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on Monetary Economics |
| By: | Coleman, Winnie; Nautz, Dieter |
| Abstract: | This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB's inflation target. Containing over 200, 000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB's inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap. |
| Keywords: | Credibility of Inflation Targets, Consumer Inflation Expectations, Expectation Formation |
| JEL: | D84 E31 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:308802 |
| By: | Mr. Philip Barrett; Brandon Tan |
| Abstract: | We use a shift-share approach to estimate the impact of inward immigration on local inflation in the United States. We find that a higher rate of immigration reduces inflation, lowering it by about 0.1 to 0.2 percentage points following a doubling of immigration. Higher immigration flows also lower local goods inflation, increase local housing and utilities inflation, and have no statistically significant impact on inflation in other services. Effects are approximately two and three time larger for working age and low-education immigrants. We do not detect a statistically significant impact of more educated immigrants on overall inflation, but they do increase local housing inflation. Our results can be jointly rationalized by a simple general equilibrium model where the substitutability of capital and labor varies across industries but capital is fixed in the short run. |
| Keywords: | Immigration; inflation |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/005 |
| By: | Chen, Zhengyang |
| Abstract: | This paper examines how money growth affects personal consumption using Divisia monetary aggregates. Using monthly U.S. data from 2000 to 2023, we find that changes in Divisia M4 significantly predict personal consumption expenditure, with a lag of three months. A 1% increase in Divisia M4 is associated with a 0.3% increase in consumption, controlling for macroeconomic factors. Through five-fold cross-validation, we demonstrate that Divisia-based forecasting models reduce prediction errors by 20% compared to models using the federal funds rate. Our findings suggest that broader monetary aggregates contain important predictive information for consumption dynamics, particularly when interest rates are low. |
| Keywords: | Divisia money, Consumption, Forecasting |
| JEL: | E3 E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:308692 |
| By: | Shin-ichi Fukuda (Faculty of Economcis, The University of Tokyo); Naoto Soma (Faculty of International Social Sciences, Division of International Social Sciences) |
| Abstract: | The purpose of this study is to examine how short-term and medium-term inflation expectations evolved on a sustained basis in Japan. In the analysis, we define the "anchor of inflation expectations" as inflation expectations excluding the expected effects of the GDP gap and supply shocks. We examine the extent to which the "anchor of inflation expectations" has changed since 2010 using Japanese forecaster-level data in the "ESP Forecast." The estimated anchor of inflation expectations increased significantly after the Bank of Japan launched unprecedented monetary easing in April 2013. However, the increase was not only modest but also temporary. In contrast, the estimated anchor continued to rise after the global supply shocks became noticeable in April 2022. The estimated anchor has already exceeded 2% for short-term inflation expectations and is approaching 2% for medium-term inflation expectations. This means that the global supply shocks and the subsequent depreciation of the yen have caused a dramatic change in inflation expectations. However, the increased anchor of medium-term inflation expectations is still about the same as in 2014-2015. Given that the upward shift did not continue in 2014-2015, the Japanese economy may not be able to achieve the 2% target on a sustainable basis unless there are additional changes, such as an improvement in consumer sentiment through real wage increases. |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2024cf1238 |
| By: | Joshua Aizenman; Jamel Saadaoui |
| Abstract: | This paper is a case study of the exchange rate adjustments during the first week following the swapping US election results. We compute three measures of exchange rate depreciation: the maximum depreciation during the 1st trading day after November 6 UTC 0:00 to capture the reaction on the FOREX immediately after the news for our sample of 73 currencies against the USD, practically all currencies depreciated sharply at the news. Second, the depreciation after 4 days to capture the reaction of monetary authorities and the global markets to the news; third, the depreciation 1 week after the shock to observe whether some countries have experienced a further depreciation or a return to the pre-shock exchange rate level. In 26 countries out of a sample of 73 bilateral exchange rates against the US Dollar, the depreciation after 1 week was even more pronounced than just after the election. We also find that the correlation between the depreciation rate after a week from the initial news and the ICRG institutional score is positive and significant at the 1 percent level. A multivariate regression for exchange rate movements indicates that after a week, the bilateral trade surplus with the US, and better institutional scores are associated with stronger depreciations. Exchange rate interventions have helped to stabilize the currencies at all time horizons. The exposure to policy changes, measured by EIU’s Trump Risk Index seems to be at play after 4 days. |
| JEL: | F01 F31 F36 F4 F40 F42 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33193 |
| By: | Gary Richardson; David W. Wilcox |
| Abstract: | Congressional intent concerning the independence of the Federal Reserve matters because it protects the public from the politicization of monetary policy. Attempts to subordinate monetary policy to the President could easily end up in front of the Supreme Court. The outcome of such a case would depend importantly on the historical record. Understanding what Congress intended when it designed the decision-making structure of the Fed requires a clear understanding Marriner Eccles’ proposal for the structure of monetary policymaking in Title II of the Banking Act of 1935 and the Congressional response. Eccles' proposal vested monetary policymaking in a body beholden to the President. Eccles argued that leaders of the Fed should serve at the discretion of the President and implement the President's monetary program. The Senate and House rejected Eccles' proposal and explicitly designed the Fed's leadership structure to limit politicians'—particularly the President's—influence on monetary policymaking. |
| JEL: | B22 B26 E5 G2 N12 N22 N42 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33174 |
| By: | Lovisa Reiche |
| Abstract: | The gender gap in inflation expectations, women reporting systematically higher expectations in consumer surveys, has been attributed to traditional gender norms, and thus women’s greater exposure to volatile food prices. This overlooks a crucial factor: financial answer confidence. Using data from German households, I show that the “grocery shopping” effect occurs only among those with low answer confidence, while there is no gap among those with high answer confidence. The interaction of financial answer confidence and the shopping experience can be explained through the lens of a simple Bayesian learning framework, where noisy signals only increase mean expectations when priors are imprecise. |
| Keywords: | consumer inflation expectations, gender, financial literacy |
| JEL: | E31 E71 G53 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11588 |
| By: | Gauti B. Eggertsson; Finn D. Schüle |
| Abstract: | In standard New Keynesian models, future interest rate cuts have larger effects than current cuts—this is called the forward guidance puzzle. We argue that the forward guidance puzzle is not a puzzle. We show the puzzle arises from an implausibly large monetary regime change, exceeding anything in U.S. history since the Great Depression. By calibrating our model to four regime changes during the U.S. Great Depression, disciplined by changes in long-term bond yields, we find the model’s predictions are broadly consistent with historical data. |
| JEL: | E40 E5 E50 N0 N12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33180 |
| By: | Altavilla, Carlo; Rostagno, Massimo; Schumacher, Julian |
| Abstract: | Banks are reluctant to tap central bank backup liquidity facilities and use the borrowed funds for loans to the real economy. We show that excessively parsimonious borrowing and lending can arise in a stigma-free model where the banking sector has an incentive to overissue deposits. Banks don’t heed the central bank’s call for more credit to finance investment because they simply ignore the collective gains from stronger activity in their atomistic decisions. Central banks can address this market failure by disintermediating market-based finance. A lender-of-last-resort (LOLR) system in which the central bank offers liquidity liberally but on non-concessionary conditions improves over a pure laissez-faire arrangement, where asset liquidation in the marketplace is the only source of emergency liquidity. But under LOLR banks remain reluctant to intermediate. Credit easing (CE) and quantitative easing (QE), instead, can stimulate bank borrowing and repair the broken nexus between liquidity provision and credit. Empirical analysis using bank-level and loan-by-loan data supports our model predictions. We find no empirical connection between loans and borrowed reserves obtained from conventional refinancing facilities. In contrast, there is a robust connection between loans and structural sources of liquidity: reserves borrowed under a CE program or non-borrowed, i.e. acquired from a QE injection. We also find that firms with greater exposure to banks borrowing in a CE program or holding larger volumes of non-borrowed reserves increase employment, sales, and investment. JEL Classification: E5, E43, G2 |
| Keywords: | credit easing, lending of last resort, loans, quantitative easing, reserves |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253009 |
| By: | Christian de Boissieu |
| Abstract: | Faced with the rise of cryptocurrencies, central banks are responding by launching their digital currencies. The purpose of this Policy Brief is to provide an update on the preparation of central bank digital currencies (CBDs) by monetary authorities, a process that concerns all emerging, developing, and more advanced countries. It is also about analyzing the conditions and some of the consequences (for banks, for financial inclusion, for the conduct of monetary policy...) of such a financial innovation, systematically distinguishing between wholesale and retail CBDCs. |
| Date: | 2023–04 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbtrad:pb_19_23_0 |
| By: | Zhesheng Qiu; Yicheng Wang; Le Xu; Francesco Zanetti |
| Abstract: | This paper studies the design of monetary policy in small open economies with domestic and cross-border production networks and nominal rigidities. The monetary policy that closes the domestic output gap is nearly optimal and is implemented by stabilizing the aggregate inflation index those weights sectoral inflation according to the sector’s roles as a supplier of inputs and a net exporter of products within the international production networks. To close the output gap, monetary policy should assign large weights to inflation in sectors with small direct or indirect (i.e., via the downstream sectors) import shares and failing to account for the cross-border production networks overemphasizes inflation in sectors that export intensively directly and indirectly (i.e., via the downstream sectors). We validate our theoretical results using the World Input-Output Database and show that the monetary policy that closes the output gap outperforms alternative policies that abstract from the openness of the economy or the input-output linkages. |
| Keywords: | production networks, small open economy, monetary policy |
| JEL: | C67 E52 F41 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-03 |
| By: | Olivier Armantier; Marco Cipriani; Asani Sarkar |
| Abstract: | The rapidity of deposit outflows during the March 2023 banking run highlights the important role that the Federal Reserve’s discount window should play in strengthening financial stability. A lack of borrowing, however, has plagued the discount window for decades, likely due to banks’ concerns about stigma—that is, their unwillingness to borrow at the discount window because it may be viewed as a sign of financial weakness in the eyes of regulators and market participants. The discount window has been reformed several times to alleviate this problem. Although the presence of stigma during the great financial crisis has been documented empirically, we do not know whether stigma has remained since then. In this post, based on a recent Staff Report, we fill this gap by using transaction-level data from the federal funds market to examine whether the discount window remains stigmatized today. |
| Keywords: | discount window; stigma; federal funds |
| JEL: | E52 G21 G28 |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99466 |
| By: | Manthos Delis (Audencia Business School); Sotirios Kokas (University of Essex); Alexandros Kontonikas (University of Essex) |
| Abstract: | We examine how a policy change by the FDIC, which unexpectedly exempted some banks, affects corporate lending via changes in reserves during the Quantitative Easing (QE) era. To address the endogeneity of reserves, we use a unique hand-collected dataset on the bank's share of exemption from the policy shift, and differentiate between loan demand and loan supply. We find important differences in loan-level outcomes, attributed to the heterogeneous impact of the new regulation on the net return on holding reserves. The effectiveness of the risk-taking channel is significantly weaker for banks with larger exemption shares and this has real effects in terms of borrowers' leverage, growth, and return on assets. |
| Keywords: | FDIC regulation, Bank lending, Quantitative easing, Syndicated loans |
| Date: | 2024–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04768503 |
| By: | Burlon, Lorenzo; Ferrari, Alessandro; Kho, Stephen; Tushteva, Nikoleta |
| Abstract: | Exploiting the recalibration of ECB’s outstanding central bank funding in 2022, we show that a sharp reabsorption of bank liquidity induces a tightening impact on credit supply, as intended when centralbanks reduce their balance sheets. The tightening originates from the sudden relative convenience for banks accustomed to large liquidity holdings to more rapidly adapt to the new environment. Moreover, we show that the associated reduction in credit supply has real economic effects. JEL Classification: E51, E52, G21 |
| Keywords: | banking, credit supply, liquidity, monetary policy, QT |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253010 |
| By: | Luís de Carvalho Campos; Lígia Maria Nunes; Mafalda Sousa Trincão; Bruno Tissot |
| Date: | 2023–02–15 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisifr:15 |
| By: | Bill Dupor; Marie Hogan; Jingchao Li |
| Abstract: | While the original papers on the inflation-unemployment relationship, i.e., the Phillips curve, studied aggregate data, a recent generation of work has moved to regional analysis. We estimate Phillips curves in the US based on regional data between 1958 and 2013, from which we can recover the national Phillips Curve. We find that the curves’ evolution over time is characterized by changing cross-region spillovers largely due to a subset of 1970s observations. We show that for these observations, regional inflation exhibits strong negative comovement with national unemployment even after controlling for own region unemployment, resulting in a negative spillover in the regional Phillips curve regression. Aggregating across regional curves, the negative spillover works to steepen the national Phillips curve. The local (regional), spillover and national Phillips curve slopes observed in the data are qualitatively consistent with a simple multi-region monetary model with endogenous monetary policy. |
| Keywords: | local spillover decomposition; Phillips curve |
| JEL: | E3 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:99477 |
| By: | David Borner |
| Abstract: | This paper presents a novel high-frequency motive classification strategy - the Trading Markov Sign Restriction (TMSR) - to map pure monetary policy and central bank information motives onto monetary surprises. It considers high-frequency dynamics on the interest rate futures and the stock market and examines systematic phases of expectation adjustment behaviour within 30-minute windows around policy announcements. I show that three systematic phases of expectation adjustment intensities can be observed for monetary policy announcements from the Swiss National Bank (SNB). Based on these identified phases, trends in trading directions on the interest rate futures and stock market are then weighted by a measure of expectation adjustment intensity to classify pure monetary policy and central bank information motives per policy announcement. Studying the effects of pure monetary policy and central bank information surprises reveals that both types of surprises affect financial assets; however, for the Swiss case, these effects differ from each other only for the exchange rates and stock market responses. |
| Keywords: | Monetary policy, Central bank information, High-frequency identification, Motive classification |
| JEL: | C36 E43 E52 E58 G14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-01 |
| By: | Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique); Rodolphe Dos Santos Ferreira (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, we show that the presence of firms'motivated beliefs has stark consequences for central banks' optimal communication and stabilization policies. Under pure communication, motivated beliefs overweighting the accuracy of firms'private information may reverse the bang-bang solution of transparency found in the literature under objective beliefs and lead to intermediate levels of communication. Similarly, when communication and stabilization policies are combined, motivated beliefs overweighting firms'ability to process idiosyncratic information in general may reverse the bang-bang solution of opacity applying under objective beliefs, leading again to intermediate levels of communication and stabilization. |
| Keywords: | Motivated beliefs, Public and private information (accuracy), Overconfidence, Communication policy, Stabilization policy |
| Date: | 2024–07–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04808798 |
| By: | Laurence M. Ball; Junnan Zhang |
| Abstract: | This paper derives the optimal monetary-policy rule in a simple model with anchored inflation expectations and an effective lower bound (ELB) on interest rates, assuming a long-run inflation goal of 2%. With fully anchored expectations, the optimal policy is a version of average inflation targeting: to offset periods when the ELB forces inflation below 2%, policymakers target a fixed inflation rate above 2% whenever they are unconstrained. With expectations that are partially but not fully anchored, the inflation target away from the ELB varies with the state of the economy. For some parameter values, the target is highest after a period when inflation has been low. |
| JEL: | C61 E52 E58 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33160 |
| By: | Jonas Grangeray (Université Sorbonne Paris Nord, CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord) |
| Abstract: | What is Modern Monetary theory (MMT)? Just vulgar and dangerous "money printing" economics as many of its critics claim? By articulating it with with circuitist and horizontalist post-keynesian theories, we demonstrate that MMT is not "money printing" economics and that the development of a neo chartalist perspective, based on an in-depth description of interbank transactions and their interactions with monetary and fiscal policies, highlights the central bank stabilization of the interest rate in face of treasury securities issues. In the United States, this stabilization requires a coordination between the Fed and the treasury. |
| Abstract: | Qu'est-ce que la Modern Monetary Theory (MMT) ? Juste une vulgaire et dangereuse économie de la « planche à billets » comme l'affirme nombre de ses critiques ? En l'articulant avec les théories post-keynésiennes circuitiste et horizontaliste, nous démontrons que la MMT n'est pas une économie de la « planche à billets » et que le développement d'une perspective néo-chartaliste, s'appuyant sur une description approfondie des opérations interbancaires et de leurs interactions avec les politiques monétaire et budgétaire, met en évidence la stabilisation du taux d'intérêt opérée par la banque centrale face aux émissions de titres du trésor. Aux États-Unis, cette stabilisation nécessite une coordination entre la Fed et le trésor. |
| Keywords: | Modern monetary theory, monetization, interest rate, endogenous money, theory of the monetary circuit, horizontalism, Théorie monétaire moderne, monétisation, taux d'intérêt, monnaie endogène, théorie du circuit monétaire, horizontalisme |
| Date: | 2024–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04812626 |
| By: | Maria Atamanchuk; Alejandro Hajdenberg; Dalia Kadissi; Giulio Lisi; Nasir H Rao |
| Abstract: | In parallel with global developments, inflation in the Central Asia and Caucasus (CCA) has exhibited large swings in recent years. This paper investigates inflation dynamics in the CCA and its main drivers and derives conclusions that can inform policymaking. The analysis is based on three empirical approaches. Inflation drivers and its dynamics are investigated through the estimation of a Phillips curve augmented with foreign factors and a panel vector autoregression. The paper also assesses the role of monetary policy in steering inflation outcomes by estimating a local projection model. The paper finds that external factors play a major role in determining CCA inflation dynamics, although domestic factors (e.g., demand conditions, expectations) also contribute. Monetary policy is found to have a statistically significant effect on inflation, including by moderating the impact of external drivers. The findings point to the need to continue strengthening policy frameworks to steer expectations and improve the effectiveness of monetary policy, while establishing adequate social safety nets to cushion the impact from global shocks. |
| Keywords: | Inflation; Caucasus and Central Asia; Phillips curve; panel VAR; local projection method; monetary policy |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/003 |
| By: | Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Francesco Saraceno (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | The last fifteen years have seen a succession of crises which have put European integration to the test and polarized the political landscape.After the serious errors made in managing the sovereign debt crisis, the widening divergences between European countries, and the sluggish growth that followed, European decision-makers reacted with altogether greater efficiency to the crisis born of the pandemic. At the cost of mounting debt, national fiscal policies supported jobs, household incomes and corporate solvency by providing aid during the periods of forced inactivity. In the meantime, the European Central Bank (ECB) set up securities purchase programmes and provided backing for the banking sector to alleviate pressure on the financial and sovereign debt markets. Finally, the European Commission arranged soft loan programmes to support government spending that targeted the sectors hit hardest by the pandemic (health care and the labour market). These efforts were crowned with success and largely explain the economic rebound following the lockdowns.The responsiveness of the European authorities, surprising given the inertia shown during previous crises, carried over into the medium-and long-term orientation embodied both in the Next Generation EU (NGEU) programme of investment in the ecological and digital transitions as well as in the tool put in place by the ECB to avoid widening spreads and protect member states' public finances, the Transmission Protection Instrument (TPI).This Policy brief takes a broadly positive view of the policies and institutional developments implemented over the past four years: the European Union (EU) and the eurozone have managed to bounce back from the crisis and embark on a long-term investment programme which, despite its inevitable shortcomings, is succeeding in meeting its goals. But the EU has also had its share of failures. The disappointment of the European Stability Mechanism's (ESM) dedicated credit line for healthcare expenditure demonstrates the need to reorganize the assistance provided by European institutions to member states. Above all, resistance to a perennization of the NGEU programme or, more generally, to the creation of borrowing and spending capacity at European level, coupled with a very disappointing reform of the Stability and Growth Pact, continues to pose the problem of creating the fiscal space to meet the EU's future needs, whether in terms of industrial and transition policies, macroeconomic stabilization, or the provision of global public goods such as health care and education. Finally, the nature of the inflationary shock has shown that macroeconomic and structural policies need to be coordinated to cope with multidimensional shocks, which raises the question of the anachronistic nature of the ECB's single mandate on price stability |
| Keywords: | Monetary policy |
| Date: | 2024–10–28 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04816678 |
| By: | Fabien Clive Ntonga Efoua (FSEG, UYII-Soa - Faculty of Economics and Management, University of Yaounde II - Soa, CEDIMES - CEDIMES - Centre d'Etudes sur le Développement International et les Mouvements Economiques et Sociaux, CEREG - University of Yaoundé II-SOA, Centre d'Etudes et de Recherche en Economie et Gestion); Françoise Okah Efogo (Faculty of Economics and Management, University of Ebolowa); Yanick Fredy Mvodo (UDa - Faculty of Economics and Applied Management, University of Douala) |
| Abstract: | This paper proposes a reflection on the opportunities and the challenges of the use of digital means of payment (decentralised and regulated ones) in the African economies. In this perspective, we structure our reasoning around three axes. First, we try to show that digital currencies can serve as a lever for financial inclusion and the revolution of means of payment in an increasing digitalization context. Second, we discuss the technical and the infrastructural constraints (deployment of the blockchain, electricity and Internet access) which condition the effective use of digital currencies. Third, we discuss the trade-offs and the possible implications that arise from the circulation of the Bitcoin, the Altcoins and the Stablecoins on the one hand, and the Govcoins on the other. In our view, the African authorities should first focus on overcoming infrastructural and institutional obstacles, rather than rushing the adoption of cryptocurrencies. Some policies implemented in this direction would in fact offer the continent the opportunity to anchor itself once and for all to progress. |
| Keywords: | Cryptocurrencies, Govcoins, Central Bank Crypto Currencies, African economies |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04784299 |
| By: | Pierre Delandre (Etopia); Philippe Derruder (L'homme en devenir); Fabien Fert (Chercheur indépendant); Ariane Tichit (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: | Defining a Monetary Topology : A framework for evaluating and comparing diverse monetary systems In a world facing complex social and environmental challenges, innovative approaches to monetary systems are essential. Our group, motivated by a concern for both society and ecology, developed the concept of "monetary topology" to evaluate and compare various monetary systems. This framework focuses on six key themes: legislator, institution, emission rules, conditionality of uses, coinage rules, and the system's operating properties, along with its societal and ecological consequences. Each theme contains objective evaluation characteristics, offering a detailed analysis of any monetary proposal. Monetary topology provides a holistic approach, evaluating the entire structure and impact of a monetary system. It allows for systematic comparison, identifying strengths, weaknesses, and areas of applicability across different systems. This approach helps policymakers, economists, and community leaders make informed decisions that align with societal and ecological goals. The tool we designed is structured around these six domains, with each characteristic assessed from monetary, social, and ecological perspectives. This multidimensional framework delivers a comprehensive assessment of each system, providing a functional method for describing and comparing monetary systems, answering critical questions such as who controls the system, how it operates, and its purpose. Aligned with the principles of RAMICS, our group aims to explore innovative monetary solutions that address pressing societal and environmental issues. Monetary topology is a powerful tool in this endeavor, providing a structured framework for evaluating, understanding, and improving monetary systems. In conclusion, monetary topology offers a fresh, comprehensive way to assess monetary systems, enabling us to transcend traditional boundaries and design systems that better serve both communities and the planet. |
| Keywords: | Monetary system topology, Monetary system analysis, Classification of monetary system |
| Date: | 2024–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04773860 |
| By: | Jiti Gao; Fei Liu; Bin Peng; Yanrong Yang |
| Abstract: | In this paper, we investigate a semiparametric regression model under the context of treatment effects via a localized neural network (LNN) approach. Due to a vast number of parameters involved, we reduce the number of effective parameters by (i) exploring the use of identification restrictions; and (ii) adopting a variable selection method based on the group-LASSO technique. Subsequently, we derive the corresponding estimation theory and propose a dependent wild bootstrap procedure to construct valid inferences accounting for the dependence of data. Finally, we validate our theoretical findings through extensive numerical studies. In an empirical study, we revisit the impacts of a tightening monetary policy action on a variety of economic variables, including short-/long-term interest rate, inflation, unemployment rate, industrial price and equity return via the newly proposed framework using a monthly dataset of the US. |
| Keywords: | Dependent Wild Bootstrap; Group-LASSO; Semiparametric Model; Treatment Effects |
| JEL: | C14 C22 C45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:msh:ebswps:2024-14 |
| By: | Ricardo J. Caballero; Tomás E. Caravello; Alp Simsek |
| Abstract: | We present evidence that noisy financial flows influence financial conditions and macroeconomic activity. How should monetary policy respond to this noise? We develop a model where it is optimal for the central bank to target and (partially) stabilize financial conditions beyond their direct effect on output and inflation gaps, even though stable financial conditions are not a social objective per se. In our model, noise affects both financial conditions and macroeconomic activity, and arbitrageurs are reluctant to trade against noise due to aggregate return volatility. Our main result shows that Financial Conditions Index (FCI) targeting—announcing a (soft and temporary) FCI target and setting the policy rate in the near future to maintain the actual FCI close to the target—reduces the FCI volatility and stabilizes the output gap. This improvement occurs because a more predictable FCI enables arbitrageurs to trade more aggressively against noise shocks, thereby "recruiting" them to insulate FCI from financial noise. FCI targeting is similar to providing forward guidance about the FCI, and in our framework it is strictly superior to providing forward guidance about the policy interest rate. Finally, we extend recent policy counterfactual methods to incorporate our model's endogenous risk reduction mechanism and apply it to U.S. data. We estimate that FCI targeting could have reduced the variance of the output gap, inflation, and interest rates by 36%, 2%, and 6%, respectively, and decreased the conditional variance of the FCI by 55%. When compared with interest rate forward guidance, it would have reduced output gap variance by 21%. We also show that a significant share of the gains from FCI targeting can be attained by an augmented version of a Taylor rule that gives a large weight to a simplified financial conditions target. |
| JEL: | E12 E32 E44 E52 G10 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33206 |
| By: | Elie BOLA BOONGO (UNIKIS - Université de Kisangani); Dieu-Merci IMO LOKWA; Joël BOSSONGA ILEMA; Samuel BOLA MBOYO |
| Abstract: | This study focuses on the adoption and impact of mobile money on household well-being in Mbandaka, located in the Equateur province of the Democratic Republic of Congo. The objective is to understand how this technology influences financial inclusion, mobility, and the ease of transactions between individuals from different entities, thereby affecting the overall well-being of households.The study has a dual aim. First, it seeks to identify the profile of individuals who adopt mobile money in Mbandaka. Second, it assesses the impact of mobile money usage on the socioeconomic well-being of users. The first objective aims to provide a description of the socioeconomic profile of mobile money users, considering various criteria such as age, gender, education level, and employment. The second objective is to determine whether the use of this technological innovation has indeed improved the quality of life and well-being of the households that utilize it.The study specifically targets mobile phone users with a mobile money account. A sample of 100 individuals was drawn for the survey. Data were collected on their socioeconomic characteristics before and after adopting mobile money technology. The descriptive approach adopted allows for detailing the characteristics of individuals who chose to use this service.Survey results reveal that all mobile money users interviewed (100%) prefer using this service over banks or money transfer agencies for their financial transactions. This preference is attributed to the advantages offered by mobile money, including simplicity, accessibility, and efficiency. The study also shows that 100% of respondents, who were previously excluded from the traditional banking system, were able to access financial services through mobile money usage.These findings confirm the initial hypothesis that the adoption of mobile money has a positive impact on the well-being of households in Mbandaka. By providing financial inclusion opportunities to unbanked individuals, mobile money enables them to benefit from financial services they would not have otherwise obtained. Consequently, the use of this technology appears to enhance living conditions and facilitate financial transactions for households in the city of Mbandaka. |
| Abstract: | La présente étude se concentre sur l'adoption et l'impact de l'utilisation du mobile money sur le bien-être des ménages dans la ville de Mbandaka, située dans la province de l'Équateur en République Démocratique du Congo. L'objectif est de comprendre comment cette technologie influence l'inclusion financière, la mobilité et la facilité des transactions entre particuliers de différentes entités, et donc, le bien-être général des ménages.L'étude poursuit un double objectif. Premièrement, elle cherche à identifier le profil des individus qui adoptent le mobile money à Mbandaka. Deuxièmement, elle évalue l'impact de l'utilisation du mobile money sur le bien-être socioéconomique des utilisateurs. Le premier objectif vise à fournir une description du profil socioéconomique des utilisateurs de mobile money, en tenant compte de divers critères tels que l'âge, le sexe, le niveau d'éducation et l'emploi. Quant au second objectif, il consiste à déterminer si l'utilisation de cette innovation technologique a effectivement amélioré la qualité de vie et le bien-être des ménages qui l'utilisent.L'étude cible spécifiquement les utilisateurs de la téléphonie mobile ayant un compte mobile money. Un échantillon de 100 individus a été tiré pour l'enquête. Des données ont été recueillies sur leurs caractéristiques socioéconomiques avant et après l'adoption de la technologie mobile money. L'approche descriptive adoptée permet de détailler les traits caractéristiques des individus qui ont choisi d'utiliser ce service. Les résultats de l'enquête révèlent que la totalité des utilisateurs de mobile money interrogés (100%) préfèrent utiliser ce service plutôt que les banques ou les agences de transfert d'argent pour leurs transactions financières. Cela s'explique par les avantages offerts par la monnaie mobile, notamment sa simplicité, son accessibilité et son efficacité. L'étude montre également que 100% des personnes enquêtées, qui étaient auparavant exclues du système bancaire traditionnel, ont pu accéder aux services financiers grâce à l'utilisation de mobile money. Ces résultats confirment l'hypothèse de départ selon laquelle l'adoption du mobile money a un impact positif sur le bien-être des ménages de Mbandaka. En offrant des opportunités d'inclusion financière aux personnes non bancarisées, le mobile money permet à ces individus de bénéficier de services financiers qu'ils n'auraient pas pu obtenir autrement. |
| Keywords: | Mobile money, financial inclusion, Soci-economic aspects, Inclusion financière et Lutte contre la Pauvreté, Bien-être, Socio-économie, well-being, household |
| Date: | 2023–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04792972 |
| By: | Fu, Bowen; Mendieta-Munoz, Ivan |
| Abstract: | This paper studies the effects of key underlying macroeconomic variables on the trend inflation rate in the USA. To do so, we consider eight structural shocks that incorporate a broad set of information for the US economy and that can be regarded as the main structural determinants of the latter. Using a Bayesian estimation procedure, we estimate the effects of these structural shocks on the trend inflation rate via an unobserved components model with stochastic volatility and structural shocks. We document the following results. First, four structural shocks have significant and quantitatively important effects on the trend inflation rate. Price mark-up and government policy shocks increase trend inflation, which suggests that these shocks tend to have long-run inflationary effects. Finance and productivity shocks decrease trend inflation, thus suggesting that these shocks tend to have long-run deflationary effects. Second, during the Global Financial Crisis of 2007-9, the trend in inflation became more volatile because of the combined effects derived from these four structural shocks. |
| Keywords: | trend inflation, structural shocks, state space models, unobserved components |
| JEL: | C11 C32 E30 E31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:308793 |
| By: | Jim Bullard (Purdue University); Alex Grimaud (Bank of Austria); Isabelle Salle (University of Amsterdam and Tinbergen Institute); Gauthier Vermandel (Ecole Polytechnique Paris) |
| Abstract: | We discuss the timing and strength of the Fed’s reaction to the recent inflation surge within an estimated macroeconomic model where long-run inflation expectations are heterogeneous and can lose their anchoring to the target. The resulting inflation scare worsens the real cost of disinflation. We derive a closed-form solution that retains the entire time-varying cross-sectional distribution of subjective inflation beliefs. We estimate the model using Bayesian techniques on both US macroeconomic time series and forecast data from the Survey of Professional Forecasters. Counterfactual simulations show that the timing – rather than the strength – of the policy reaction to the inflation surge is critical to contain the development of an inflation scare and prevent the entrenchment of above-target inflation. We show that the Fed fell behind the curve in 2021 since an earlier tightening could have reduced the inflation peak without triggering a recession. However, further delays would have unanchored inflation expectations, aggravated the inflation scare and strengthened the inflation surge, resulting in larger output losses. |
| Keywords: | Monetary Policy, Inflation scare, Heterogeneous expectations, Bayesian estimation |
| JEL: | C63 E31 E52 E70 |
| Date: | 2025–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250001 |
| By: | Marcos Cardozo; Yaroslav Rosokha; Cathy Zhang |
| Abstract: | We integrate theory and experimental evidence to study the emergence of different international monetary arrangements based on the circulation of two intrinsically worthless fiat currencies as media of exchange. Our framework is based on a two-country, two-currency search model where the value of each currency is jointly determined by private agents’ decisions and monetary policy formalized as changes in a country’s money growth rate. Results from the experiments indicate subjects coordinate on a regime where both currencies are accepted even when other regimes are theoretically possible. At the same time, we find the acceptance of foreign currency depends on relative inflation rates where sellers tend to reject payment with a more inflationary foreign currency. We also document the presence of learning in shaping acceptance patterns over time. |
| Keywords: | international currency, monetary policy, inflation, experimental macroeconomics |
| JEL: | C92 D83 E40 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:pur:prukra:1351 |
| By: | Grasso, Adriana; Poinelli, Andrea |
| Abstract: | Flexibility has progressively become a distinctive feature of the implementation of the Eurosystem’s asset purchases. In its many manifestations, flexibility has also been used by asset managers in the daily selection of sovereign bonds to limit the impact of asset purchases on repo market specialness. This study shows that, since the inception of the Public Sector Purchase Programme, flexible purchases of bonds greatly mitigated the Eurosystem’s footprint on the repo market. JEL Classification: E50, E52, E58, G10, G18 |
| Keywords: | asset purchases, flexibility, market neutrality, repo, specialness |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253013 |
| By: | Miguel Faria-e-Castro |
| Abstract: | Using an econometric model of the U.S. economy, this analysis looks at the factors, including fiscal and monetary policies, that spurred both inflation and output in recent years. |
| Keywords: | econometrics; fiscal policy; monetary policy; inflation; economic output |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99413 |
| By: | Kris James Mitchener; Kirsten Wandschneider |
| Abstract: | The Great Depression is the canonical case of a widespread currency war, with more than 70 countries devaluing their currencies relative to gold between 1929 and 1936. What were the currency war’s effects on trade flows? We use newly-compiled, highfrequency bilateral trade data and gravity models that account for when and whether trade partners had devalued to identify the effects of the currency war on global trade. Our empirical estimates show that a country’s trade was reduced by more than 21% following devaluation. This negative and statistically significant decline in trade suggests that the currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs. |
| Keywords: | currency war, monetary regimes, gold standard, competitive devaluations, “beggar thy neighbour”, gravity model |
| JEL: | F14 F33 F42 N10 N70 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11589 |
| By: | H. Burcu Gürcihan |
| Abstract: | In this paper, we explore the interaction of monetary policy and a regulatory policy for controlling pollution within an economy populated with financially constrained producers exhibiting heterogeneity in production technology and pollution rates. Environment related components of the model include pollution externality, an abatement technology and environmental policy in the form of tax on pollutants. Our analysis is organized around two main topics: assessing the effect of monetary policy on social welfare in the presence of environmental concerns and investigating how the existence of pollution-type externality and environmental regulation influences optimal monetary policy. Our findings suggest that in the presence of heterogeneity, due to its distributional impact, monetary policy can play a role in enhancing social welfare and complementing regulatory efforts to mitigate pollution. In our model, featuring heterogeneity in productivity and pollution intensity, monetary policy influences social welfare through both pollution and consumption. The impact of monetary policy on pollution occurs indirectly through change in the allocation of production. The impact of monetary policy on consumption operates through real wage adjustments and money transfers. Furthermore, the indirect effect on consumption arises from the impact of monetary policy on optimal regulatory policy. Money growth that redirects production away from the pollutant agent creates a room for looser regulatory policy, leading to higher consumption. |
| Keywords: | Monetary policy, Environmental policy, Pollution, Cash-in-advance |
| JEL: | E58 H23 Q52 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2502 |
| By: | Jan Pr\"user |
| Abstract: | We propose a large structural VAR which is identified by higher moments without the need to impose economically motivated restrictions. The model scales well to higher dimensions, allowing the inclusion of a larger number of variables. We develop an efficient Gibbs sampler to estimate the model. We also present an estimator of the deviance information criterion to facilitate model comparison. Finally, we discuss how economically motivated restrictions can be added to the model. Experiments with artificial data show that the model possesses good estimation properties. Using real data we highlight the benefits of including more variables in the structural analysis. Specifically, we identify a monetary policy shock and provide empirical evidence that prices and economic output respond with a large delay to the monetary policy shock. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.17598 |
| By: | Diego Bonelli; Berardino Palazzo; Ram S. Yamarthy |
| Abstract: | Using inflation swap prices, we study how changes in expected inflation affect firm-level credit spreads and equity returns, and uncover evidence of a time-varying inflation sensitivity. In times of “good inflation, ” when inflation news is perceived by investors to be more positively correlated with real economic growth, movements in expected inflation substantially reduce corporate credit spreads and raise equity valuations. Meanwhile in times of “bad inflation, ” these effects are attenuated and the opposite can take place. These dynamics naturally arise in an equilibrium asset pricing model with a time-varying inflation-growth relationship and persistent macroeconomic expectations. |
| Keywords: | Inflation Sensitivity; Time Variation; Asset Prices; Stock-Bond Correlation |
| JEL: | E31 E44 G12 |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-02 |
| By: | Saki Bigio; Nicolas Caramp; Dejanir Silva |
| Abstract: | We append the expectation of a monetary-fiscal reform into a standard New Keynesian model. If a reform occurs, monetary policy will temporarily aid debt sustainability through a temporary burst in inflation. The anticipation of a possible reform links debt levels with inflation expectations. As a result, interest rates have two effects: they influence demand and affect expected inflation in opposite directions. The expectations effect is linked to the impact of interest rates on public debt. While lowering inflation in the short term is possible through demand control, inflation tends to rise again due to its impact on inflation expectations (sticky inflation). Optimal monetary policy may allow low real interest rates after fiscal shocks, temporarily breaking away from the Taylor principle. We assess whether the Federal Reserve's “staying behind the curve” was the right strategy during the recent post-pandemic inflation surge. |
| JEL: | E31 E52 E63 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33190 |
| By: | Dück, Alexander; Verona, Fabio |
| Abstract: | We offer a contribution to the analysis of optimal monetary policy. The standard approach to determine what policy rule a central bank should follow is to take a single structural model and minimize the unconditional volatilities of inflation and real activity. In this paper, we propose monetary policy rules that perform robustly across a broad range of structural models, focusing on minimizing volatility at the frequencies most relevant for policymakers' stabilization goals. Our findings indicate that robust rules, which account for model uncertainty, advocate significantly less aggressive policy responses. Moreover, incorporating frequency-specific stabilization preferences further moderates the optimal policy actions. Ignoring model uncertainty imposes significant costs, while the cost of insuring against this uncertainty is relatively low. This cost-benefit analysis strongly supports adopting a robust-model approach to monetary policy. |
| Keywords: | monetary policy rules, policy evaluation, model comparison, model uncertainty, frequency domain, design limits, DSGE models |
| JEL: | C49 E32 E37 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:308813 |
| By: | Gauti B. Eggertsson; Sergey K. Egiev |
| Abstract: | This paper presents a unified framework to explain three major economic downturns: the U.S. Great Depression, the U.S. Great Recession, and Japan’s Long Recession. Temporary economic disruptions, such as banking crises and excessive debt accumulation, can drive natural interest rates into negative territory in the short term. At the same time, structural factors, including demographic decline and rising inequality, can depress natural interest rates over short and long horizons. A negative natural interest rate and the zero lower bound (ZLB) are necessary conditions for a liquidity trap. Credible monetary policy can counteract the adverse effects of short-run liquidity traps. Diminished monetary policy credibility or persistent negative natural rates may necessitate fiscal interventions. The framework sheds light on the macroeconomic challenges of low-interest-rate environments and underscores the central importance of policy regimes. We close by reflecting on the great macroeconomic question of our time: Will short-term interest rates collapse back to zero once the inflation surge of the 2020s moves to the back mirror and the political landscape in the US has dramatically changed? |
| JEL: | E0 E52 N12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33195 |