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on Central Banking |
| By: | Ruopu Hu (Kobe University); Andreas Schabert (University of Cologne) |
| Abstract: | Since U.S. bank capital holdings began rising almost concurrently with the monetary policy change after 2008, we examine the role of capital requirements for monetary policy regimes. While standard models predict that equilibrium determination and responses to aggregate shocks are fundamentally affected at the zero lower bound (ZLB), we show that these effects are absent when bank capital requirements are binding. Estimating a model version with occasionally binding capital requirements, we find that they have been almost permanently binding after 2008. We further show that capital requirements neither restore relevance of money supply nor amplify responses to macroeconomic shocks above the ZLB. |
| Keywords: | Capital Regulation, Monetary Policy, Local Equilibrium Determinacy, Regimeswitching Estimation, Zero Lower Bound |
| JEL: | E52 G28 C11 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:397 |
| By: | Grebe, Moritz; Tillmann, Peter |
| Abstract: | This paper studies the response of inflation expectations to an exogenous shift in central bank preferences. We use the unexpected announcement of the resignation of Jens Weidmann, the president of the Deutsche Bundesbank, in 2021 as a natural experiment constituting a rare case of an exogenous shift in the composition of the ECB's Governing Council. As a member of the Governing Council, he was a known policy hawk and a vocal critic of the ECB's asset purchases. Our evidence from survey data suggests that the news about the resignation causes a strong increase in individual inflation uncertainty of German households and a significant fall in the level of trust in the ECB. The effect on the mean inflation expectations remains inconclusive. Thus, the shift in policy preferences exerts a strong effect on second moments, while the first moment effect remains weak. |
| Keywords: | Monetary policy delegation, central bank governor, household survey, inflation uncertainty, trust |
| JEL: | E52 E43 E32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:339583 |
| By: | Justin Bloesch; Jacob P. Weber |
| Abstract: | We argue that secular change in both the production and composition of investment goods has weakened investment’s role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes weakening this channel: (i) labor’s share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 23 percent weaker response of labor income and a 17 percent weaker response of consumption to real interest rate shocks in a 2020s economy relative to a 1960s economy. |
| Keywords: | monetary policy; investment; labor income; marginal propensity to consume |
| JEL: | E21 E22 E32 E52 F41 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102964 |
| By: | Fahmi, Taher E. (University of Warwick) |
| Abstract: | This work quantifies the welfare cost of unorthodox monetary policy conduct in Turkiye during 2021-2023 through a counterfactual experiment based on an estimated Markov-switching DSGE (MS-DSGE) model. This episode marks a sharp departure fromHow NOT to Conduct Monetary Policy : The Case of Turkiye conventional, inflation-stabilizing policy despite rising inflation, providing an ideal setting for evaluating welfare losses caused by politically driven departures from or thodoxy. The analysis uses quarterly data from 2006Q1 to 2025Q1 and specifies four candidate models, three of which allow for regime-switching in Taylor rule parameters and shock volatilities. Estimation results indicate that the model with the best fit is one with switching in the inflation-response and interest-rate smoothing parameters, alongside volatility switching in cost-push shocks. Using the best fitting model, the counterfactual experiment estimates welfare gains of 155–177% had the central bank refrained from unorthodoxy during said episode |
| Keywords: | Unorthodox MonetaryPolicy ; Markov-Switching DSGE model ; Bayesian Estimation ; Turkiye JEL classifications: C11 ; C63 ; E31 ; E32 ; E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wrkesp:95 |
| By: | Xakousti Chrysanthopoulou; Moïse Sidiropoulos |
| Abstract: | This paper revisits the debate on whether limited asset market participation (LAMP) is relevant for the design of monetary policy. While LAMP can substantially alter the monetary transmission mechanism - potentially reinforcing or reversing the contractionary demand effects of interest rate increases and challenging standard policy prescriptions - its importance depends critically on labor market institutions. We develop a New Keynesian DSGE model with LAMP that incorporates sector-specific labor unions whose wage-setting behavior accounts for broader macroeconomic conditions. The analysis shows that when wage bargaining is sufficiently centralized, particularly under monopoly union structures, LAMP becomes largely irrelevant for monetary policy design, and the Taylor Principle once again ensures equilibrium determinacy. These findings highlight the structure of wage bargaining as a key determinant of how asset market participation shapes the effectiveness and conduct of monetary policy. |
| Keywords: | Limited asset market participation; unions; monetary policy; Taylor principle; determinacy; centralized wage setting |
| JEL: | E52 E44 E24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2026-11 |
| By: | Rui Sun |
| Abstract: | We characterize optimal monetary policy when policy endogenously moves risk premia through redistribution across agents who differ in their willingness to bear risk. The analytical core is Marginal Risk Capacity, the covariance of monetary policy exposures with marginal propensities to take risk. This sufficient statistic governs this channel as MPCs govern the consumption channel. MRC enters the Ramsey criterion as a risk premium wedge that breaks divine coincidence, vanishes if and only if macroprudential tools are available, and generates a new inflation bias under discretion. Solving the Ramsey problem globally reveals a risk capacity trap where transmission collapses, and optimal policy preemptively prevents it. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.21044 |
| By: | Hattori, Keisuke |
| Abstract: | This paper analyzes a vertical market structure in which downstream firms compete imperfectly in quantities while upstream banks endogenously determine loan rates. Banks' pricing depends on the policy rate, lending volume, and banking conduct (profit-maximizing versus contestable). With contestable banking, average-cost loan pricing creates feedback between lending and loan rates, making monetary transmission state-dependent. We show that monetary policy, financial regulation, and competition policy---typically delegated to separate authorities---interact non-additively through this upstream channel. Tighter financial regulation amplifies monetary transmission under contestable banking; competition policy can either strengthen or weaken it depending on banking pass-through. These results imply that policy evaluation requires treating the three instruments as a mix rather than in isolation. Extensions with default risk show that policy tightening and weaker competition can be welfare-improving. |
| Keywords: | Imperfect Competition; Endogenous Finance; Monetary Transmission; Financial Regulation; Competition Policy |
| JEL: | D43 G21 L13 |
| Date: | 2026–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127924 |
| By: | Bindseil, Ulrich |
| Abstract: | This paper analyses the role of layering in the architecture of money and payment systems and how recent technological innovations affect it. Layering in payments, whereby payment ledgers are hierarchical to each other, and senior ledgers allow for interoperability between junior ledgers, has historically emerged from efficiency, risk management, and governance considerations. The paper develops a framework to classify ledger hierarchies and types of payment ledgers and uses it to assess innovations including central bank digital currencies, instant payment systems, public blockchains, tokenized multi-asset platforms, expanded access of non-bank payment service providers to central bank accounts, and stablecoins. The analysis shows that many innovations do not eliminate layering but instead reorganize it, often preserving the fundamental tiered structure in which central bank money anchors the monetary system. Innovations should normally improve payment efficiency but also introduce new risks and policy challenges that must be addressed, implying the need for regulatory modernization and an evolving role for central banks in shaping payment architectures and safeguarding the singleness of money. |
| Keywords: | Layering of payment systems, Monetary architecture, Central bank money, Stablecoins, Tokenization and payment infrastructures |
| JEL: | E42 E58 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:339609 |
| By: | Hiroyuki Oi; Shigenori Shiratsuka; Shunichi Yoneyama |
| Abstract: | Shadow short-term interest rate (SSR) models are expected to provide effective monetary policy indicators under the effective lower bound (ELB) constraint on nominal interest rates. This paper revisits the SSR models using yield curve data from the prolonged ultra-low interest rate environment in Japan. Specifically, this paper compares the various specifications of the SSR models based on the Nelson-Siegel model by focusing on a trade-off between estimation performance and theoretical consistency. This paper highlights the importance of evaluating monetary policy easing effects using the entire yield curve fluctuations, rather than relying solely on SSR estimates, especially in the ultra-low interest rate environment in Japan. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:tcr:wpaper:e228 |
| By: | Abubakar Addy (African Department, International Monetary Fund); Alexander Mihailov (Department of Economics, University of Reading); Stephen Kwame (Finance Department, University of Ghana Business School, University of Ghana) |
| Abstract: | This paper contributes to the literature by providing a comparative analysis of inflation targeting (IT) across groups of countries and time periods. We estimate via Bayesian techniques the central bank policy preferences of African inflation targeters (AfITs), employing the medium-scale New Keynesian small open economy model under complete asset markets (CAM) proposed by Kam et al. (2009), with application to advanced-country inflation targeters (ACITs), as extended also to incomplete asset markets (IAM) by McKnight et al. (2020), with application to Latin American inflation targeters (LAITs), and including or not real exchange-rate concerns in the social loss function of IT central banks. Our study convincingly selects CAM over IAM in a Bayesian model comparison of 4 model versions and compares the estimated weights of 4 typical IT central bank policy choices for 2 AfITs, 5 LAITs, and 3 ACITs in a common recent sample period, 2009:Q1-2021:Q4, as well as referring back to the sample periods in the cited original studies, starting in the early 1990s or early 2000s and with no or minimal overlap. Our findings confirm that all 10 IT central banks are firmly committed to their price stability mandate in the sense of prioritizing inflation stabilization, with an estimated almost unchanged 40-60% share across space and time. Adapting to real-world global developments as the millennium was unfolding, IT approaching the age of 40 seems to have evolved toward more ‘flexible’ regimes with increased ‘fear of floating’, but we also point to nuances or specificities across the 3 groups or 10 countries compared. |
| Keywords: | Bayesian model comparison, complete vs incomplete asset markets, inflation targeting mandates and actions, fear of floating, small open economies, medium-scale New Keynesian SOE DSGE models |
| JEL: | C51 E52 F41 |
| Date: | 2026–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2026-02 |
| By: | Wilman Arturo Gomez; Carlos Esteban Posada |
| Abstract: | Since the beginning of this century the Colombian monetary authority has conducted monetary policy under a strategy based on setting targets for interest rate and inflation, while allowing the exchange rate of the U.S. dollar in domestic currency to float freely. This paper takes that strategy into account in order to explain inflation. Our econometric results were obtained by applying the Generalized Method of Moments to test the hypotheses derived from the structural form of our model. The main findings indicate: a. the validity of a Phillips curve.That is, a positive relationship between the inflation rate and the output gap, conditional on inflation expectations; b. that the monetary authority has reacted to shocks in inflation and in the output gap by adjusting its policy in the appropriate direction but, up to the end of 2025, without being able to claim that its responses have always been timely and consistently forceful. In other words, it can be said that the monetary authority has not been aggressive in ensuring that observed inflation returns rapidly to levels consistent with the inflation target range. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.26928 |
| By: | Farina, Tatiana; Franke, Günter; Heider, Florian; Krahnen, Jan Pieter; Subrahmanyam, Marti G. |
| Abstract: | This SAFE White Paper presents a structured economic framework for assessing asset-backed stablecoins in their capacity as privately issued, fiscally anchored monetary instruments. Specifically, we evaluate the implications of stablecoins for financial intermediation, sovereign debt markets, and monetary transmission while devoting particular attention to differences between the United States and European Union. To this end, we characterize the basic economics of stablecoins by comparing their balance-sheet structure to narrow banks, money market funds, commercial banks, and central banks, highlighting that issuers engage in minimal maturity transformation and hold predominantly high-quality liquid assets against par-redeemable digital liabilities. Furthermore, we examine the regulatory design of the US GENIUS Act and the EU's MiCAR framework, showing how differences in reserve composition and supervisory architecture shape incentives for regulatory arbitrage and influence whether stablecoin growth reallocates existing sovereign debt holdings or generates net additional demand. For the euro area, the central question is whether digital liquidity remains anchored in domestic sovereign assets or shifts toward foreign-currency stablecoins, with implications for monetary sovereignty and financial stability. We conclude that Europe requires an active response: advancing a digital euro, strengthening global supervisory coordination, and reinforcing cross-border AML enforcement in public blockchain environments to safeguard monetary sovereignty and financial stability. |
| Keywords: | Stablecoins, treasury markets, digitial currency |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:339581 |
| By: | Nicoletta Berardi; Cécile Chenesseau; Lalouette Laure; Soledad Zignago |
| Abstract: | In times of great economic uncertainty, central banks face several possible future scenarios, some of which may be contradictory. Rather than choosing a single scenario, this post shows how to weight different economic scenarios to inform and guide monetary policy decision-making. <p> En période d’incertitude économique élevée, les banques centrales font face à plusieurs futurs possibles, parfois contradictoires. Plutôt que de choisir un scénario unique, ce billet montre comment pondérer différents scénarios économiques pour informer et guider la prise d’une décision de politique monétaire. |
| Date: | 2026–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:439 |
| By: | Ali Kakhbod; Amir Kermani; Bernardo Maciel |
| Abstract: | Does the Federal Reserve react to all inflation equally? We systematically analyze FOMC meeting records from 1937 to 2025 to construct meeting-level measures of the Fed’s real-time attribution of inflation to demand and supply pressures. We document substantial variation in these narratives over time and show that, since Volcker, the Fed has responded more aggressively to perceived demand-driven inflation. Consistent with this asymmetry, supply pressures have more persistent effects on realized inflation, while demand pressures' impact dissipates quickly. Financial markets also reflect this distinction: demand imbalances primarily move risk-neutral yields, whereas supply imbalances raise term premia and equity risk premia. |
| JEL: | E31 E43 E52 E58 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35016 |
| By: | Margaret Chitiga-Mabugu; Joseph Feyertag; Heinrich Bohlmann; Jessika Bohlmann |
| Abstract: | This paper examines the implications of physical climate change risks for South Africas labour market and the resulting challenges for fiscal and monetary policymakers. |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11101 |
| By: | Maximiliano Dvorkin; Cassandra Marks |
| Abstract: | Understanding whether labor market developments stem from supply or demand forces has fundamental implications for the conduct of monetary policy. This article develops a structural vector autoregression (VAR) methodology to decompose U.S. employment and wage growth into supply and demand components using sign restrictions. Extending Shapiro (2026), we separately identify trend growth, current shocks, and past shocks across different industries. Results reveal that goods-producing sectors experienced strong demand-driven growth in 2022, which subsequently weakened as Federal Reserve tightening took effect. Service sectors showed robust demandthrough2023, butby2025, supply-sidefactors—likely due to immigration policy changes—became dominant. We validate our shock identification by linking estimated demand shocks to financial dependence measures during monetary tightening and supply shocks to immigration flows. These findings highlight the asymmetric nature of post-pandemic labor market rebalancing and underscore the importance of distinguishing supply from demand forces for appropriate monetary policy calibration. |
| Keywords: | wage growth; employment growth; supply and demand shocks; inflation; vector autoregressions |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:102951 |
| By: | Fernanda Martins Bandeira; José Renato Haas Ornelas |
| Abstract: | This article investigates the impact of macroprudential measures adopted in response to the initial shock of the Covid-19 crisis in Brazil, aimed at preserving bank capital and maintaining the credit flow. The restricted macroprudential space motivated the adoption of ad-hoc measures: a partial release of the Capital Conservation Buffer (CCoB) and a temporary restriction on dividends´ payment for the whole 2020 fiscal year. Overall, results provide evidence that the policy space created by the partial release combined with dividends restrictions helped sustain credit while preserving solvency during the pandemic. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:642 |
| By: | Jonathan Adams |
| Abstract: | When inflation is low, the Calvo model is a good approximation of sticky prices. But when inflation is high, menu costs matter for macroeconomics. Drawing from recent work on mean field games, I derive an analytical solution to the menu cost model with trend inflation in response to small shocks. The solution includes dynamics of the value function, distribution of price gaps, and aggregate variables. Then, I consider a discrete time approximation that is tractable enough for use in standard DSGE models. Menu costs modify the usual Calvo Phillips curve with a single variable: the frequency of price adjustment. Accounting for the frequency matters in an inflationary economy; when trend inflation is zero, the term disappears. But surprisingly, the effect of trend inflation on the Phillips curve is first-order. The modified system is a function of the microfoundations and can be calibrated to match pricing statistics, a useful result even without trend inflation. Finally, I embed the price-setting block in an otherwise standard New Keynesian model and show how menu costs and trend inflation affect monetary policy. |
| Keywords: | State-dependent pricing; menu costs; inflation; Phillips curve; optimal monetary policy |
| JEL: | C60 E31 E52 |
| Date: | 2026–03–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:102919 |
| By: | Alice Algot-Samé; Paul Hubert; Patrice Tauzin; Benoît Usciati |
| Abstract: | The short-term debt market plays a key role in financing banks and businesses. We show that, over the period between January 2005 and November 2024, there was complete pass-through of monetary policy after one month for all categories of issuers. For companies, pass-through was relatively faster than for intermediated credit. <p> Le marché de la dette de court terme joue un rôle clé en matière de financement des banques et des entreprises. Nous montrons que, sur la période janvier 2005 – novembre 2024, la transmission de la politique monétaire y a été totale au bout d’un mois pour toutes les catégories d’émetteurs. Pour les entreprises, la transmission y est relativement plus rapide que pour le crédit intermédié. |
| Date: | 2026–03–25 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:442 |
| By: | UZ AKDOGAN, Idil; Halicioglu, Ferda |
| Abstract: | This study derives an exchange market pressure (EMP) index using a weighted, scaled sum of variables, including exchange rate depreciation, official foreign exchange intervention, and interest rate differentials, for the period 1999-2023. Using the US dollar as a reference currency, it includes various balance of payments components of the EMP to compare and analyse capital flow pressures for emerging economies such as Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, South Africa, and Turkey. The study also analyses the impact of EMP volatility in response to capital inflow and capital outflow controls, utilising EGARCH econometric estimates. Our findings indicate that higher capital controls are generally associated with greater EMP, though the effects differ between inflow and outflow restrictions. We also find that EMP volatility reacts asymmetrically to shocks, with stronger responses to positive developments (‘good news’) than to negative ones (‘bad news’). These results highlight the importance of tailoring capital flow management tools to country-specific vulnerabilities and global financial conditions. |
| Keywords: | Exchange Market Pressure, Capital Flows, Exchange Rates, Foreign Exchange Intervention |
| JEL: | F32 F41 G11 G20 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128311 |