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on Monetary Economics |
| By: | Lena Dräger; Klaus Gründler; Niklas Potrafke |
| Abstract: | Social interactions affect individual behavior in a variety of ways, but their effects on expectation formation are less well understood. We design a large-scale global survey experiment among renowned experts working in 135 countries to study whether peer effects impact expectations about the macroeconomy. The global setting allows us to exploit rich cross-national variation in macroeconomic fundamentals. Our experiment uncovers sizable effects of peers and shows that peer information also shifts monetary policy recommendations of experts. The results have important implications for the design of policies and models of information acquisition. |
| Keywords: | inflation expectations, belief formation, peer effects, survey experiment, economic experts |
| JEL: | E31 E71 D84 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11892 |
| By: | Paramahansa Pramanik; Lambert Dong |
| Abstract: | This study investigates the optimal strategy for a firm operating in a dynamic Keynesian market setting. The firm's objective function is optimized using the percent deviations from the symmetric equilibrium of both its own price and the aggregate consumer price index (CPI) as state variables, with the strategy in response to random monetary shocks acting as the control variable. Building on the Calvo framework, we adopt a mean field approach to derive an analytic expression for the firm's optimal strategy. Our theoretical results show that greater volatility leads to a decrease in the optimal strategy. To asses the practical relevance of our model, we apply it to four leading consumer goods firms. Empirical analysis suggests that the observed decline in strategies under uncertainty is significantly steeper than what the model predicts, underscoring the substantial influence of market volatility. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.00800 |
| By: | Paul Bergin; Giancarlo Corsetti |
| Abstract: | Central banks around the world have grappled with the question of how to respond to the mix of inflationary and output implications of a trade war. Recent tariff changes have impacted a wider cross-section of goods than was true in the previous tariff round, targeting final consumption goods in addition to materials such as aluminum and steel. This paper studies the optimal monetary stabilization of tariffs using a New Keynesian model enriched with comparative advantage between multiple traded sectors that differ in terms of tariff exposure as well as market structure and price rigidity. We find that, in the aggregate, the optimal monetary response is expansionary, supporting activity and producer prices at the cost of tolerating short-run headline inflation – both in response to tariffs aimed at differentiated consumption goods and to tariffs on non-differentiated goods. The output and export dynamics arising from tariffs on each sector differ sharply, as do the motivations for an expansionary monetary response. Sectoral reallocation is an order of magnitude larger than predicted by standard macro models featuring one tradable and one nontradable sector. |
| JEL: | E52 F42 F44 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33845 |
| By: | Alessia De Stefani |
| Abstract: | I study how monetary policy interacts with mortgage underwriting standards in shaping tenure decisions and rental market equilibria. Using property-level data from the American Housing Survey, I show that the increase in mortgage rates between 2021 and 2023 pushed many potential first-time home-buyers above FHA mortgage payment-to-income limits, restricting their access to home-ownership. This resulted in additional demand pressure on local rental markets, contributing to rent price inflation in 2023. Rentals located in cities with larger shares of constrained first-time buyers experienced steeper price growth, controlling for unit characteristics and contemporaneous economic developments. Rent inflation was more pronounced in smaller units occupied by lower-income renters, underscoring the potential for second-round distributional effects of monetary policy. |
| Keywords: | Mortgages; Homeownership; Monetary Policy; Rents |
| Date: | 2025–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/090 |
| By: | Goncharenko, Roman (Central Bank of Ireland); Lukamanova, Elizaveta (Central Bank of Ireland) |
| Abstract: | This letter investigates the pass-through of monetary policy to interest rates on new loans, using granular loan-level data from Ireland’s Central Credit Register during the period of sharp monetary tightening in 2022–2023. Pass-through varied significantly across lenders and loan types. Non-bank lenders (NBLs) exhibited the strongest pass-through, while banks and credit unions showed weaker effects. Overall, business and asset financing experienced higher pass-through than personal loans and home mortgages. Despite sharp rate hikes in 2022–2023, overall pass-through remained modest due to banks’ and credit unions’ dominance. These results highlight lender composition’s role in monetary transmission and NBLs’ growing influence in specific loan segments. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:ecolet:1/el/25 |
| By: | Juarez, Leticia |
| Abstract: | I derive a model-based equation relating pass-through to buyer size and estimate it on the micro transaction level data for Colombia. I find that after an exchange rate shock, sellers connected to larger buyers face more moderate changes in their prices in the seller currency (i.e., lower exchange rate pass-through) than those connected to small buyers. Pass-through ranges from 1% for firms connected with the largest buyers and up to 17% for firms connected with the smallest buyers. I use the estimates from the empirical analysis to calibrate the model and propose a counterfactual where buyer market power is eliminated. Under this scenario, sellers' revenues increase; however, the price in seller currency is more responsive to exchange rate shocks. I study the impact of buyer market power on international price responses to exchange rate changes. In markets with high buyer concentration, larger foreign buyers secure marked-down prices that adjust flexibly to exchange rate shocks. Using a novel dataset of Colombian export transactions, I estimate an open economy oligopsony model with endogenous markdowns, revealing that sellers connected to larger buyers experience milder price changes (1% impact) compared to those connected with smaller buyers (15% impact). These findings highlight a trade-off: while larger buyers reduce seller revenues, they also reduce sellers' exposure to exchange rate volatility, emphasizing the strategic importance of buyer relationships in international markets. |
| Keywords: | Market power;Oligopsony;market structure;Markdown;Exchange-rate pass-through |
| JEL: | D43 E31 F31 F32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14128 |
| By: | Yiming Ma; Yao Zeng; Anthony Lee Zhang |
| Abstract: | Stablecoins are cryptoassets which are designed to be pegged to the dollar, but are backed by imperfectly liquid USD assets. We show that stablecoins feature concentrated arbitrage: the largest issuer, Tether, only allows 6 agents in an average month to redeem stablecoins for cash. We argue that issuers' choice of arbitrage concentration reflects a tradeoff: efficient arbitrage improves stablecoin price stability in secondary markets, but amplifies run risks by reducing investors' price impact from selling stablecoins. Our findings imply that policies designed to improve stablecoin price stability may have the unintended consequence of increasing stablecoin run risks. |
| JEL: | G1 G2 G21 G23 G28 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33882 |
| By: | Guglielmo Maria Caporale; Luis Alberiko Gil-Alana |
| Abstract: | This paper examines persistence and nonlinearities in the US Federal Funds rate over the period from July 1954 to April 2025 by using fractional integration methods. More precisely, a general model including both deterministic and stochastic components is estimated under alternative assumptions concerning the error term (white noise and autocorrelation), and both linear and a nonlinear specification (the latter based on Chebyshev polynomials) are considered. The empirical results provide evidence of mean reversion but also of high persistence when allowing for autocorrelation in the errors. Moreover, they point towards significant nonlinearities in the stochastic behaviour of the series. Both are important properties of the Federal Funds rate, mainly reflecting underlying inflation persistence and policy shifts respectively. |
| Keywords: | US Federal Funds rate, fractional integration persistence, nonlinearities |
| JEL: | C22 E43 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11913 |
| By: | Ryan Chahrour; Adam Hale Shapiro; Daniel Wilson |
| Abstract: | We examine how the media's systematic selection of reporting topics influences household responses to inflation news. In a model where households learn about inflation from news coverage, households account for news selection when forming their expectations. Because media are more likely to report on inflation when it is high, the model implies an asymmetric response to news: high-inflation news changes expectations more than low-inflation news. We test this implication using household panel data, and find that exposure to higher-prices news increases inflation expectations by 0.4 percentage point, while exposure to lower-prices news has no significant effect. |
| JEL: | D8 E03 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33837 |
| By: | Agam Shah; Siddhant Sukhani; Huzaifa Pardawala; Saketh Budideti; Riya Bhadani; Rudra Gopal; Siddhartha Somani; Michael Galarnyk; Soungmin Lee; Arnav Hiray; Akshar Ravichandran; Eric Kim; Pranav Aluru; Joshua Zhang; Sebastian Jaskowski; Veer Guda; Meghaj Tarte; Liqin Ye; Spencer Gosden; Rutwik Routu; Rachel Yuh; Sloka Chava; Sahasra Chava; Dylan Patrick Kelly; Aiden Chiang; Harsit Mittal; Sudheer Chava |
| Abstract: | Central banks around the world play a crucial role in maintaining economic stability. Deciphering policy implications in their communications is essential, especially as misinterpretations can disproportionately impact vulnerable populations. To address this, we introduce the World Central Banks (WCB) dataset, the most comprehensive monetary policy corpus to date, comprising over 380k sentences from 25 central banks across diverse geographic regions, spanning 28 years of historical data. After uniformly sampling 1k sentences per bank (25k total) across all available years, we annotate and review each sentence using dual annotators, disagreement resolutions, and secondary expert reviews. We define three tasks: Stance Detection, Temporal Classification, and Uncertainty Estimation, with each sentence annotated for all three. We benchmark seven Pretrained Language Models (PLMs) and nine Large Language Models (LLMs) (Zero-Shot, Few-Shot, and with annotation guide) on these tasks, running 15, 075 benchmarking experiments. We find that a model trained on aggregated data across banks significantly surpasses a model trained on an individual bank's data, confirming the principle "the whole is greater than the sum of its parts." Additionally, rigorous human evaluations, error analyses, and predictive tasks validate our framework's economic utility. Our artifacts are accessible through the HuggingFace and GitHub under the CC-BY-NC-SA 4.0 license. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.17048 |
| By: | Philippe Burger |
| Abstract: | This paper proposes that the South African Reserve Bank should pursue a 3% inflation target, instead of the current 4.5% midpoint of a 3%-to-6% target range. Doing so may also result in lower inflation volatility, thereby reducing nominal exchange rate risk for investment and trade, and may thus support economic growth. Using a two-regime Markov-switching model, the analysis shows that since the global financial crisis, periods of higher inflation volatility are much shorter. Thus, inflation is relatively better anchored since the global financial crisis. |
| Keywords: | Inflation targeting, Sacrifice ratio, Budget deficits, Markov switching, South Africa, Prices |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-42 |
| By: | Carla Soares |
| Abstract: | This study investigates to what extent the significant liquidity injections by the ECB over the past 15 years may have created a dependency by banks on central bank liquidity itself. Following Acharya et al. (2024), I examine whether the ECB’s liquidity provision changed banks’ incentives to increase liquid deposits, potentially heightening their susceptibility to liquidity shocks. Using both aggregate and bank-level data, I find that euro area banks tend to increase demand deposits and decrease time deposits with their holdings of excess reserves over the liquidity expansion phase and do not revert when aggregate liquidity starts to shrink. However, this is contained to specific periods, when interest rates were low and stable. The differences relative to the US could be related to distinct sources of liquidity and regulatory frameworks governing liquidity. |
| JEL: | E5 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202505 |
| By: | Stephen J. Cole (Department of Economics Marquette University); (Department of Economics Marquette University) |
| Abstract: | This paper examines how FOMC participants construct their Summary of Economic Projections (SEP) forecasts. FOMC expectations are assumed to contain two components: (1) an endogenous part that follows an adaptive learning model and (2) an exogenous part defined as sentiment (waves of optimism and/or pessimism). The results include key policy takeaways. The forecasts of FOMC members are responsive to new economic information. Their sentiment about future GDP growth and inflation also displays persistence and is correlated with each other. Moreover, FOMC participants rely more on their endogenous/learning model to form expectations. However, sentiment plays a larger role during and around recessions. |
| Keywords: | summary of economic projections, FOMC, constant-gain learning, sentiment shocks, waves of optimism and pessimism, evolving beliefs, monetary policy |
| JEL: | C52 D84 E50 E52 E58 E60 E70 E71 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:mrq:wpaper:2025-02 |
| By: | Hack, Lukas (University of Mannheim); Rostam-Afschar, Davud (University of Mannheim) |
| Abstract: | How do firms’ plans and expectations respond to macroeconomic shocks? We run a daily survey of German firms over the past three years. We randomize daily invitations, delivering a stable composition of firms. This allows constructing daily time series and estimating dynamic aggregate causal effects. These estimates capture firms’ responsiveness conditional on the recent economic environment, making them informative for policymakers. We examine oil supply, monetary policy, and forward guidance shocks, finding that firms’ plans, especially price-setting plans, respond within days to oil supply and monetary policy shocks but not to forward guidance. Finally, we investigate firm heterogeneity and expectations. |
| Keywords: | oil supply, monetary policy, firms, daily data, inflation surge |
| JEL: | E31 E43 E52 E58 C83 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17882 |
| By: | Goutsmedt, Aurélien (UC Louvain - F.R.S-FNRS); Sergi, Francesco; Acosta, Juan |
| Abstract: | What do economists do in central banks? Why do central banks hire economists? This book investigates the evolving role of economists and economic knowledge within central banks, arguing that their current centrality is neither self-evident nor historically inevitable. While the presence and influence of economists in central banks today may seem natural, this book shows that it is the result of a complex, gradual, and uneven historical process shaped by institutional structures, disciplinary transformations, and shifting relationships between science and policy. Drawing on a rich but dispersed body of literature, the book traces how economists progressively gained authority through the establishment of statistics departments, the adoption of macroeconometric models, and the emergence of a shared cognitive infrastructure between academia and central banks. Rather than focusing on individuals or doctrines, it examines general trends and institutional shifts across a series of national case studies to show how central banks function as boundary organizations, at the intersection of policy and science. |
| Date: | 2025–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:acymv_v1 |
| By: | Leek, Lauren Caroline (European University Institute) |
| Abstract: | It has been well-established that central bank policy agendas are shaped by the spread of ideas, individual governors’ agency and economic and political pressures. However, in the case of the European Central Bank (ECB) the influence of the multi-level set-up of the Eurosystem consisting of both the ECB and National Central Banks (NCBs) is often not considered. How does this peculiar institutional setup shape the agenda? This study argues that NCBs act as intermediaries, channeling national and public priorities to the ECB level. Using a transformer model, alongside sequence and cross-sectional time-series analyses of ECB and NCB speeches from 1997 to 2024, I find that the ECB agenda and issue-responsiveness vis-a-vis `new' topics are driven primarily by NCBs. By revealing how NCBs shape what and when the ECB talks about certain topics, I also contribute more broadly to implications of the multi-level structure of the EU as well as how independent central banks and international organisations respond to outside pressures. |
| Date: | 2025–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:pb24v_v1 |
| By: | Sandye Gloria (Université Côte d'Azur, CNRS, GREDEG, France) |
| Abstract: | This article examines Menger's theory of money in the lens of the philosophical concept of emergence. While Menger's theory of the emergence of money is well known, the precise nature of this process has been relatively unexplored. The article begins by situating itself within philosophical debates to understand the meaning, scope, and implications of emergence. Section 2 demonstrates that the Mengerian approach is based on an ontology, epistemology, and methodology that differ from those of his contemporaries, particularly Walras. In this approach, the concept of emergence becomes legitimate and even attains the status of an epistemic concept. Finally, we categorise the type of emergence associated with the monetary phenomenon in light of the typology presented in the first section. As a result we argue that money is a weak case of diachronic and epistemological emergence involving a top-down, selective causal effect. |
| Keywords: | Emergence, Money, Menger, Complexity |
| JEL: | B13 B41 B53 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2025-24 |
| By: | Olivier Coibion; Yuriy Gorodnichenko |
| Abstract: | We review recent research and experiences linking inflation and expectations, emphasizing what has been learned since 2020. One clear lesson is that the inflation expectations of most economic agents have been and remain unanchored. The unanchored nature of inflation expectations, in combination with supply shocks, can explain much of the inflation surge and subsequent disinflation when viewed through the lens of an expectations-augmented Phillips curve, both in the U.S. and abroad. New policy frameworks are unlikely to address this feature of expectations. Only a communication strategy that breaks what we refer to as the “cycle of selective inattention” is likely to be successful, but it is probably already too late to stop the next inflation surge. |
| JEL: | E30 E4 E5 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33858 |
| By: | Graña Colella, Santiago; Vernengo, Matías |
| Abstract: | Currency substitution defined as the use of foreign currency in the domestic economy is a relatively common phenomenon in developing countries. While mainstream economics has analyzed it in some detail, the same is not the case in heterodox economics. This paper proposes an analytical approach to evaluate the effects of currency substitution and its relationship with exchange rate dynamics; it provides an empirical investigation of orthodox and alternative views for the case of Argentina. The orthodox view emphasizes the role of fiscal deficits financed by monetary emissions, while alternative views emphasize the importance of external vulnerabilities, both associated with current and financial account deficits as the source of currency substitution. We find some support in favor of the alternative or heterodox perspective on currency substitution or dollarization. |
| Keywords: | Cambio de Monedas; Desarrollo Económico; Economía Heterodoxa; Argentina; 2003-2019; |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nmp:nuland:4309 |
| By: | Anis Foresto; Monique Reid; Jeffrey Rakgalakane |
| Abstract: | The post-pandemic inflationary surge again challenged our views on the Phillips curve. International evidence that the Phillips curve is non-linear is supported by micro-evidence that agents are attentive to inflation once it passes a threshold. Beyond this threshold, inflation expectations are slow to fall, steepening the Phillips curve. Using a self-exciting threshold autoregressive model, we determine that the slope of the Phillips curve in South Africa is state dependent (20002024). The threshold is best described as a range between 4.28% and 9.29%, with a mean of 5.55%. We find low-inflation regimes to be self-stabilising as the probability of remaining in this regime exceeds the probability of transitioning to a high-inflation regime. Our findings have implications for discussions about the appropriate level of the inflation target. We recommend that the inflation target should fall low enough that a routine-sized supply shock does not push inflation deep into the threshold range (red zone). Considering the size of oil price shocks typically experienced in South Africa, we argue that a target of 3.37% would be just low enough to offer a buffer to accommodate the direct effect of standard-sized shocks without entering the red zone. Our results therefore support the position of Honohan and Orphanides (2022) that the South African Reserve Bank should target inflation of 3%. |
| Date: | 2025–06–12 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11080 |
| By: | Costa, André |
| Abstract: | This paper considers the role of savings as that of managing the tradeoff between the amount consumed of present varieties and the investment into improving the quality of varieties in the future. Under this framework, it is shown that the rates of interest, inflation and economic growth are equal and derived from the same phenomenon: innovation. Consequently, this leads to a monetary policy recommendation, namely to attempt to bind the rates of inflation and interest to the directly observable real rate of economic growth. |
| Keywords: | Growth theory |
| JEL: | E20 E21 E22 E4 E40 E43 E50 E52 |
| Date: | 2025–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124966 |
| By: | Jonathan Benchimol; Itamar Caspi; Yuval Levin |
| Abstract: | Significant shifts in the composition of consumer spending as a result of the COVID-19 crisis can complicate the interpretation of official inflation data, which are calculated by the Central Bureau of Statistics (CBS) based on a fixed basket of goods. We focus on Israel as a country that experienced three lockdowns, additional restrictions that significantly changed consumer behavior, and a successful vaccination campaign that has led to the lifting of most of these restrictions. We use credit card spending data to construct a consumption basket of goods representing the composition of household consumption during the COVID-19 period. We use this synthetic COVID-19 basket to calculate the adjusted inflation rate that should prevail during the pandemic period. We find that the differences between COVID-19-adjusted and CBS (unadjusted) inflation measures are transitory. Only the contribution of certain goods and services, particularly housing and transportation, to inflation changed significantly, especially during the first and second lockdowns. Although lockdowns and restrictions in developed countries created a significant bias in inflation weighting, the inflation bias remained unexpectedly small and transitory during the COVID-19 period in Israel. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.09875 |
| By: | Mr. Jorge A Alvarez; Thomas Kroen |
| Abstract: | This paper investigates the relationship between energy prices and inflation dynamics in the context of the global inflation surge during the COVID-19 pandemic. Using a comprehensive sector-level dataset covering over 30 countries and a local projections empirical strategy, we extend previous studies that primarily focused on single-country analyses or aggregate inflation measures. Our findings indicate that while the energy shocks of 2021–2022 were remarkable, the degree of inflation passthrough of energy shocks appears to be relatively stable over time. Moreover, we show that energy price shocks significantly influence inflation through stable sectoral channels, with structural characteristics such as energy dependence and price flexibility playing critical roles in the passthrough mechanism. These results underscore the necessity of a sectoral perspective in understanding inflationary pressures and highlight the importance of detailed data on price-setting mechanisms and intersectoral connectivity in understanding the energy-inflation passthrough. |
| Keywords: | Inflation Passthrough; Energy Prices; Production Networks; Price Rigidities; Local Projections. |
| Date: | 2025–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/091 |
| By: | Jorge Mourato; Madalena Borges; Francisco Gaspar; Hugo Nogueira |
| Abstract: | This paper analyses the use of collateral for the Eurosystem’s credit operations by Portuguese counterparties for the period 1999-2023, with a particular focus in the period following the implementation of the Basel III regulatory framework. It identifies an increasing mobilisation of non-marketable assets and covered bonds by banks amid the introduction of Basel III as a new international banking regulatory framework and changes in the ESCF. The analysis also looks beyond the collateral pools of banks and quantifies the liquidity potential of unencumbered assets held by a subset of major Portuguese banks from a monetary policy perspective. Moreover, it presents for the first time the collateral pool of Portuguese banks from a regulatory-LCR perspective and concludes that the composition of HQLA vs. non-HQLA in the collateral pool of Portuguese banks changes significantly around periods of large changes in central bank credit exposure. Finally, this paper identifies signs of money market and bond issuance revival in the context of normalization of the ECB’s monetary policy and after the successful conclusion of Portugal’s adjustment programme, through which the country strengthened its banking system and regained market access. |
| JEL: | E44 E51 E52 E58 E59 G32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:o202501 |
| By: | Hie Joo Ahn; Matteo Luciani |
| Abstract: | We disentangle price changes due to economy-wide shocks from those driven by idiosyncratic shocks by estimating a two-regime dynamic factor model with dynamic loadings on a new large dataset of finely disaggregated monthly personal consumption expenditures price inflation indexes for 1959-2023. We find that up to the mid-1990s and after the Covid pandemic, common shocks were the primary driver of US inflation dynamics and had long-lasting effects. In between, idiosyncratic shocks were the main driver, and common shocks had short-lived effects. |
| Keywords: | Core inflation; Dynamic factor model; Disaggregated consumer prices; Monetary policy |
| JEL: | C32 C43 C55 E31 E37 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:100036 |
| By: | Vyacheslav Fos; Tommaso Tamburelli; Nancy R. Xu |
| Abstract: | When Federal Reserve districts experience high inflation or low unemployment but lack voting rights to influence FOMC decisions, credit extended to commercial banks through the Discount Window (DW) declines. Our identification strategy is based on the exogenous rotation of voting rights among Reserve Banks and on within borrower-time and district-time variation in DW loans and Federal Home Loan Bank (FHLB) loans, implying that factors related to changes in macroeconomic conditions, local credit demand, or borrower characteristics do not drive the results. The effect on bank funding sources translates into changes in the composition of loans extended by commercial banks. |
| JEL: | D7 E5 E51 E58 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33853 |
| By: | Rubio, Margarita (University of Nottingham); Yao, Fang (Central Bank of Ireland) |
| Abstract: | This paper examines loan-to-value (LTV) policy as a macroprudential tool and its interactions with monetary policy in an inflationary environment. The combination of inflation shocks and collateral constraints introduces additional trade-offs for policymakers, emphasizing the need for coordination between macroprudential and monetary policies. Using a DSGE model with collateral constraints, we evaluate the implications of an optimized LTV rule for a welfare-based loss function that incorporates economic and financial stability. Our core finding indicates that, under inflation shocks, policy coordination reduces welfare-based losses compared to a non-coordination regime. In particular, the LTV rule is active (responding to cyclical factors, e.g. house prices) when monetary policy responds weakly to inflation shocks, but the LTV rule becomes passive (only responding to structural factors) when monetary policy chooses to be hawkish towards inflation. |
| Keywords: | LTV policy, Monetary Policy, macroprudential policy coordination, collateral constraints, financial friction, cost-push shocks. |
| JEL: | E32 E44 E58 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:1/rt/25 |
| By: | Richard H. Clarida |
| Abstract: | This paper examines the 2021-2022 global inflation surge and the belated but aggressive monetary policy response to it by advanced economy central banks. Drawing on body of recent empirical research, it identifies three primary drivers of the global inflation surge: supply shocks from pandemic disruptions and Russia’s invasion of Ukraine, accommodative fiscal and monetary policies that responded to the economic dislocation caused by pandemic, and a demand shift toward goods relative to services, that exacerbated supply chain pressures. Advanced economy central banks were initially slow to react but ultimately raised rates aggressively and succeeded, with help from a reversal of the initial supply shocks which contributed to the initial inflation surge, in returning inflation to “2 point something” were confident enough in the prospects for further disinflation to began cutting interest rates by the summer of 2024. The paper explores benefits and costs of proposals to make forward guidance on the policy rate and the balance sheet more robust and considers the benefits and costs of incorporating scenario analysis into the communication toolkit. |
| JEL: | E31 E4 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33885 |
| By: | Laurence M. Ball; Mr. Daniel Leigh; Ms. Prachi Mishra |
| Abstract: | Why did US inflation rise over 2021-22 and why has it retreated since then? Ball, Leigh, and Mishra (2022), writing near the inflation peak, explained the rise with a framework in which inflation depends on three factors: long-term expectations; the tightness of the labor market as measured by the vacancy-to-unemployment (V/U) ratio; and large changes in relative prices in particular industries such as energy and autos. This paper finds that the same framework explains the retreat in inflation since our earlier work. |
| Keywords: | Inflation; Inflation shocks; Core inflation; Phillips curve |
| Date: | 2025–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/094 |
| By: | Merrahi Bouchra (ENCG - PhD student, Organizational management sciences research laboratory. National School of Commerce and Management/ Ibn Tofail University.); Hamid Ait Lemqeddem (ENCG - Academic Professor, Organizational management sciences research laboratory. National School of Commerce and Management/ Ibn Tofail University.) |
| Abstract: | The primary objective of monetary policy lies in safeguarding macroeconomic stability, particularly by mitigating cyclical fluctuations and controlling inflationary pressures. However, contemporary monetary policies are implemented in an environment increasingly characterized by uncertainty regarding the scope and nature of their real effects on the economy. Although monetary policy remains a fundamental instrument of economic regulation, it can generate unexpected, and at times undesirable, side effects. The effective conduct of such policy thus necessitates a rigorous assessment of its impact on key macroeconomic variables. This requirement entails a thorough understanding of the transmission mechanisms through which monetary decisions affect the real economy. These mechanisms include, among others, the effects of interest rates, exchange rates, asset prices, and the credit channel. In this context, the present article aims to examine the impact of monetary policy decisions on economic activity, through an analysis that draws on both theoretical frameworks and empirical findings. |
| Abstract: | La finalité essentielle de la politique monétaire réside dans la préservation de la stabilité macroéconomique, en particulier par l'atténuation des fluctuations conjoncturelles et le contrôle des pressions inflationnistes. Néanmoins, les politiques monétaires contemporaines s'inscrivent dans un environnement marqué par une incertitude croissante quant à l'ampleur et à la nature de leurs effets réels sur l'économie. Bien qu'elle constitue un instrument fondamental de régulation économique, la politique monétaire peut engendrer des effets secondaires inattendus, voire indésirables. La conduite efficace de cette politique requiert ainsi une évaluation rigoureuse des retombées sur les variables macroéconomiques. Cette exigence implique une compréhension approfondie des mécanismes de transmission par lesquels les décisions monétaires influencent l'économie réelle. Ces mécanismes incluent, entre autres, les effets induits par les taux d'intérêt, les taux de change, les prix des actifs, ainsi que le canal du crédit. Dans cette perspective, le présent article se propose d'examiner l'incidence des décisions de politique monétaire sur l'activité économique, à travers une analyse fondée à la fois sur le cadre théorique et sur les résultats issus des études empiriques. |
| Keywords: | transmission channels, monetary policy, economic activity, interest rates, canaux de transmission, politique monétaire, activité économique, taux d’intérêt. |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05069798 |
| By: | Leonardo Tariffi (Universitat de Barcelona, CIVREF) |
| Abstract: | This paper shows what the main inflation macroeconomics drivers in Spain are. Even if there has been a less than two-digit inflation in the last three decades, it can be emphasized the fact that the inflation rate has raised and declined rapidly in recent years because of its fundamental determinants. Main reasons behind the behaviour of the consumption price index are related to higher prices in the energy sector and a higher government expenditure, particularly after the post-pandemic economy re-opening. Proxy variables such as oil prices free on board in the European Brent market, the 12 months Euribor interest rate of the Economic and Monetary Union, the nominal gross domestic product, the government expenditure of the public administration, and fiscal deficits in terms of the gross domestic product are those variables in which the consumer price index depends on. Changes on interest rates have managed to stabilized inflation rates once again, thereby diminishing the percentage change in the consumer price index. |
| Keywords: | Inflation rate, Consumer Price Index, Central Banks, Hydrocarbon Fuels |
| JEL: | E31 E58 L71 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ewp:wpaper:480web |
| By: | Byrne, David (Central Bank of Ireland); Goodhead, Robert (Central Bank of Ireland); McMahon, Michael (Central Bank of Ireland); Naylor, Matthew (Central Bank of Ireland); Parle, Conor (Central Bank of Ireland) |
| Abstract: | The ECB’s communication strategy has changed in recent years, driven first by reforms from the 2021 Strategy Review and then by the post-pandemic inflation surge. Its communication has shifted rapidly from forward guidance to giving detailed information on its reaction function and its evaluation of data. Focusing on the Monetary Policy Statement, which is delivered at ECB press conferences, we examine these changes through the dimensions of temporal orientation and textual complexity. We find that the reforms led communication to be less semantically complex and to have fewer references to the past, reflecting reduced emphasis on evaluating data. However, as inflation rose and the ECB became “data-dependent”, its discussions of past data became more detailed again. While communication remained less semantically complex, it became more conceptually complex. This suggests a trade-off: giving more information on data and the reaction function may result in more conceptually complex communication. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:ecolet:2/el/25 |
| By: | Emiliano Carlevaro (School of Economics and Public Policy of Economics, University of Adelaide); Qazi Haque (School of Economics and Public Policy of Economics, University of Adelaide); Leandro Magnusson (Department of Economics, University of Western Australia) |
| Abstract: | This paper revisits the U.S. fiscal-monetary policy mix using econometric methods that are robust to weak identification and sensitive to structural changes. We find that the pre-Volcker period was predominantly characterised by a passive monetary-passive fiscal regime, consistent with indeterminacy and the presence of self-fulfilling inflationary expectations. However, we cannot rule out the possibility of a passive monetary-active fiscal configuration during the 1960s and 1970s, in line with the Fiscal Theory of the Price Level. In contrast, the post-Volcker period exhibits strong evidence of an active monetary-passive fiscal regime, reflecting greater inflation control and fiscal discipline. |
| Keywords: | Fiscal-monetary interactions, weak identification |
| JEL: | E63 E61 C63 E32 E31 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:uwa:wpaper:25-05 |
| By: | Allan Dizioli |
| Abstract: | This paper examines the challenges of formulating monetary policy in the face of heightened uncertainty. We develop a framework to assess the optimal monetary policy path under uncertainty, focusing on four key dimensions: the expectation formation process, inflation persistence, the measurement of the neutral interest rate, and the slope of the Phillips curve. Our framework provides a flexible tool for policymakers to address uncertainty and enhance decision-making in pursuit of economic stability. This framework is helpful to improve the risk management approach to monetary policy by showing how scenarios can quantify different sources of uncertainty faced by the ECB and give market participants an idea of how the ECB would react if those scenarios materialize. |
| Keywords: | DSGE; inflation dynamics; optimal monetary policy; forecasting and simulation; bayesian estimation |
| Date: | 2025–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/107 |