prices; Monetary policy transmission |
| JEL: | C5 C55 E31 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:25-29 |
| By: | Carlos Giraldo (Fondo Latinoamericano de Reservas - FLAR); Iader Giraldo-Salazar (Fondo Latinoamericano de Reservas - FLAR); Jose E. Gomez-Gonzalez (Department of Finance, Information Systems, and Economics, City University of New York – Lehman College); Jorge M Uribe (Universitat Oberta de Catalunya) |
| Abstract: | This study explores how banks’ capital ratios respond to government debt-to-GDP shocks and how this response varies with regulatory quality. Using local projections for a large panel of advanced and non-advanced economies, we document that on average, increases in public debt are followed by declines in banks’ capital-to-assets ratios. However, this aggregate trend conceals important heterogeneity. When regulatory quality is introduced as a conditioning variable, capital adjustment becomes state dependent. Banks operating in weaker regulatory environments incorporate fiscal pressure more slowly and may raise capital ratios in the medium term, whereas those in stronger systems record losses earlier and experience an immediate decline in capital, followed by a recovery in advanced economies as conditions stabilize. These results show that institutional quality shapes the transmission of fiscal shocks to bank balance sheets and that simple capital measures capture this adjustment more reliably than risk-weighted ratios. The findings highlight the need to account for fiscal conditions in macroprudential assessments and underscore the importance of supervisory capacity for maintaining bank resilience when public debt increases. |
| Keywords: | bank capital; sovereign risk; public debt; regulatory quality; macroprudential policy; local projections |
| JEL: | G21 G28 E32 E44 H63 |
| Date: | 2025–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:col:000566:021931 |
| By: | Djeneba Dramé (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, UPN - Université Paris Nanterre); Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | In an era of economic uncertainty and escalating geopolitical risks, global growth is slowing while inflationary pressures persist. Policymakers face a delicate trade-off: curbing inflation without stifling recovery—a challenge that is especially acute in developing economies, where traditional tools often fall short. While monetary policy is a cornerstone of economic management, its real-world impact in these countries remains debated. Our recent study (Dramé and Léon, 2025) sheds light on this issue by examining how firms adjust their behavior in response to monetary policy changes. We find that managers do react to both tightening and easing measures—but their responses vary widely, revealing significant heterogeneity. |
| Abstract: | Dans un contexte marqué par l'incertitude et la montée des tensions géopolitiques, l'économie mondiale navigue en eaux troubles. Les prix restent sous pression, tandis que la croissance montre des signes d'essoufflement. Pour les décideurs, l'enjeu est de taille : comment maîtriser l'inflation sans compromettre la reprise ? Un exercice d'équilibriste, surtout pour les pays en développement, où les outils traditionnels peinent à apporter des solutions durables. La politique monétaire est un instrument clé pour atteindre cet équilibre, mais son efficacité dans les pays en développement reste une question ouverte. Dans une étude récente (Dramé et Léon, 2025), nous examinons cette question en étudiant le comportement des entreprises face à un changement de la politique monétaire. Nous mettons en évidence que les dirigeants d'entreprises réagissent à la fois aux politiques monétaires restrictives et expansives mais que la sensibilité est hétérogène. |
| Keywords: | Developing countries, Firms, Financial constraints, Monetary policy, Pays en dévelopement, Firmes, Contraintes financières, Politique monétaire |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05385539 |
| By: | Butt, Asad Ejaz |
| Abstract: | This paper investigates why U.S. inflation during 2021–2022 subsided without the expected rise in unemployment implied by the Phillips curve, advancing the question of whether supply-side factors and anchored expectations reshaped the inflation–employment relationship. Drawing on macroeconomic data from FRED, the study integrates empirical analysis of inflation, wage growth, energy prices, and unemployment to test the sensitivity of inflation to labor market conditions. The theoretical framework re-evaluates the Phillips curve in the context of supply-driven inflation and credible inflation-targeting regimes. Results indicate that supply shocks—mainly energy price and supply-chain disruptions—proved transitory, while the Federal Reserve’s communication effectively anchored expectations near its 2% target. Consequently, inflation declined without the employment sacrifices predicted by traditional models, implying a flatter Phillips curve and stronger role for expectations anchoring. The study concludes that macroeconomic policy must better distinguish supply- from demand-induced inflation, integrating expectations management and policy credibility into models of disinflation dynamics. |
| Keywords: | Supply-driven inflation, Phillips curve, Anchored expectations, Disinflation, Monetary policy credibility, Supply-side shocks, Inflation targeting, Energy prices, Labour market dynamics, Macroeconomic stabilization |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:333975 |
| By: | Nicolás Cachanosky; Emilio Ocampo |
| Abstract: | Recent inflationary episodes in advanced economies have reignited interest in Conflict Theories of Inflation (CTI), which attribute price level increases to conflicts over income distribution rather than monetary factors. These heterodox perspectives, rooted in Marxist and post-Keynesian traditions, emphasize the roles of labor-capital tensions, corporate pricing strategies, and broader sociological struggles. This brief note evaluates the theoretical foundations of CTI and examines their policy implications. It highlights how measures inspired by CTI historically result in higher inflation and lower economic growth. The analysis concludes with a critique of CTI’s reductionist framing and a call for policies grounded in a balanced understanding of monetary and conflict dynamics. |
| Keywords: | Conflict, inflation |
| JEL: | E31 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:887 |
| By: | Ressita Ramadhani (Economic Research Institute for ASEAN and East Asia (ERIA)) |
| Abstract: | Central bank digital currencies (CBDCs) offer ASEAN countries an opportunity to modernise payments, enhance financial inclusion, and support economic integration. Countries such as Malaysia, Thailand, and Singapore are actively piloting CBDC initiatives, exploring both wholesale and retail applications, and testing cross-border interoperability. Global pilot projects – including mBridge, Dunbar, and Cedar x Ubin+ – provide valuable insights for ASEAN, demonstrating benefits in efficiency, transparency, and risk management. At the same time, implementing CBDCs presents challenges: smaller economies face potential capital flight, regulatory gaps remain in KYC, AML, and CFT frameworks, and CRS adoption is uneven. To fully harness CBDCs’ potential, ASEAN must establish standardised cross-border payment mechanisms, strengthen regulatory and financial security frameworks, and enhance digital literacy for governments, businesses, and citizens. By addressing these risks and leveraging regional collaboration, ASEAN can position itself as a competitive and resilient player in the evolving global digital economy. Latest Articles |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:era:wpaper:pb-2025-10 |
| By: | Luis Rodrigo Arnabal; Santiago Camara; Cecilia Dassatti |
| Abstract: | This paper studies how shocks to global banks' net worth transmit to Emerging Market Economies. Using the identification strategy of Ottonello and Song (2022), which isolates high-frequency surprises to banks' credit supply capacity, we show that positive shocks appreciate local currencies, lower external borrowing costs, increase capital flows to domestic banking sectors, and raise investment, credit, and real activity across EMEs. These effects are highly robust across specifications and samples. Using administrative credit-registry data from Uruguay, we find that better capitalized banks transmit global credit easing more strongly. At the firm level, responses are weaker for more leveraged firms, especially those with foreign-currency debt, short maturities, or collateral not priced to market. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.01132 |