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on Monetary Economics |
| By: | Olesya V. Grishchenko; Franck Moraux; Olga Pakulyak |
| Abstract: | We analyze evolution of inflation expectations in the euro area (EA) using a novel measure of inflation expectations implied by the French nominal and inflation-indexed bonds. Overall, we find that EA inflation expectations have been relatively well anchored in the 2004 -- 2019 sample but have been somewhat sensitive to the incoming macroeconomic news and monetary policy shocks in the sample that includes the COVID-19 pandemic. Our results are robust with respect to the use of different inflation-indexed securities data, such as the EA inflation-linked swaps. |
| Keywords: | Obligations Assimilables du Trésor; OAT; French inflation-indexed bonds; Nominal- indexed bond spreads; Inflation swaps; Inflation expectations; Macroeconomic news; Monetary policy shocks; Euro area; Inflation anchoring; Stability |
| JEL: | D84 E31 E37 E52 E58 |
| Date: | 2025–06–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-41 |
| By: | Forbes, Kristin; Ha, Jongrim; Kose, M. Ayhan |
| Abstract: | Central banks often face tradeoffs in how their monetary policy decisions impact economic activity (including employment), inflation and the price level. This paper assesses how these tradeoffs have evolved over time and varied across countries, with a focus on understanding the post-pandemic adjustment. To make these comparisons, we compile a cross-country, historical database of “rate cycles” (i.e., easing and tightening phases for monetary policy) for 24 advanced economies from 1970 through 2024. This allows us to quantify the characteristics of interest rate adjustments and corresponding macroeconomic outcomes and tradeoffs. We also calculate Sacrifice Ratios (output losses per inflation reduction) and document a historically low “sacrifice” during the post-pandemic tightening. This popular measure, however, ignores adjustments in the price level—which increased by more after the pandemic than over the past four decades. A series of regressions and simulations suggest monetary policy (and particularly the timing and aggressiveness of rate hikes) play a meaningful role in explaining these tradeoffs and how adjustments occur during tightening phases. Central bank credibility is the one measure we assess that corresponds to only positive outcomes and no difficult tradeoffs. |
| Keywords: | monetary policy, interest rates, central bank, Sacrifice Ratio, business fluctuations, prices, employment |
| JEL: | E31 E32 E43 E52 E58 F33 F44 N10 |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124747 |
| By: | Fiorella De Fiore; Damiano Sandri; James Yetman |
| Abstract: | A novel international survey across 29 advanced and emerging market economies reveals that household inflation expectations remain elevated, despite inflation rates approaching targets. Perceptions of significant price hikes post-pandemic tend to feed into higher household inflation expectations, pointing to the risk of a lasting impact of temporary inflation bursts. Households with greater knowledge of central banks and their price stability mandates report lower inflation expectations. Therefore, central bank communications can help improve the public's understanding of central banks and foster the anchoring of inflation expectations. |
| Date: | 2025–06–16 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:104 |
| By: | Thiago Christiano Silva; Kei Moriya; Mr. Romain M Veyrune |
| Abstract: | This paper introduces a classification framework to analyze central bank communications across four dimensions: topic, communication stance, sentiment, and audience. Using a fine-tuned large language model trained on central bank documents, we classify individual sentences to transform policy language into systematic and quantifiable metrics on how central banks convey information to diverse stakeholders. Applied to a multilingual dataset of 74, 882 documents from 169 central banks spanning 1884 to 2025, this study delivers the most comprehensive empirical analysis of central bank communication to date. Monetary policy communication changes significantly with inflation targeting, as backward-looking exchange rate discussions give way to forward-looking statements on inflation, interest rates, and economic conditions. We develop a directional communication index that captures signals about future policy rate changes and unconventional measures, including forward guidance and balance sheet operations. This unified signal helps explain future movements in market rates. While tailoring messages to audiences is often asserted, we offer the first systematic quantification of this practice. Audience-specific risk communication has remained stable for decades, suggesting a structural and deliberate tone. Central banks adopt neutral, fact-based language with financial markets, build confidence with the public, and highlight risks to governments. During crises, however, this pattern shifts remarkably: confidence-building rises in communication to the financial sector and government, while risk signaling increases for other audiences. Forward-looking risk communication also predicts future market volatility, demonstrating that central bank language plays a dual role across monetary and financial stability channels. Together, these findings provide novel evidence that communication is an active policy tool for steering expectations and shaping economic and financial conditions. |
| Keywords: | Central bank communication; large language models; forward guidance; monetary policy; sentiment analysis |
| Date: | 2025–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/109 |
| By: | Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley) |
| 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. |
| Keywords: | communication, surveys, inflation expectations, expectations management, randomized controlled trial |
| JEL: | E31 C83 D84 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17919 |
| By: | Braun, Ben; Düsterhöft, Maximilian |
| Abstract: | In contrast to the “quiet” politics of the pre-2008 period, macroeconomic policy has become “noisy”. This break raises a question: How do independent agencies designed for quiet politics react when a contentious public turns the volume up on them? Central banks provide an interesting case because while they are self-professed adherents to communicative transparency, individual case studies have documented their use of strategic silence as a defense mechanism against politicization. This paper provides a quantitative test of the theory that when faced with public contention on core monetary policy issues, central banks are likely to opt for strategic silence. We focus on the most contested of central bank policies: large-scale asset purchase programs or “quantitative easing” (QE). We examine four topics associated with particularly contested side effects of QE: house prices, exchange rates, corporate debt, and climate change. We hypothesize that an active QE program makes a central bank less likely to address these topics in public. We further expect that the strength—and, in the case of the exchange rate, the direction—of this effect varies depending on the precise composition of asset purchases and on countries' growth models. Using panel regression analysis on a dataset of more than 11, 000 speeches by 18 central banks, we find that as a group, central banks conducting QE programs exhibited strategic silence on house prices, exchange rates, and climate change. We also find support for three out of four country-specific hypotheses. These results point to significant technocratic agency in the de- and re-politicization of policy issues. |
| JEL: | F3 G3 |
| Date: | 2025–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128420 |
| By: | Edward Nelson |
| Abstract: | This paper examines the place that a "look-through" approach to price shocks has acquired in inflation-targeting frameworks. The "look-through" approach reflects the fact that, in the event of a shock that is likely (on impact) to put a sizable share of consumer prices under upward pressure, one option available to the central bank is to accommodate the initial price rise. In doing so, it can also attempt to ensure that future inflation rates, and inflation expectations, are insulated from the shock. Although the policy of "looking through" has achieved considerable acceptance, its origins are not widely understood. The analysis provided here indicates that key aspects of the "look-through" approach were aired in U.S. public discourse in 1973−1974, when the appropriate response to the first oil shock was being considered. The approach was subsequently refined in the course of several countries' experiences of price shocks from the mid-1970s to the early 1990s, with the specific "look through" terminology emerging at the end of this period. The connection between the "look-through" approach and the notion of inflation expectations being anchored by the central bank is also considered. |
| Keywords: | Monetary policy strategy; Inflation targeting; Look-through approach |
| JEL: | E52 E58 |
| Date: | 2025–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-37 |
| By: | Andriantomanga, Zo; Kishor, N. Kundan; Kumar, Labesh |
| Abstract: | This paper examines whether a uniform monetary policy can effectively address diverse state-level economic conditions within the United States. Using quarterly data from 1989-2017 for 33 states, we construct state-level optimal interest rates based on a Taylor rule framework that incorporates local inflation and unemployment gaps. We document significant and persistent deviations between these state-implied rates and the actual federal funds rate, with hierarchical clustering analysis revealing systematic regional patterns in monetary policy misalignment. Using a local projection approach, we find that a one percentage point positive deviation shock reduces headline inflation by 0.6 percentage points and increases unemployment rates, with effects most pronounced for non-tradable sectors. Critically, responses to state-specific deviation shocks are substantially larger and more persistent than responses to aggregate deviation shocks, demonstrating that cross-sectional heterogeneity is essential for understanding monetary policy's regional impacts. Our findings remain robust to alternative specifications, including output gaps, interest rate smoothing, and accounting for unconventional monetary policy. |
| Keywords: | Taylor rule, monetary policy, interest rates, regional business cycles |
| JEL: | E43 E52 R11 |
| Date: | 2025–05–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124748 |
| By: | Mr. Abdoul A Wane; Carlos de Resende; Jing Xie |
| Abstract: | This paper employs various empirical methods to test the Purchasing Power Parity (PPP) hypothesis in West and Central Africa, considering countries within the WAEMU, CEMAC, CFA, and ECOWAS currency zones and four possible numeraire currencies—U.S. dollar, euro, renminbi, and the CFA franc. Using panel and single-country unit-root, cointegration, error-correction techniques, our findings indicate that the numeraire currency matters for evidence in favor of PPP. Results show slightly stronger evidence when the euro is used as the reference compared to other numeraire currencies, although results vary across different methods. Evidence for PPP is also stronger across the currency zones after the 1994 devaluation of the CFA franc, when evidence for PPP using the renminbi as reference is also stronger, suggesting an increasing importance of the renminbi for the economies in West and Central Africa. The paper documents significant differences in price dynamics for the CEMAC and the WAEMU, the two components of the CFA zone, with stronger evidence for PPP found for the WAEMU and reversal speed to PPP faster than the 2-3 years found in the literature. Results also indicate that real exchange rates of the currency zones revert to PPP mainly through adjustments of foreign prices expressed in domestic currencies—which may result from changes in nominal exchange rates of the reference currencies or foreign prices—and less so via adjustments in domestic prices. |
| Keywords: | Purchasing Power Parity; Real Exchange Rate; CFA zone; price level; inflation; numeraire currency |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/119 |
| By: | Anesti, Nikoleta (Bank of England); Esady, Vania (Bank of England); Naylor, Matthew (Bank of England) |
| Abstract: | We construct a novel data set to investigate the sensitivity of household inflation expectations to personal experienced inflation, testing whether households weigh price changes differently across items in the consumption basket. Across households of all age, income, gender, work status, UK region, and house tenure groups, food prices matter significantly more for inflation expectations dynamics than other components, including energy. In particular, households’ expectations are sensitive to changes in food price-driven inflation at short, medium and long horizons, and this association is persistent, non-linear and asymmetric. Our results imply that the risk of household expectations contributing to persistent inflationary dynamics are greatest following large and inflationary shocks to, specifically, food prices. Moreover, our findings can rationalise a number of empirical regularities related to household expectations: their upwards bias relative to actual inflation; cross-sectional heterogeneity across demographic groups; and their ‘supply-side’ oriented view of the economy. |
| Keywords: | Households; inflation expectations; inflation experiences; food prices; heterogeneity; persistence; non-linearities; asymmetries |
| JEL: | C33 D84 E31 E52 |
| Date: | 2025–04–25 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1125 |
| By: | Dimitris Korobilis |
| Abstract: | I introduce a high-dimensional Bayesian vector autoregressive (BVAR) framework designed to estimate the effects of conventional monetary policy shocks. The model captures structural shocks as latent factors, enabling computationally efficient estimation in high-dimensional settings through a straightforward Gibbs sampler. By incorporating time variation in the effects of monetary policy while maintaining tractability, the methodology offers a flexible and scalable approach to empirical macroeconomic analysis using BVARs, well-suited to handle data irregularities observed in recent times. Applied to the U.S. economy, I identify monetary shocks using a combination of high-frequency surprises and sign restrictions, yielding results that are robust across a wide range of specification choices. The findings indicate that the Federal Reserve's influence on disaggregated consumer prices fluctuated significantly during the 2022-24 high-inflation period, shedding new light on the evolving dynamics of monetary policy transmission. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.06649 |
| By: | Boehnert, Lukas (University of Oxford); de Ferra, Sergio (University of Oxford); Mitman, Kurt (Stockholm University); Romei, Federica (University of Oxford) |
| Abstract: | We investigate how the composition of expenditure shapes the transmission of monetary policy in a currency union. European Monetary Union data reveal three facts: (1) higher inequality countries have larger service expenditure shares; (2) monetary policy has a weaker output impact in these high-service-share, high-inequality countries; and (3) monetary policy induces systematic trade flows between high- and low-service-share countries. We develop a New Keynesian model with non-homothetic preferences and heterogeneous sectoral income that rationalizes these facts. Pro-cyclical inequality, driven by wealthier households' greater income exposure to services, buffers poorer households' consumption to contractionary shocks, dampening overall policy transmission. Our findings suggest that accounting for cross-country differences in consumption and income distributions is essential for understanding common monetary policy. |
| Keywords: | currency union, monetary policy, inequality |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17950 |
| By: | Hyeon-seung Huh (Yonsei University); David Kim (University of Sydney) |
| Abstract: | The use of sign restrictions to identify monetary policy shocks in structural vector autoregression (SVAR) models has garnered significant attention in recent years. In this context, we revisit two influential studies—Uhlig (2005) and Arias et al. (2019)—which offer conflicting conclusions regarding the output effects of contractionary monetary policy shocks. Our analysis seeks to uncover the underlying causes of these discrepancies and evaluate the sensitivity of the results to alternative model specifications. Specifically, we examine four key factors: (i) the influence of rotation priors on posterior inference in sign-restricted SVAR models, (ii) the robustness of findings when employing an alternative algorithm to generate large sets of responses, (iii) the sensitivity of results to variations in identifying restrictions, and (iv) the robustness of conclusions to changes in the monetary policy equation and the inclusion of the Great Moderation. |
| Keywords: | Sign restrictions, Rotation matrix, monetary policy shocks, Structural vectorvautoregression, Baumeister and Hamilton critique |
| JEL: | C32 C51 E32 E52 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-245 |
| By: | de Brauw, Alan; Gilligan, Daniel O.; Herskowitz, Sylvan; Roy, Shalini |
| Abstract: | Mobile money can be a vehicle for improving financial access, particularly among disadvantaged populations. For mobile money systems to play this role, though, members of disadvantaged groups must both enroll in and begin to use mobile money systems. In this paper, we describe a randomized trial conducted in collaboration with a bank in Somali region, Ethiopia, that attempted to stimulate use among recent mobile money enrollees in areas near refugee camps. We provide one group with a small transfer to their mobile money account and another group is told they will receive a small transfer if they first make three transactions of any type within a promotional period. The unconditional transfer induces a 9.3 percentage point increase in customers making at least one transaction, while the conditional transfer has no significant effect. The effect is larger among men, but there is evidence that it also induces use among women. |
| Keywords: | access to finance; refugees; gender; digital technology; currencies; finance; mobile phones; Ethiopia; Eastern Africa; Africa |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:gsspwp:162765 |
| By: | Gorkem Bostanci; Omer Koru; Sergio Villalvazo |
| Abstract: | We argue that inflationary shocks affect allocative efficiency by changing the rate and the characteristics of workers’ job-to-job transitions. First, using monetary policy shocks and survey data on search effort, we empirically show that a one percentage point rise in inflation increases job-to-job transitions by up to 4.5%, and workers with higher inflation expectations are more likely to search and do so more effectively. Second, we build a general equilibrium model of directed on-the-job search to quantify the aggregate implications of labor market reactions. Higher-than-expected inflation reduces real wages, prompting workers to search more actively and aim lower. This increases job-to-job transitions but lowers the efficiency gains per transition. Therefore, the effect on output is ambiguous. Last, we calibrate the model to the U.S. economy. Inflationary shocks increase reallocation rates, yet allocative efficiency and output decline. Small deflationary shocks (e.g., 2%) increase output in the short run, while others decrease it. |
| Keywords: | Inflation; Job-to-job flows; Worker reallocation |
| JEL: | E24 E31 J31 |
| Date: | 2025–06–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-42 |
| By: | Hie Joo Ahn; Lam Nguyen |
| Abstract: | We empirically investigate the distributional effects of inflation on workers' unemployment tail risks using instrumental variable quantile regression. We find that supply-driven inflation disproportionately raises unemployment tail risks for cyclically vulnerable workers in both the short and medium term, while demand-driven inflation has differential effects -- limited to race and reason for unemployment -- only in the medium term. Demand-boosting policies, including monetary policy, can inadvertently widen those disparities through the inflation channel, underscoring the importance of inflation stabilization in promoting equitable growth in the labor market. Our findings could be explained structurally by heterogeneity in experienced inflation and wage inflation expectations. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.05757 |
| By: | Jan Kakes; Tom Hudepohl; Casper de Haes |
| Abstract: | We estimate to what extent the Eurosystem’s Corporate Sector Purchase Programme (CSPP) impacted the price of securities that were actually bought, or their close substitutes, more than the price of other securities. For own bond purchases we do not find significant local supply effects, which is in line with the Eurosystem’s market neutrality principle of asset purchases. We do, however, find significant local supply effects caused by the purchases of substitute bonds defined by similar maturities; we estimate that these effects reduce bond yields by about 40-45 basis points. Such local supply effects are more pronounced for bonds that were eligible under the CSPP than for non-eligible bonds, for bonds that have been issued more than a year ago and for bonds with relatively low credit ratings. |
| Keywords: | monetary policy; quantitative easing; preferred habitat; |
| JEL: | C26 E43 E52 E58 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:837 |
| By: | Hyun Song Shin; Philip Wooldridge; Dora Xia |
| Abstract: | Currency hedging by non-US investors holding US dollar securities appears to have made an important contribution to the weakness of the dollar in April and May 2025. In recent years, the strength of the dollar and high currency hedging costs driven by elevated short-term dollar interest rates had discouraged non-US investors from hedging their US dollar exposures. Clues as to the location of currency hedging activity can be gleaned from intraday exchange rate movements. In April, the largest declines in the US dollar occurred during Asian trading hours, suggesting an important role for Asian investors. |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:105 |
| By: | Campiglio, Emanuele; Deyris, Jérôme; Romelli, Davide; Scalisi, Ginevra |
| Abstract: | We study climate-related central bank communication using a novel dataset containing 35, 487 speeches delivered by 131 central banks from 1986 to 2023. We employ natural language processing techniques to identify and trace the evolution of key climate-related narratives centred around (i) green finance, and (ii) climate-related financial risks. We find that central bank public communication strategies are primarily driven by underlying institutional factors, rather than exposure to climate-related risks. We then study the impact of climate-related communication on financial market dynamics through both a portfolio and a firm-level analysis. We find that equity returns of ‘green’ firms outperform those of ‘dirty’ firms when central banks engage more frequently and intensely with climate-related topics. |
| Keywords: | central banking; climate change; low-carbon transition; central bank communication; climate-related risks; green finance; text analysis; topic modelling; asset pricing |
| JEL: | E44 E58 Q54 Z13 |
| Date: | 2025–01–21 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128518 |
| By: | Minnie Zhu; Yuhan Liu; Simon Gong |
| Abstract: | This paper investigates the impact of monetary policy surprises on U.S. Treasury bond yields and the implications for portfolio managers. Based on the supply and demand model, traditional economic theories suggest that Federal Reserve bond purchases should increase bond prices and decrease yields. However, New Keynesian models challenge this view, proposing that bond prices should not necessarily rise due to future expectations influencing investor behavior. By analyzing the effects of monetary policy surprises within narrow windows around Federal Open Market Committee (FOMC) announcements, this study aims to isolate the true impact of these surprises on bond yields. The research covers Treasury bonds of various maturities--3 months, 1 year, 10 years, and 30 years--and utilizes cross-sectional regression analysis. The findings reveal that financial crises significantly decrease short-term yields, while no obvious evidence of factors that might affect long-term yields. This paper provides insights into how monetary policy influences bond yields and offers practical implications for portfolio management, particularly during quantitative easing and financial crises. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.07226 |
| By: | Galo Nuño |
| Abstract: | The natural interest rate is the real rate that would prevail in the long-run. The standard view in macroeconomics is that the natural rate depends exclusively on structural factors such as productivity growth and demographics. This paper challenges this view by discussing three alternative, and complementary, views: (i) that the natural rate depends on fiscal policy via the stock of risk-free assets; (ii) that it depends on monetary policy via the central bank in ation target; and (iii) that it depends on persistent supply shocks such as tariffs or wars. These three theories share the relevance of precautionary savings motives. We conclude by drawing some lessons for monetary policy design. |
| Keywords: | HANK model, monetary-fiscal interactions, deep learning, cost-push shocks |
| JEL: | E32 E58 E63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11878 |
| By: | Wishnu Badrawani |
| Abstract: | This study aims to evaluate the adoption of Bank Indonesia's QRIS (Quick Response code Indonesian Standard) payment system policy. The evaluation is hindered by the contemporaneous emergence of the COVID-19 pandemic, which acts as a confounding factor in adopting the new payment instrument. To disentangle the impact of central bank policy from the pandemic, a novel variation of the model of Unified Theory of Acceptance and Use of Technology (UTAUT) is proposed and is estimated using purposive sampling from an online survey with 572 respondents during the pandemic. The result of the study successfully disentangles the policy effect from the pandemic effect, and also separate the risk of pandemic with common risks (PR) and other technology adoption determinants. The results indicate that perceived central bank policy and pandemic risk are the most influential variables affecting the intention to use QRIS. The findings suggest that this measurement approach can be appropriately used as a complementary tool to examine the effectiveness of the central bank's policy in influencing people's behavior. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.11695 |
| By: | Juvonen, Petteri; Nelimarkka, Jaakko; Obstbaum, Meri; Vilmi, Lauri |
| Abstract: | We study recent inflation and labour market dynamics in the euro area within a general equilibrium framework. Rapid inflation was mainly caused by demand and supply shocks, but labor market-specific shocks also contributed to the surge in inflation. Our results underscore the significance of import price shocks in explaining the recent interactions between wages and prices. The observed exceptional labour market tightness has also been influenced by a decline in hours worked per person, alongside more commonly studied demand and supply shocks. |
| Keywords: | euro area, labour market shocks, inflation, labour market tightness |
| JEL: | E31 E32 E37 F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofecr:319705 |
| By: | Irigoin, Alejandra; Kobayashi, Atsushi; Chilosi, David |
| Abstract: | This paper analyses a new large dataset of silver prices, as well as silver and merchandise trade flows in and out of China in the crucial decades of the mid-nineteenth century when the Empire was opened to world trade. Silver flows were associated with the interaction between heterogeneous monetary preferences and availability of specific coins. Before the 1850s, money markets became increasingly efficient, as reliance on bills of exchange allowed exports to grow in times when sound money was in short supply. When a new standard for silver eventually emerged, there was a new peak in China's silver imports. |
| Keywords: | China; silver; triangular trade |
| JEL: | E42 F33 N10 |
| Date: | 2025–05–10 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127999 |
| By: | Pudner, Damian |
| Abstract: | The existing monetary framework of the Bank of England fails to manage supply-side shocks and financial crises effectively, which leads to economic volatility and potential policy errors. Targeting the growth path of nominal GDP would provide a more stable and predictable macroeconomic environment by focusing on total nominal spending rather than a rigid inflation target. Nominal GDP targeting reduces policy uncertainty by minimising discretionary decision-making, improving transparency, and better anchoring expectations for businesses and financial markets. Establishing a nominal GDP futures market could provide real-time guidance for policymakers, while enhanced data collection and market communication would facilitate a smooth transition. By stabilising total nominal spending, nominal GDP targeting supports long-term economic stability, reducing volatility in output and employment while ensuring a more growth-friendly policy framework. The Bank of England's failure to anticipate inflationary trends has undermined trust in its decision-making. A transparent and predictable nominal GDP-based framework would rebuild confidence in monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ieadps:314036 |
| By: | Moreno, Guadalupe |
| Abstract: | Money, capitalist market societies' paramount contract, relies on the belief in its enduring value. However, we still know surprisingly little about the social foundations that sustain that belief. How is our collective trust in the enduring value of money socially built, and what happens if people lose such trust? What if a society convinces itself that policymakers cannot guarantee that the value of money will persist over time? In this paper, I use Argentina as a monetary laboratory to study how almost eighty uninterrupted years of high inflation and successive currency crises led to a social trauma that crystalized in the emergence of a distrust narrative: a strong popular belief that neither the state nor the local financial system will be able to preserve the value of the national currency or the worth of savings over time. By analyzing the production and reproduction of this narrative and its longlasting effects on the Argentine economy, I show how rooted distrust in a currency fosters a myriad of practices aimed at protecting savings, which impose severe limits on monetary governance. I emphasize that when state authorities lose control of collective expectations and negative monetary imaginaries take off, a vicious cycle unfolds in which instability, inflation, and devaluation reinforce each other. |
| Abstract: | Geld als Fundament kapitalistischer Marktwirtschaften beruht auf dem Glauben an seinen dauerhaften Wert. Allerdings wissen wir immer noch erstaunlich wenig über die sozialen Grundlagen, die diesen Glauben stützen. Wie baut sich unser kollektives Vertrauen in den dauerhaften Wert des Geldes auf, und was passiert, wenn Menschen dieses Vertrauen verlieren? Was geschieht, wenn eine Gesellschaft zu dem Schluss kommt, dass die Politik nicht in der Lage ist, den bleibenden Wert des Geldes über die Zeit hinweg zu sichern? In diesem Discussion Paper nutze ich Argentinien als "monetäres Labor", um zu untersuchen, wie fast achtzig Jahre ununterbrochener hoher Inflation und aufeinanderfolgender Währungskrisen zu einem sozialen Trauma geführt haben. So bildete sich Misstrauensnarrativ heraus, eine starke Überzeugung in der Bevölkerung, dass weder der Staat noch das lokale Finanzsystem in der Lage sein werden, den Wert der nationalen Währung oder der Ersparnisse über die Zeit hinweg zu bewahren. Durch eine Analyse der Produktion und Reproduktion dieses Narrativs und seiner lang anhaltenden Auswirkungen auf die argentinische Wirtschaft zeige ich, wie tief verwurzeltes Misstrauen in eine Währung eine Vielzahl von Praktiken fördert, die auf den Schutz von Ersparnissen abzielen und die Geldpolitik stark einschränken. Wenn die Behörden die Kontrolle über die kollektiven Erwartungen verlieren und sich negative monetäre Vorstellungen in der Gesellschaft ausbreiten, entfaltet sich ein Teufelskreis, in dem sich Instabilität, Inflation und Abwertung gegenseitig verstärken. |
| Keywords: | central bank, civil society, financial crisis, governance, money, trust, Finanzkrise, Geld, Regierungsführung, Vertrauen, Zentralbank, Zivilgesellschaft |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:mpifgd:319606 |
| By: | Marco Jacopo Lombardi; Cristina Manea; Andreas Schrimpf |
| Abstract: | We construct a new financial conditions index for the United States based on a dynamic factor model applied to a broad set of financial prices and yields. The resulting two latent factors capture, respectively, the general level of safe interest rates and an overall measure of perceived and priced financial risk. Analysing the interaction between these factors and the macroeconomy, we find that: (i) both factors are affected significantly by monetary policy; (ii) positive shifts in both factors lead to a persistent contraction in economic activity; (iii) relative to the safe interest rates factor, the risk–related factor exhibits stronger predictive power for economic activity. Our results are consistent with both the demand and the credit channels of monetary policy being at work, and emphasize that isolating movements in safe interest rates from shifts in perceived financial risk is essential to accurately assess the transmission of financial conditions to economic activity. |
| Keywords: | financial conditions, monetary policy, financial accelerator, dynamic factor model |
| JEL: | C38 E52 G10 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1272 |
| By: | Weber, Isabella; Wasner, Evan; Lang, Markus; Braun, Benjamin; Klooster, Jens van’t |
| Abstract: | Supply shocks are now widely recognized as a driver of the recent inflation bout, but the role of firms’ pricing strategies in propagating input cost shocks remains contested. In this paper, we review the state of the academic debate over sellers’ inflation and assess whether, in line with this theory, economy-wide cost shocks have functioned as an implicit coordination mechanism for firms to hike prices. We use a dataset containing 138, 962 corporate earnings call transcripts of 4, 823 stock-market listed U.S. corporations from the period 2007-Q1 to 2022-Q2 to conduct sentiment analysis via both dictionary-based natural language processing and a large language model approach. We find that large input price shocks (as well as their co-occurrence with supply constraints) correlate with positive sentiments expressed in executives’ statements about cost increases. Qualitative analysis provides further insights into the reasoning behind executives’ optimism regarding their ability to turn an economy-wide cost shock into an opportunity to raise prices and protect or even increase profits. |
| Keywords: | inflation; profits; price coordination; sentiment analysis; earnings calls |
| JEL: | J1 F3 G3 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128231 |
| By: | Itskhoki, Oleg; Mukhin, Dmitry |
| Abstract: | We use a general open-economy wedge-accounting framework to characterize the set of shocks that can account for major exchange rate puzzles. Focusing on a near-autarky behavior of the economy, we show analytically that all standard macro economic shocks—including productivity, monetary, government spending, and markup shocks—are inconsistent with the broad properties of the macro exchange rate disconnect. News shocks about future macro economic fundamentals can generate plausible exchange rate properties. However, they show up prominently in contemporaneous asset prices, which violates the finance exchange rate disconnect. International shocks to trade costs, terms of trade and import demand, while potentially consistent with disconnect, do not robustly generate the empirical Backus–Smith, UIP and terms-of-trade properties. In contrast, the observed exchange rate behavior is consistent with risk-sharing (financial) shocks that arise from shifts in demand of foreign investors for home-currency assets, or vice versa. |
| JEL: | F31 F41 |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123704 |
| By: | Mr. Eugenio M Cerutti; Melih Firat; Martina Hengge |
| Abstract: | Cross-border payments are essential to the global financial system, facilitating trade and investment. The global cross-border traditional and crypto payment market approached a value of about one quadrillion dollars in 2024, with crypto payments representing only a small fraction despite their recent surge. Focusing on data from Swift—the largest traditional cross-border financial messaging network—we study the characteristics and evolving patterns of these payments over 2021-24. Notably, payments are predominantly concentrated in advanced economies, and are driven by financial institutions and large transactions. While currency usage remains stable—with the U.S. dollar maintaining the largest share—the Chinese renminbi demonstrates signs of increasing global integration, albeit from a low base. Gravity model estimates confirm that traditional economic linkages, via trade, portfolio investment, and FDI, shape cross-border payments. However, aggregate dynamics mask substantial heterogeneity across message types (customer vs. financial related payments), currencies, and transaction sizes, with information asymmetries playing a diminished role in larger payments. |
| Keywords: | Cross-Border Payments; Trade; FDI; Portfolio Investment; Networks |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/120 |
| By: | Tomoo Kikuchi; Lien Pham |
| Abstract: | We develop a model of strategic competition between global currencies. Issuers choose their commitment levels for currency internationalization, while users -- interconnected in a trade network -- choose their usage of each currency for trade settlement. Our theoretical findings highlight not only the advantage of the status-quo issuer in maintaining dominance, but also the conditions under which an emerging issuer can attract users, potentially leading to a multi-currency payment system. The network centrality of users plays a key role in shaping both their currency choices and the strategic commitment levels of issuers. Our framework offers testable implications for the share of global currencies for trade settlement by linking the network structure, the strategy of issuers and the currency choice of users. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.22080 |
| By: | Laurie Pounder DeMarco; Joshua Walker |
| Abstract: | The dominant international role of the U.S. dollar has received renewed attention in recent years, but across many measures, the dollar's dominance in international finance has changed little. However, there has been a notable change in one statistic. Dollar-denominated cross-border bank lending to emerging market economies (EMEs) declined almost 10 percent between the start of 2022 and early 2024. |
| Date: | 2025–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-05-16 |
| By: | Jabko, Nicolas; Schmidt, Sebastian (Johns Hopkins University) |
| Abstract: | Scholars regularly mobilise the concept of policy paradigm to characterise successive periods in which certain ideas appear to structure policymaking. While this concept proved useful to establish that ideas matter, it is time to start thinking about ideas in ways that better resonate with actors’ practices. This article introduces and empirically illustrates two conceptual alternatives. First, it looks at international monetary relations from 1944 through the early 1970s. Instead of simply labelling this period as ‘Keynesian, ’ it shows that the enduring centrality of gold was a pivotal practice among policy makers. Second, it considers the governance of the Eurozone in the run-up to the crisis of the 2010s. Rather than viewing this period as ‘neoliberal, ’ it highlights a new discursive repertoire of governance that produced both austerity and unconventional policies. In sum, practices and repertoires help to make sense of elements of continuity, ambiguity and contestation that are often obscured by ideational analysis. |
| Date: | 2025–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:qk9np_v1 |
| By: | Robert Minton; Mariano A. Somale |
| Abstract: | Economic researchers and forecasters face the difficult task of differentiating the effects of tariffs on consumer prices from the effects of other factors—such as inflation expectations, supply chain disruptions, labor market tightness, and energy prices—which may influence prices independently. The methods available for this task in the economics literature, however, are not suitable for assessing tariffs' effects on consumer prices in real time. |
| Date: | 2025–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-05-09 |
| By: | Pereira, Thales Zamberlan (São Paulo School of Economics / FGV) |
| Abstract: | Drawing on 20, 000 monthly quotations, this study revises imperial Brazil's inflation and living standards estimates. The new price index eliminates the nineteenth-century ‘low-growth puzzle’: Brazil’s GDP per capita rose in line with the Latin-American average. Earlier series, which relied on baskets disproportionately weighted toward agricultural goods or whose composition varied over time, display continuous growth and overstate inflation by 57–270%. The revised index reveals a sharp rise in the 1850s and stability thereafter. New evidence on exchange and freight rates, terms of trade, regional commerce, and real wages shows that regional specialization in food production helped stabilize prices after the mid-century. |
| Date: | 2025–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:y5fnp_v1 |