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on Monetary Economics |
| By: | Hoffmann, Mathias; Mönch, Emanuel; Pavlova, Lora; Schultefrankenfeld, Guido |
| Abstract: | During the post-pandemic inflation surge, many central banks actively used communication about the inflation outlook as a policy tool to limit spillovers from realized to expected inflation. We present novel survey evidence showing that the ECB's guidance about the projected inflation path substantially lowers households' inflation expectations in times of unusually high inflation. A reassuring, positively framed non-quantitative communication style has the largest treatment effects on short-term expected inflation. Providing simple visualizations of the ECB's projected inflation path also significantly lowered inflation expectations across horizons. We document substantial heterogeneity of these effects along key socio-demographic characteristics. Our findings suggest that, regarding their communication, central banks should 'keep it sophisticatedly simple (KISS)'. |
| Keywords: | Inflation projections, Central Bank Communication, Inflation Expectations, Randomized Control Trial, Survey Data |
| JEL: | E31 E52 E32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:319900 |
| By: | Louisa Roos (Department of Economics, Trinity College Dublin) |
| Abstract: | This paper examines how women and men’s labour respond differently to monetary policy changes, particularly exchange rate policy. The study leverages the unexpected unpegging of the Swiss franc from the Euro in 2015, which led to a significant appreciation of the Swiss franc. This currency appreciation increased women’s work volume relative to men’s. The effect is especially pronounced among the least educated women, who act as a labour buffer and are most responsive to macroeconomic fluctuations, underscoring the nuanced gender effects of monetary policy. |
| Keywords: | monetary policy, exchange rate, gender, labour |
| JEL: | E52 J16 B54 J21 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0725 |
| By: | Okan Akarsu; Emrehan Aktug; Muserref Kucukbayrak |
| Abstract: | We document hand-to-mouth (HtM) ratios for European countries using the Household Finance and Consumption Survey (HFCS) dataset and assess their role in monetary policy transmission. Using European Central Bank (ECB) monetary shocks and panel local projections, we find that countries with higher HtM ratios have a less pronounced response to monetary policy shocks compared to those with lower HtM ratios. This aligns with the predictions of heterogeneous agent New Keynesian models with both wage and price rigidity. When wages are stickier than prices, real wages for HtM agents may decline despite interest rate cuts, which hinders the demand boost typically expected from the New Keynesian Cross. Consequently, monetary policy is less effective in stimulating aggregate demand in countries with higher HtM ratios. |
| Keywords: | HtM ratio, Monetary policy transmission, Wage and price rigidity, Heterogenous agents |
| JEL: | E12 E24 E31 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2506 |
| By: | Hongzhe Wen; Songbai Li |
| Abstract: | With market capitalization exceeding USD 200 billion as of early 2025, stablecoins have evolved from a crypto-focused innovation into a vital component of the global monetary structure. This paper identifies the characteristics of stablecoins from an analytical perspective and investigates the role of stablecoins in forming hybrid monetary ecosystems where public (fiat, CBDC) and private (USDC, USDT, DAI) monies coexist. Through econometric analysis with multiple models, we find that stablecoins maintain strong peg stability, while each type also exhibiting distinctive responses to market variables such as trading volume and capitalization, depending on the mechanisms behind. We introduce a hybrid system design that proposes a two-layer structure where private stablecoin issuers are backed by central bank reserves, ensuring uniformity, security, and programmability. This model merges the advantages of decentralized finance and payment innovation while utilizing the Federal Reserve's institutional trust. A case study on the 2023 SVB-USDC depeg event illustrates how such a hybrid system could prevent panic-induced instability through transparent reserves, secured liquidity, and interoperable assets. Ultimately, this research concludes that a hybrid monetary model not only enhances financial inclusivity, scalability, and dollar utility in digital ecosystems but also strengthens systemic resilience, offering a credible blueprint for future digital dollar architectures. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.10997 |
| By: | Laura Felber |
| Abstract: | This paper examines the effects of exchange rate fluctuations on cross-border consumer spending in small open economies. Exploiting a large, unexpected and persistent central bank-induced exchange rate appreciation and drawing on a unique dataset of over 500 million anonymized debit and credit card transactions, I document a substantial and immediate impact on both cross-border shopping by domestic consumers and tourism spending by foreign consumers. The strongest spending adjustments are observed among domestic consumers living near the border and foreign consumers from neighboring countries. Furthermore, foreign consumers from neighboring countries exhibit high exchange rate sensitivity on both the extensive and intensive margins and shift their consumption from higher- to lower-value goods and services. These findings suggest significant substitution effects in consumption on impact and emphasize the important role of cross-border shopping in small open economies. The paper provides insights for policymakers and central bankers, especially in small open economies where the exchange rate channel is an important channel of monetary policy transmission. |
| Keywords: | Exchange rates, Consumption, Monetary policy, Exchange rate channel, Heterogeneity, Transaction payments data, Tourism, Event study |
| JEL: | D12 E21 E52 E58 F14 F41 R11 Z30 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-09 |
| By: | Yao, Wei (Tilburg University, School of Economics and Management) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:185d14d3-9dc2-4276-82ec-e2d59b3d693f |
| By: | Ray, Walker; Droste, Michael; Gorodnichenko, Yuriy |
| Abstract: | We study the role of preferred habitat in understanding the economic effects of the Federal Reserve’s quantitative easing (QE). Using high-frequency identification and exploiting the structure of the primary market for US Treasuries, we isolate demand shocks that are transmitted solely through preferred habitat channels but otherwise mimic QE shocks. We document large localized yield curve effects when financial markets are disrupted. Our calibrated model, which embeds preferred habitat in a New Keynesian framework, can largely account for the observed financial effects of QE. QE is modestly stimulative for output and inflation, but alternative policy designs can generate stronger effects. |
| Keywords: | quantitative easing; monetary policy; market segmentation; treasury auctions |
| JEL: | E52 E43 E44 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:120833 |
| By: | Hedlund, Aaron (Purdue University); Larkin, Kieran (University College London); Mitman, Kurt (Stockholm University); Ozkan, Serdar (University of Toronto) |
| Abstract: | This paper examines the impact of mortgage market structures on shaping economic responses to the unprecedented interest rate and inflation dynamics of 2021-2024. We first empirically document that economies with a larger share of variable-rate mortgages exhibit stronger responses in house prices to monetary policy shocks. We then develop and calibrate a structural model of the housing market to demonstrate that these mortgage structures can account for a substantial portion of the divergent house price paths observed across the US, Canada, Sweden, and the UK during the Great Inflation. Our analysis reveals that early pandemic mortgage rate cuts drove 45% of the US house price boom. Economies dominated by adjustable-rate mortgages (ARMs) show greater price sensitivity to monetary tightening, while fixed-rate mortgage (FRM) regimes exhibit more pronounced path dependence due to a lock-in effect. These dynamics have significant distributional consequences, with low-income homeowners benefiting most, especially in FRM regimes. Finally, we show that the preferred monetary tightening path is regime-dependent, as a policy counterfactual reveals that FRM-dominant economies benefit more from a shorter and sharper tightening schedule. |
| Keywords: | heterogeneous agents, monetary policy, mortgages, housing, inflation |
| JEL: | D31 E21 E52 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17971 |
| By: | Pelizzon, Loriana; Mattiello, Riccardo; Schlegel, Jonas |
| Abstract: | This paper examines the rise of non-bank financial intermediaries (NBFIs) and its implications for financial stability and monetary policy transmission in the Euro Area and the United States. While the U.S. financial system has long been market-based, the Euro Area has experienced a striking expansion of NBFIs, which now account for a larger share of GDP than in the U.S. While the sector has grown significantly, much of its capital is intermediated and allocated outside the EU, reflecting missed opportunities for domestic capital market development. We argue that this pattern is a consequence of limited growth opportunities within Europe, weak financial market infrastructure, and the absence of key institutional enablers such as a sizable capital market and securitization frameworks. We further examine how NBFIs pose supervisory challenges due to geographic concentration, influence money market dynamics, and interact with monetary policy transmission. The paper concludes with policy recommendations to unlock the sector's potential - including reforms to deepen European capital markets, a unified supervisory mechanism and consideration of extending some central bank facilities to NBFIs. |
| Keywords: | Non-bank Financial Intermediaries (NBFIs), Monetary Policy Transmission, European Capital Markets |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:321877 |
| By: | Anna Drahozalova (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | This paper contributes to the existing literature on exchange rate modelling by developing a new proxy for foreign exchange market imbalances. By utilizing the monetary presentation of the Balance of Payments we create a measure of net external flows and study its impact on the exchange rate. Focusing on the case of the Czech Republic, we account for the coexistence of fixed and floating exchange rate regimes by relying on the exchange market pressure (EMP) index. A vector autoregression model provides evidence of a causal relationship from net external flows to the EMP index. We find that a positive orthogonal shock to net external flows causes the Exchange rate to appreciate already in the short term with the effect peaking three months after the initial shock. |
| Keywords: | Foreign Exchange, Exchange Rates, Capital Flows |
| JEL: | F31 F32 F37 F41 G15 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_13 |
| By: | Rosso, Biagio; Gatto, Matteo |
| Abstract: | What are key macroeconomic consequences of an occasionally binding debt-control policies in economies operating under Fiscal Dominance? From a kindred theoretical perspective, what happens when relaxing the "Sargent" assumption of a perfectly flexible monetary authority to occasionally inflexibility in the form of limits to the quantity of debt or money-growth at which the authority is willing to operate? Finally, how does this matter for optimal fiscal-monetary rules and interactions in such contexts, in particular for the desirability of inflation-targeting? The organising framework we propose, unifying MD and FD with and without occasional inflexibility is (i) a DSGE sticky-price model admitting both MD and FD as alternative solutions to indeterminacy of the equilibrium inflation path, and (ii) extended to account for occasionally binding upper boundaries to quantity of debt through which passive monetary authorities is willing to assist the dominant fiscal side (occasional policy inflexibility). Drawing on the OccBin approach in the sequence space for the analysis of DSGE models featuring non-linearities arising from endogenous regime switching, including occasionally binding constraints, we study transitional dynamics in response to shocks, and optimal monetary-fiscal policy, across unconstrained MD, FD, and FD with occasional policy inflexibility. We provide two ways of integrating this occasionally binding policy-side or supply-side constraint: an overdetermined system with temporary disequilibria or policy-induced shortages, solved for through Least Squares, and one in which the Monetary Authority endogenously deviates from its standard behaviour to enforce the inflexible policy. Subsequently, an "optimal policy" exercise -- via optimal simple rules -- is conducted seeking to identify the monetary-fiscal policy pairs that minimise a standard quadratic loss function. Based on the analysis of impulse responses and the optimal policy rules exercise, we highlight a number of new results, relevant to both theory and policy applications, on FD economies emerging from accounting for occasionally inflexibility in the form of debt ceilings. In order: dynamics display emergent properties, in the form of endogenous higher macroeconomic volatility and a recessionary-deflationary cycle; macroeconomic stabilisation is more difficult to achieve under strong inflation targeting than under perfectly flexible passive policy; more dovish monetary rules outperform hawkish ones (targeting inflation as strong as feasible under the passive monetary policy requirements); gradualism in policy reform could lead to the emergence of policy traps; more systematic fiscal policy intervention could reinstate (relative) optimality of stronger inflation targeting. |
| Keywords: | fiscal dominance; optimal monetary-fiscal policy; occasionally binding constraints; debt ceiling; endogenous regime switching; NK models; shortages; shortages as endogenous regime switches; inflation path indeterminacy; |
| JEL: | C63 E31 E32 E52 E58 E63 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125094 |
| By: | Siye Bae (Northwestern University); Sangyup Choi (Yonsei University); Sang-Hyun Kim (Yonsei University); Myunghwan Andrew Lee (New York University); Myungkyu Shim (Yonsei University) |
| Abstract: | We study how politically diverse households form and update macroeconomic expectations in response to public communication, using novel survey waves of Korean individuals conducted in 2022 during a historic inflation surge. The survey includes a randomized information treatment in which respondents are exposed to government forecasts about inflation stabilization, with treatments varying in messenger, framing, media source, and numerical content. We first document substantial political polarization in macroeconomic beliefs, including inflation expectations. We then find that only pro-government individuals revise their expectations downward in response to the information, while anti-government and centrist individuals remain largely unresponsive, regardless of message source, content, or presentation. These asymmetric responses are driven by differences in trust toward the policy authority, which are themselves linked to partisanship, highlighting the challenges of anchoring expectations in politically polarized environments. |
| Keywords: | Inflation expectations; Macroeconomic beliefs; Partisan bias; Central bank communication; Household survey |
| JEL: | C83 D84 E31 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-255 |
| By: | Nuobu Renzhi (Capital University of Economics and Business); John Beirne (Asian Development Bank) |
| Abstract: | This paper examines the impact of monetary policy shocks on firm-level productivity across 32 emerging market economies from 2000 to 2023, using panel local projections and a comprehensive firm-level dataset. We identify exogenous monetary policy shocks using a forward-looking Taylor rule and analyze their dynamic impact on total factor productivity. The results indicate a significant and persistent decline in productivity following a monetary-tightening shock. Crucially, financial frictions drive heterogeneous responses among firms: firms facing higher financial frictions experience more severe and prolonged productivity losses, whereas those with lower frictions recover more quickly. Additionally, firms characterized by low market power, younger age, or operation in financially vulnerable sectors, such as services, experience larger and longer-lasting productivity losses compared to their counterparts. Furthermore, we find asymmetric effects, whereby contractionary monetary shocks result in substantial productivity losses, while expansionary shocks fail to generate offsetting gains. |
| Keywords: | productivity;monetary policy;emerging markets |
| JEL: | D22 D24 E52 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:021408 |
| By: | Sriram Darbha; Cyrus Minwalla; Rakesh Arora; Dinesh Shah |
| Abstract: | We frame the wide spectrum of possible system architectures for an online retail central bank digital currency (CBDC) and identify a promising architecture well-suited for basic payments. We select OpenCBDC 2PC, a representative system design that fits this architecture and analyze it using a range of criteria to assess the feasibility of such system designs. Our analysis, augmented with lab experiments, focuses on retail payment systems with two-tier deployment and includes a detailed assessment of non-repudiation, integrity of the monetary supply, privacy, compliance, scalability of performance and resilience of the system state. It suggests that such system designs can be fast and cheap for basic payments, with high privacy, although some areas such as integration with retail payments systems, performance of auditing and resilience of the core system state require further investigation. Our framing highlights other promising architectures for an online retail CBDC, whose analysis we leave as an area for further exploration. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E E4 E42 E5 E51 O O3 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:25-09 |
| By: | Ma, Nana |
| Abstract: | This study investigates the relationship between inflation and the UK stock market by focusing on the FTSE 100 Index. Utilizing a two-stage regression approach, it examines both immediate and lagged effects of inflation, incorporating macroeconomic variables such as exchange rate (EXC) and unemployment rate (UN). The empirical analysis is conducted over two sub-periods (2018–2021 and 2021–2023), with diagnostic tests including ADF, VIF, White heteroskedasticity, and Breusch–Godfrey serial correlation. OLS estimates are corrected using Newey-West standard errors. Results indicate limited short-term impact of inflation on FTSE 100, but a near-significant effect with a first-order lag. Exchange rate and unemployment are found to be dominant explanatory factors. The study concludes with implications for monetary policy, and ESG investment strategies. |
| Keywords: | Inflation, FTSE 100, Regression Analysis, Macroeconomic Variables, UK Stock Market |
| JEL: | E31 G10 |
| Date: | 2024–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125301 |
| By: | Juin-Jen Chang; Wan-Ting Chang; YiLi Chien; Chun-Hung Kuo |
| Abstract: | We analyze the interaction between the Taiwan central bank's profits and its policies. To earn large and consistent profits, the Taiwan central bank significantly expanded its balance sheet and relied on inexpensive short-term domestic funding to invest in longer-term foreign debt securities. In doing so, the central bank engineered a massive duration and currency mismatch on its balance sheet to capture term and currency risk premiums. We also argue that these large profits could not have been realized without a low rate policy combined with heavy regulations on domestic financial institutions. These regulations function like a tax on the returns of private overseas investments, effectively trapping funds within the domestic financial system. Ultimately, the profits earned by the central bank are, in effect, an implicit tax revenue levied on domestic depositors. |
| Keywords: | monetary policy; fiscal policy; central bank independence; financial repression |
| JEL: | G12 E62 |
| Date: | 2025–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101338 |
| By: | Tom Barkin |
| Abstract: | Labor market conditions remain solid, while inflation remains somewhat elevated. It makes sense to stay modestly restrictive until we are more confident inflation is returning to our 2 percent target. I recognize the fight against inflation has been long. But it is critical that we remain steadfast. It is tempting to focus on gaming out short-term factors, but it’s hard to make significant monetary policy changes amidst such uncertainty. So, I prefer to wait and see how this uncertainty plays out and how the economy responds. |
| Keywords: | business cycles; economic growth; inflation; monetary policy |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:r00034:101209 |
| By: | Majda Kerrouri (UIT - Université Ibn Tofaïl); Mounir El Bakkouchi (UIT - Université Ibn Tofaïl) |
| Abstract: | This article, based on a systematic and integrative review of the literature on economic crises, offers an in-depth analysis of the impacts of financial, health, and geopolitical shocks on inflation and multisectoral economic growth. By adopting a comparative, multidimensional, and multidisciplinary approach, it draws on lessons from the 2008 global financial crisis, the COVID-19 pandemic, and current geopolitical tensions including armed conflicts, disruptions to global supply chains, and economic sanctions. These events are examined in terms of their capacity to trigger feedback effects on key macroeconomic balances, particularly through market volatility, reduced investment, and fluctuations in international trade. The article places particular emphasis on the effectiveness and limitations of unconventional monetary policies such as quantitative easing (QE), negative interest rates, and asset purchase programs implemented by central banks to mitigate the economic fallout. While these measures have, in some cases, supported aggregate demand, stabilized financial markets, and delayed recessions, their long-term effects raise persistent concerns: increasing social inequalities, speculative bubbles, unsustainable public and private debt, and excessive reliance on central bank interventions. The article thus highlights the structural weaknesses of these mechanisms and calls for a reform of economic policy frameworks, including ambitious structural reforms, strengthened financial regulation, and enhanced international cooperation to build a more resilient, equitable, and sustainable economy. |
| Abstract: | Cet article, fondé sur une revue systématique et intégrative de la littérature consacrée aux crises économiques, propose une analyse approfondie des répercussions des chocs d'ordre financier, sanitaire et géopolitique sur l'inflation et la croissance économique à l'échelle multisectorielle. En adoptant une approche comparative, multidimensionnelle et pluridisciplinaire, il mobilise les enseignements tirés de la crise financière mondiale de 2008, de la crise sanitaire provoquée par la COVID-19, ainsi que des tensions géopolitiques contemporaines, notamment les conflits armés, les perturbations des chaînes d'approvisionnement mondiales et les sanctions économiques. Ces événements sont examinés dans leur capacité à engendrer des effets de rétroaction sur les principaux équilibres macroéconomiques, notamment à travers la volatilité des marchés, la contraction des investissements et les fluctuations du commerce international. L'article met un accent particulier sur l'efficacité et les limites des politiques monétaires non conventionnelles, telles que l'assouplissement quantitatif (QE), les taux d'intérêt négatifs et les programmes d'achat d'actifs mis en œuvre par les banques centrales pour amortir les chocs économiques. Si ces mesures ont permis, dans certains contextes, de soutenir la demande agrégée, de stabiliser les marchés financiers et de retarder les récessions, leurs effets à long terme soulèvent des inquiétudes persistantes : aggravation des inégalités sociales, formation de bulles spéculatives, surendettement public et privé, et dépendance excessive à l'intervention des banques centrales. L'article souligne ainsi les faiblesses structurelles de ces dispositifs et plaide pour une refonte des cadres d'intervention économique, incluant des réformes structurelles ambitieuses, une régulation financière renforcée et une coopération internationale accrue afin de bâtir une économie plus résiliente, équitable et durable. |
| Keywords: | multisectoral growth, monetary policies, Quantitative easing, Economic crises, Crises économiques, inflation, croissance multisectorielle, politiques monétaires, assouplissement quantitatif |
| Date: | 2025–06–23 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05140262 |
| By: | Carol C. Bertaut; Stephanie E. Curcuru; Bastian von Beschwitz |
| Abstract: | For most of the last century, the preeminent role of the U.S. dollar in the global economy has been supported by the size and strength of the U.S. economy, its stability and openness to trade and capital flows, and strong property rights and the rule of law. As a result, the depth and liquidity of U.S. financial markets is unmatched, and there is a large supply of extremely safe dollar-denominated assets. |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-07-18-1 |
| By: | Pál, Tibor; Storti, Giuseppe |
| Abstract: | This paper analyses the dynamics of the natural rate of interest (r-star) in the US using a score-driven state-space model within the Laubach–Williams structural framework. Compared to standard score-driven specifications, the proposed model enhances flexibility in variance adjustment by assigning time-varying weights to both the conditional likelihood score and the inertia coefficient in the volatility updating equations. The improved state dependence of volatility dynamics effectively accounts for sudden shifts in volatility persistence induced by highly volatile unexpected events. In addition, allowing time variation in the IS and Phillips curve relationships enables the analysis of structural changes in the US economy that are relevant to monetary policy. The results indicate that the advanced models improve the precision of r-star estimates by responding more effectively to changes in macroeconomic conditions. |
| Keywords: | r-star, state-space, Kalman filter, score-driven models |
| JEL: | C13 C51 E52 |
| Date: | 2025–07–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125338 |
| By: | Emre Yilmaz; Selin Demir; Aylin Karaca; Lila Moore (Department of Computer Science, Carnegie Mellon University, Pittsburgh, PA 15213, USA) |
| Abstract: | This paper proposes the utilization of Dynamic Bayesian Networks for modeling Liquidity Preference-Money Supply, aiming to address the pressing need for advanced tools to analyze economic dynamics. The current research landscape lacks efficient methods to account for the intricate relationships and uncertainties inherent in monetary systems, posing significant challenges for accurate modeling and forecasting. In response, this study introduces a novel approach that leverages Dynamic Bayesian Networks to capture the complex interactions between liquidity preferences and money supply, offering a more comprehensive and adaptable framework for economic analysis. By integrating this innovative methodology, the paper advances the understanding of monetary dynamics and provides valuable insights for policymakers and researchers in the field. |
| Keywords: | Dynamic Bayesian Networks Liquidity Preference Money Supply Economic Analysis Monetary Dynamics, Dynamic Bayesian Networks, Liquidity Preference, Money Supply, Economic Analysis, Monetary Dynamics |
| Date: | 2025–02–23 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05086735 |
| By: | Erin E. Syron Ferris; Amy Rose; Manjola Tase |
| Abstract: | We first construct a novel indicator of reserve ampleness based on data on interbank payments over the Fedwire Funds Service: the share of reserves to Fedwire payments as a proxy for the demand for reserves for payment purposes. We then explore the relationship between this indicator and the price of reserves, the spread between the effective federal funds rate (EFFR) and interest on reserves (IORB), to identify structural breaks and back out the minimum level of ample reserves as a share of Fedwire payments and the corresponding EFFR - IORB spread. We find that fed funds trading slightly below the interest on reserves and reserves at about 65 percent of Fedwire payments are consistent with minimum level of ample reserves. |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-07-18-3 |
| By: | Macchiati, Valentina; Cappiello, Lorenzo; Giuzio, Margherita; Ianiro, Annalaura; Lillo, Fabrizio |
| Abstract: | We propose a novel framework to assess systemic risk stemming from the inadequate liquidity preparedness of non-bank financial institutions (NBFIs) to derivative margin calls. Unlike banks, NBFIs may struggle to source liquidity and meet margin calls during periods of significant asset price fluctuations, potentially triggering asset fire sales and amplifying market volatility. We develop a set of indicators and statistical methods to assess liquidity preparedness and examine risk transmission through common asset holdings and counterparty exposures. Applying our framework to euro area NBFIs during the Covid-19 turmoil and the 2022–2023 monetary tightening, we observe an increase in distressed entities, which, in turn, seem to exhibit more liquidity-driven selling behaviours than their non-distressed peers. Network analysis suggests that certain counterparties of distressed entities appear particularly vulnerable to margin call-induced liquidity shocks. Our framework offers policymakers valuable tools to enhance the monitoring and resilience of the NBFI sector. JEL Classification: C02, E52, G01, G11, G23 |
| Keywords: | derivative margin calls, financial stability, liquidity risk, network analysis, non-bank financial institutions |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253074 |
| By: | Myles, Jamieson |
| Abstract: | Financial technology (fintech) innovations have the potential to disrupt traditional banking by unbundling banking, money, and payments. However, the impact on the cross-border payments system—which still relies on correspondent banking networks—remains uncertain. This uncertainty partly stems from a historical focus in the literature on cash clearing over credit. Challenging this distinction, this article explores the role of credit in correspondent banking and international payments. A longue durée perspective on cashless payments reveals the deep-rooted importance of credit in the cross-border payment system and highlights correspondent banks’ role in providing it. Changes in bank-intermediated trade finance practices during and after World War I reshaped the London-based correspondent banking network. Furthermore, cash clearing and credit operations remained remarkably congruent until at least the 1980s, as reflected in banks’ internal organisation, reporting, and bankers’ own descriptions of the payment system. This article argues that adopting a definition of payment system infrastructure that integrates both dimensions is essential to understanding how correspondent banking has facilitated international liquidity provision. It also suggests that relying on fintech firms, rather than banks, to provide this elastic payment infrastructure could amount to jumping out of the frying pan and into the fire. |
| Keywords: | Correspondent banking, Payment systems, Infrastructure, Banking history |
| JEL: | N00 N10 N20 B52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:186604 |
| By: | Herrera, Luis; Pirovano, Mara; Scalone, Valerio |
| Abstract: | This paper proposes a novel yet intuitive method for the calibration of the CCyB through the cycle in the euro area, including the positive neutral CCyB rate. The paper implements the Risk-to-Buffer framework by Couaillier and Scalone (2024) in both a DSGE and macro time series setting and proposes a calibration of the PN CCyB aimed to reduce the macroeconomic amplification of shocks occurring in an environment where risks are neither subdued nor elevated. The suggested positive neutral CCyB rates for the euro area are consistent across methodologies and robust to alternative specifications, ranging between 1% and 1.5%. The results also highlight the role of different shocks and sources of cyclical systemic risk for the calibration of the CCyB through the cycle. The flexibility of the method regarding the modeling tools, the selection of specific levels of risks as well as the choice of state variables and of exogenous shocks make it particularly suitable to be tailored to national specificities and policymakers’ preferences. JEL Classification: C32, E51, E58, G01 |
| Keywords: | capital requirements, countercyclical capital buffer, financial stability, macroprudential policy |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253075 |
| By: | Young-Han Kim (Economic Department, Sungkyunkwan University, Seoul) |
| Abstract: | This paper examines the environmental and macroeconomic impacts of changes in global value chain (GVC) participation, cross-border externality of carbon emissions, environmental considerations in monetary policy, and international coordination in environmental policy across seven NGFS scenarios. An E-DSGE model analysis shows that i) increased GVC participation, with higher reliance on imported intermediate goods, slows economic growth more significantly in high-pollution regimes, ii) the emphasis on environmental issues in monetary policy has insignificant impact on carbon emissions while increasing macroeconomic volatility to more polluted regimes. These findings suggest that while less stringent environmental policies may offer short-term benefits, these are outweighed by higher long-term transition costs. Therefore, a proactive environmental policy, aimed at achieving a 'Net Zero 2050' scenario, could foster more stable economic conditions. Furthermore, the environmental concerns in monetary policy should be moderated to mitigate potential side effects of indirect interventions on carbon emissions. |
| Keywords: | Climate change, NGFS scenarios, Cross-border externalities, GVC participation, Monetary policy, Environmental policy coordination |
| JEL: | E52 E62 Q58 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15016746 |
| By: | Robayo, Monica; Lucchetti, Leonardo Ramiro; Delgado-Prieto, Lukas; Badiani-Magnusson, Reena |
| Abstract: | The surge in food prices following the 2021 economic rebound has become a significant concern for households, particularly low-income ones, in Bulgaria, Croatia, Poland, and Romania. Food price inflation, which surpasses general inflation rates, risks worsening poverty and food insecurity in these countries. This paper explores the distributional impacts of rising food prices and the effectiveness of government response measures. Low-income households, who allocate a larger share of their income to food, are disproportionately affected and are struggling to cope with unexpected expenses, leading to increased difficulties in accessing proper nutrition. Simulations indicate that rising food prices contribute to higher poverty rates and greater income inequality, especially among vulnerable populations. They also suggest that the main poverty-targeted social assistance schemes offer critical support for the extreme poor, but expanding both coverage and benefits is vital to shield all at-risk individuals. Targeted policies that balance immediate relief with long-term resilience-building are essential to addressing the challenges posed by escalating food prices. |
| Date: | 2025–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11159 |
| By: | Tarik Alperen Er; Burak Deniz; Ibrahim Yarba |
| Abstract: | This paper investigates the firm heterogeneity in the evolution of loan spreads over the credit cycle in Türkiye. Using the combination of credit registry and administrative datasets, our bankfirm level analysis shows that small- and medium-sized enterprises (SMEs) and firms that are riskier and more prone to financial frictions pay higher loan interest rates. The results also reveal that loan spreads of these firms decrease and converge to the spreads of large and financially sound firms during expansion periods. Our firm-level analysis indicates that these findings persist at the firm level. Our results suggest that SME loan spreads rise more than those of larger firms during tightening periods. This reveals the asymmetric deterioration in SMEs’ lending conditions relative to large firms. On the other hand, the significant role of firm riskiness on loan spreads weakens during expansion periods. However, these findings are valid only for loans extended by private banks but not state-owned banks. Our findings lend support to policy makers’ prudent approaches over the credit cycle. |
| Keywords: | Loan Spreads, Credit Cycle, SMEs, State-Owned Banks |
| JEL: | E32 E5 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2510 |