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on Monetary Economics |
| By: | Dzung Bui (Philipps-Universität Marburg, Marburg Center for Institutional Economics and Sustainability (MACIES)); Bernd Hayo (Philipps-Universität Marburg, Marburg Center for Institutional Economics and Sustainability (MACIES)) |
| Abstract: | This paper examines the causal effect of supply constraints on inflation expectations, using a survey experiment conducted with a representative sample of German adults. Respondents first reported their prior beliefs about both official and personal inflation. They were then presented with information about Germany's 2022 supply bottlenecks and randomly assigned to one of three hypothetical scenarios for 2025. Exposure to either shortage scenario significantly increased the likelihood of revising inflation expectations. Personal exposure to supply shortages in daily life and financial literacy also influenced how respondents revised expectations. A topic analysis of open-ended responses provides further insights into how people interpret and react to perceived product scarcity. |
| Keywords: | Inflation expectation, Supply shortages, Survey experiment, Germany |
| JEL: | D12 D83 D84 E31 E71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mar:magkse:202520 |
| By: | Jonathan Benchimol; Inon Gamrasni; Michael Kahn; Sigal Ribon; Yossi Saadon; Noam Ben-Ze'ev; Asaf Segal; Yitzchak Shizgal |
| Abstract: | The global financial crisis (GFC) triggered the use of macroprudential policies imposed on the banking sector. Using bank-level panel data for Israel for the period 2004-2019, we find that domestic macroprudential measures changed the composition of bank credit growth but did not affect the total credit growth rate. Specifically, we show that macroprudential measures targeted at the housing sector moderated housing credit growth but tended to increase business credit growth. We also find that accommodative monetary policy surprises tended to increase bank credit growth before the GFC. We show that accommodative monetary policy surprises increased consumer credit when interacting with macroprudential policies targeting the housing market. Accommodative monetary policy interacted with nonhousing macroprudential measures to increase total credit. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.07082 |
| By: | Enzinger, Matthias (The Vienna Institute for International Economic Studies); Gechert, Sebastian (Chemnitz University of Technology); Heimberger, Philipp; Prante, Franz; Romero, Daniel Fernández |
| Abstract: | We build a dataset of output and price effects of conventional monetary policy containing 146, 463 point estimates and confidence bands from 4, 871 impulse-response functions in 409 primary studies. Simple average responses suggest that interest rate hikes substantially dampen output and prices. However, we find robust evidence for publication bias. Bias corrections reduce effect sizes by half or more: in response to a 100 basis points rate hike, output and prices are unlikely to fall by more than 0.5 and 0.25 percent, respectively. Shock identification choices and publication characteristics correlate with effect sizes but are quantitatively less important than publication bias. |
| Date: | 2025–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:72cen_v2 |
| By: | Vihar Dalal; Daniel A. Dias; Pinar Uysal |
| Abstract: | This paper uses a structural vector autoregressive (SVAR) model—identified with an external monetary policy instrument and sign restrictions—to derive a measure of bank credit conditions from changes in bank lending standards. The model incorporates data on interest rates, bank credit, and survey-based measures of bank lending standards to identify monetary policy, credit demand, and credit supply shocks. Using these identified shocks, we construct a novel measure of bank credit conditions that corresponds to the component of credit growth that would occur if credit demand remained unchanged, reflecting solely the impacts of monetary policy and credit supply shocks. Using this measure, we find that credit supply–driven changes in bank credit conditions have a stronger impact on real outcomes in the euro area, whereas monetary policy–driven changes play a larger role in the U.S. economy. |
| Keywords: | Bank Credit; Bank Lending Surveys; Monetary Policy; External Instruments; Sign Restrictions; SVAR |
| JEL: | C32 C36 G21 |
| Date: | 2025–08–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-55 |
| By: | Xinyu Li |
| Abstract: | Persistent financial frictions - including price volatility, constrained credit access, and supply chain inefficiencies - have long hindered productivity and welfare in the global agricultural sector. This paper provides a theoretical and applied analysis of how fiat-collateralized stablecoins, a class of digital currency pegged to a stable asset like the U.S. dollar, can address these long-standing challenges. We develop a farm-level profit maximization model incorporating transaction costs and credit constraints to demonstrate how stablecoins can enhance economic outcomes by (1) reducing the costs and risks of cross-border trade, (2) improving the efficiency and transparency of supply chain finance through smart contracts, and (3) expanding access to credit for smallholder farmers. We analyze key use cases, including parametric insurance and trade finance, while also considering the significant hurdles to adoption, such as regulatory uncertainty and the digital divide. The paper concludes that while not a panacea, stablecoins represent a significant financial technology with the potential to catalyze a paradigm shift in agricultural economics, warranting further empirical investigation and policy support. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.14970 |
| By: | Elías Albagli; Mr. Francesco Grigoli; Emiliano Luttini; Dagoberto Quevedo; Marco Rojas |
| Abstract: | This paper documents five empirical facts about the role of strategic complementarities in firms’ price-setting behavior, using administrative data from Chilean firms. (1) Strategic complementarities play a dominant role in price setting, exerting a stronger influence than changes in marginal costs. (2) While the strength of strategic complementarities varies across sectors, they consistently outweigh the role of cost changes. (3) In high-inflation environments, firms become more responsive to changes in the prices of their competitors. (4) Firms respond more strongly to competitor price increases than to decreases, mirroring the `rockets and feathers' phenomenon of costs. (5) Strategic complementarities are stronger among firms with fewer competitors, larger market shares, and broader customer bases. These findings suggest that strategic complementarities---a source of real rigidities---are sizable, state-dependent, asymmetric, and shaped by market structure. |
| Keywords: | Pass-through; price setting; strategic complementarities; state dependency; market structure |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/164 |
| By: | Aguilar, José; Quineche, Ricardo |
| Abstract: | Despite being an emerging economy, Peru has achieved superior post-pandemic disinflation compared to major developed economies, making its regional inflation dynamics globally instructive for monetary policy design. This study investigates Lima's suitability as Peru's inflation-targeting anchor by analyzing regional spillovers across nine economic regions using monthly CPI data (2002-2024). Employing both Diebold-Yilmaz time-domain and Baruník-Křehlík frequency-domain frameworks, we quantify the direction, magnitude, and persistence of inflation transmission. Results reveal strong regional interdependence (73.60% total spillover index) with Lima as the dominant net transmitter (23.94 percentage points). However, frequency decomposition uncovers striking cyclical heterogeneity: Lima receives short-run shocks from food-producing regions but dominates long-run transmission (44.70% vs. 28.99% frequency spillover index). Rolling-window analysis during COVID-19 shows temporary spillover disruption (connectivity declining from 75% to 68%) followed by recovery during 2022's inflationary surge. Robustness checks across specifications, granular city-level data, and three-band frequency segmentation confirm Lima's structural centrality at lower frequencies. These findings validate the Central Reserve Bank's Lima-centered approach for long-run targeting while revealing asymmetric frequency-dependent spillovers. The presence of short-run regional shocks suggests integrating upstream agricultural signals could enhance near-term forecasting and policy responsiveness. |
| Keywords: | Inflation spillovers, Regional inflation dynamics, Frequency-domain analysis, Diebold-Yilmaz methodology, Baruník-Křehlík framework |
| JEL: | C32 E31 E58 |
| Date: | 2025–07–23 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125442 |
| By: | Godinho, Enzo; Mattos, Beatriz |
| Abstract: | This paper investigates the role of the New Development Bank (NDB) in challenging global financial hierarchies while fostering an ecological transition. The NDB, established by BRICS, has a mechanism of providing development finance in local currency, which could reduce dependency on core currencies like the dollar (USD) and the euro (EUR), offering an alternative for peripheral economies to finance sustainable development. Given the institutionalization of the green economy agenda and the rise of green finance, the paper raises elements to assess the NDB's contribution to the ecological transition through its investment strategy. Our analysis builds on structuralist and dependency theories, identifying three interlinked hierarchies - productive, currency, and environmental - that shape global financial asymmetries. We examine the NDB's project portfolio from 2016 to 2024 and the interplay between the projects' area of operation, currency of funding, and country of implementation. The findings indicate that, while the NDB has made strides in funding sustainable infrastructure, its operations remain largely embedded within dominant currency systems. |
| Keywords: | New Development Bank (NDB), BRICS, Green Finance, Currency Hierarchy, Ecological Transition, Development Finance, Sustainable Infrastructure |
| JEL: | F33 F55 O44 Q56 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:324644 |
| By: | Rice, Jonathan; Guerrini, Giulia Maria |
| Abstract: | Add full abstract text in one paragraph.This paper examines how the ECB’s 2022–2023 interest-rate hikes affected euro-area banks’ economic net worth and vulnerability to deposit runs. Drawing on granular, confidential data for 139 banks, we estimate each bank’s economic net worth and find that unrealised losses on loans and bonds averaged around 30 per cent of equity. By September 2023, however, roughly half of these losses had been offset by gains from the deposit franchise and interest-rate swaps. We develop a theoretical framework linking banks’ economic net worth and deposit-rate setting to depositor behaviour and run incentives. Further results indicate that banks with larger unrealised lossesraised their deposit rates by less - a pattern we interpret as banks leveraging a more valuable deposit franchise to fund longer-duration assets. Although euro-area banks as a whole avoided widespread runs, several institutions nonetheless carried substantial mark-to-market losses, suggesting latent fragilities. JEL Classification: G21, E43, E58, G28 |
| Keywords: | asset valuations, bank runs, euro area banking system, interest rate risk, monetary policy |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253090 |
| By: | Michel Grimm; Torben Klarl |
| Abstract: | In this paper, we develop a novel methodology to identify temperature surprise shocks for hot and cold extreme weather events using granular ground station- and satellite-based weather data for Germany. We focus on food and energy prices, which are key drivers of inflation in Germany and, at the same time, are themselves strongly affected by climate-related shocks. A positive heat shock of one standard deviation increases food prices by up to 0.39% in summer, while the same type of shock in winter decreases energy prices by 0.88%. Moreover, our results indicate that food prices are driven primarily by supply-side factors, as the interaction of a heat shock with a drought variable amplifies the effect through its impact on agricultural production, whereas energy prices respond mainly to demand-side factors, such as changes in heating and cooling needs. Using our identified weather shocks, we estimate the causal effects of extreme temperatures on these two components and trace their pass-through to headline inflation. These results are robust when accounting for nonlinearities arising from seasonality and shock magnitude, the role of transmission channels such as renewable energy production, droughts, and different learning periods in which agents form expectations from past weather shocks. |
| Keywords: | Weather shock construction, granular weather data, energy prices, food prices, temperature shocks, business cycle, climate change |
| JEL: | C32 E32 E52 Q54 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:atv:wpaper:2502 |
| By: | Mark A. Carlson |
| Abstract: | There was a banking panic in New Mexico in early 1924 when about one-fourth of the banks in the state closed temporarily or permanently amid widespread runs. The Federal Reserve used both high profile and behind the scenes operations to calm the panic. This paper provides a history of this episode and explores how conspicuous and inconspicuous aspects of the Federal Reserve’s response interacted to bolster confidence in the banking system. |
| Keywords: | Banking Panic; New Mexico; Federal Reserve; Lender of Last Resort |
| JEL: | G01 N21 |
| Date: | 2025–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-64 |
| By: | Pierre L Siklos; Dora Xia; Hongyi Chen |
| Abstract: | This paper provides new estimates of the neutral interest rate, or r*, with a frequency domain approach using quarterly data from China, Japan, Korea, and the US. Utilizing band spectrum regressions, we estimate two types of neutral rates, which hold over the business cycle and the financial cycle respectively. To account for uncertainty around estimates of r*, we derive confidence bands via a thick modelling approach. Our estimates share a few common features with existing published estimates. Consistent with prior research, a downward trend in r* is observed, although the trend becomes less obvious when uncertainty bands are factored in. Meanwhile, our findings offer novel perspectives on the neutral rate in the four countries examined. For individual countries, our estimates for the two types of r* do not always track each other, suggesting that central banks face trade-off between business versus financial cycle considerations when setting the policy rate. Across countries, we identify significant positive spillovers from the US to the three East Asia countries, as well as spillovers from China to Kora and Japan. |
| Keywords: | China, Japan, Korea, neutral real rate, time series and frequency domain modeling, band spectrum regression, financial cycle |
| JEL: | E58 E32 E42 E43 C54 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1285 |
| By: | Nesrine Dardouri (USO - جامعة سوسة = Université de Sousse = University of Sousse); Abdelkader Aguir (ESPI - Ecole Supérieure des Professions Immobilières, MOFID-Université de Sousse); Mounir Smida (MOFID-Université de Sousse) |
| Abstract: | This study aims to examine the context in which the exchange-rate pass-through influences domestic prices in Tunisia by applying vector error correction models. To ensure the robustness of the results obtained from the autoregressive model, additional diagnostic tests were performed. Our analysis indicates that fluctuations in the nominal effective exchange rate (NEER) have an enduring impact on customer prices. This research aims to review how the fluctuations in exchange rates and import prices can impact domestic prices in Tunisia. Our findings demonstrate that NEER fluctuations affect consumer prices in both the short and long term, highlighting its significant role in long-term inflation. |
| Keywords: | Exchange rate pass-through, inflation, imported-inputs channel, ARDL |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05154078 |
| By: | Johanna Tiedemann; Olivier Bizimana; Shant Arzoumanian |
| Abstract: | This paper assesses the stance of monetary policy in eleven Sub-Saharan African (SSA) emerging and frontier market economies. We estimate neutral real interest rates using a range of methodologies, and find a broadly declining trend in most economies since the Global Financial Crisis, consistent with patterns observed in advanced and major emerging market economies. We document significant heterogeneity in monetary policy stances—measured by the interest rate gap—even during common global shocks. We also examine the consistency between signals from the intended monetary policy stance and broader financial conditions. To this end, we construct financial conditions indices (FCIs) and analyze their relationship with interest rate gaps. We find that this relationship strengthens during periods of highly accommodative or restrictive monetary stances, particularly in economies that have adopted or are transitioning to inflation-targeting frameworks. Moreover, contractionary monetary shocks tighten financial conditions more in these economies than in those operating under other regimes. |
| Keywords: | Neutral Interest Rate; Monetary Policy Stance; Financial Conditions; Monetary Policy Transmission; SSA |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/160 |
| By: | Ferrari Minesso, Massimo; Van Robays, Ine; Cassinis, Maria Giulia |
| Abstract: | We introduce a mixed-frequency model that identifies the impact of supply shocks on inflation in the United States in real time. The model decomposes weekly movements in inflation-linked swap rates—market-based inflation expectations—and isolates three supply shocks: global value chain disruptions, energy supply shocks, and domestic supply constraints, separating them from demand-driven factors. We show how these shocks contributed to a post-Covid feedback loop that intensified inflation. By linking weekly shocks to monthly inflation components up to the industry level, we find that global value chain disruptions generate the most persistent and broad-based price pressures, while energy and domestic supply shocks tend to produce more transitory effects, as their narrower inflationary impact is more easily offset by demand-dampening, contractionary forces. Our model captures these various supply-side dynamics effectively and offers timely insights to support a more responsive monetary policy. JEL Classification: C54, C58, E31, G12, G15 |
| Keywords: | inflation, mixed-frequency VAR, supply shocks |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253096 |
| By: | Paige Ehresmann; Juan M. Morelli; Jessie Jiaxu Wang |
| Abstract: | In this note, we build on the factor-based asset pricing framework introduced in our companion piece, "Modeling Bank Stock Returns: A Factor-Based Approach" (Ehresmann, Morelli, and Wang, 2025), to examine the transmission of monetary policy (MP) shocks through bank stock returns. Specifically, we explore two core questions. |
| Date: | 2025–08–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-08-04 |
| By: | Oktay Özden; Alp Erinç Yeldan |
| Abstract: | We present a two-household stock-flow consistent (SFC) model of the UK economy using data from the Office for National Statistics (ONS). The model explores the dynamics of post-COVID inflation with a particular focus on the interplay between inflation and income inequality, drawing on the theoretical framework of income conflict. It comprises six sectors: households (disaggregated into rentiers and workers), non-financial corporations, monetary financial corporations, insurance corporations and pension funds, the government, and the rest of the world. Employing a combination of estimation and calibration techniques, the model replicates key macroeconomic aggregates reported by the ONS between 2020 and 2023. We impose several short-term scenarios on the model to evaluate the model’s capabilities to capture distributive tensions underlying recent inflationary developments. Our results suggest that an orthodox monetary policy intervention by the Bank of England exclusively administered through interest rate management performs poorly in taming inflation and further worsens income inequality. In contrast, an alternative scenario based on progressive incomes policy administered through increased taxation of rentier incomes, rather than any monetary intervention on the interest rate, is found to generate significant improvements in income distribution and a notable reduction in inflation. |
| Keywords: | Stock-Flow Consistent Model, UK economy, post-COVID inflation, income inequality |
| JEL: | E12 E17 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2519 |
| By: | Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger |
| Abstract: | We document how the interaction of supply chain pressures, elevated household inflation expectations, and firm pricing power contributed to the pandemic-era surge in consumer price inflation in the euro area. Initially, supply chain disruptions raised inflation, particularly in manufacturing, through a cost-push channel, while also elevating inflation expectations. In turn, higher inflation expectations appear to have lowered the price elasticity of consumer demand and strengthened firms’ pricing power, enabling even firms in service sectors that were initially unaffected by supply constraints to raise markups. Through this expectations mechanism, localized inflation in sectors sensitive to supply-side shocks generalized into broad-based inflation. |
| Keywords: | inflation expectations; euro area; firm markups; market power; supply chain |
| JEL: | E31 E58 D84 L11 |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:101469 |
| By: | Quineche, Ricardo; Zapata, Juan |
| Abstract: | This paper develops a novel behavioral decomposition of inflation as the net outcome of two competing forces: inflationary pressure, defined by the frequency and magnitude of price increases, and deflationary pressure, determined by corresponding price decreases. Using 245 PCE sub-indices spanning 1959-2024, we construct an exact bottom-up inflation measure that transparently maps sectoral price-setting behavior into macroeconomic aggregates. Our decomposition reveals fundamental asymmetries in inflation formation: inflationary pressure exhibits dramatic variation (2.35%-12.68%) while deflationary pressure remains remarkably stable (0.72%-5.18%), indicating inflation episodes are primarily driven by surges in upward pricing momentum rather than retreats of downward movements. Historical analysis shows distinct pressure regimes across major macroeconomic episodes: the Great Inflation featured extreme inflationary pressure volatility, the Great Moderation achieved balanced dynamics, the 2008-2009 crisis uniquely witnessed deflationary pressure dominance creating deflation risk, while COVID-19 saw dramatic inflationary pressure resurgence. We reassess the price puzzle using Bayesian local projections with alternative monetary policy shock identifications. Conventional narrative shocks generate sustained inflationary pressure increases with minimal deflationary response, while informationally robust shocks resolve the puzzle completely through both increased deflationary pressure and reduced inflationary pressure, with the deflationary channel providing the dominant contribution consistent with demand-channel transmission. Extensive robustness checks across specifications and estimation methods confirm these findings while revealing the diagnostic value of pressure decomposition for evaluating shock quality. Results demonstrate that the price puzzle reflects informational frictions rather than genuine economic phenomena, and suggest successful monetary policy operates through managing pressure balance with important implications for real-time policy diagnosis and central bank communication. |
| Keywords: | Inflation decomposition, price puzzle, monetary policy transmission |
| JEL: | C43 E31 E52 E58 |
| Date: | 2025–07–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125441 |
| By: | Annette Vissing-Jorgensen |
| Abstract: | The Treasury General Account (TGA) represents the US government's deposits held with the Federal Reserve. The TGA is used to facilitate payments from and to the government and thus provides important payment services to the government and the country. |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-08-06 |
| By: | Djeneba Dramé (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, UPN - Université Paris Nanterre); Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This paper examines how firms in developing countries respond to monetary policy changes, focusing on both their perceptions of credit constraints and their borrowing behavior. Using firm-level data from the World Bank Enterprise Surveys (WBES) and a newly constructed database of monetary policy changes, we employ an event study approach to analyze how managers adjust their expectations of credit access in the days following a policy intervention. We complement this with a broader analysis of how annual policy rate changes affect firms' credit applications. Our results show that firms perceive credit access as more restrictive after a policy rate hike, but do not significantly reduce their credit applications. Instead, credit demand increases after a rate cut, highlighting an asymmetric response to monetary policy. We also find substantial heterogeneity, with firms' sensitivity depending not only on their proximity to banks, but also on the degree of liquidity of the banking market and the degree of independence of the central bank. These results provide new insights into the transmission of monetary policy in developing countries. |
| Keywords: | JEL classification: D4 E52 G32 L1 O16 Monetary policy Financial constraints Firms Developing countries |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05172185 |
| By: | Mehmet Balcilar (Department of Economics and Business Analytics, University of New Haven, West Haven, Connecticut, United States; Department of Economics, OSTIM Technical University, Ankara, Turkiye); Kenny Kutu (Department of Business Management, University of Pretoria, Pretoria, 0002, South Africa); Sonali Das (Department of Business Management, University of Pretoria, Pretoria, 0002, South Africa); Rangan Gupta (Department of Business Management, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | This paper analyzes the predictive effect of climate risks on inflation and inflation uncertainty in an inflation targeting emerging economy through a multivariate nonparametric higher-order causality-in-quantiles test. In this regard, we obtain a monthly Google Trends search-based Climate Attention Index for South Africa (CAI-SA), which incorporates both local and global terms dealing with physical and transition risks between January 2004 and September 2024. Using the CAI-SA, we find that linear Granger causality tests fail to show any evidence of prediction of overall and food and non-alcoholic beverages inflation rates, due to model misspecifications from nonlinearity and structural breaks. However, the robust multivariate nonparametric framework depicts statistically significant predictability over the entire conditional distribution of not only the two inflation rates, but also their respective volatilities, i.e., squared values. The strongest predictive impact is observed at the tails of the conditional distributions of the first- and second-moment of the two inflation rates. Our findings, in general, are robust to alternative definitions of inflation volatility, exclusion of the control variables, different methods of construction of the CAI, and a bootstrapped version of the test to account for size distortion and low power. Analyses involving signs of the causal impact reveal significant positive association between the CAI-SA and the inflation rates and their volatilities, thus having serious implications for monetary policy decisions in South Africa in the wake of heightened climate risks. |
| Keywords: | Climate Attention Index, Inflation, Inflation Uncertainty, Higher-Order Multivariate Causality-in-Quantiles Test, South Africa |
| JEL: | C22 C53 E31 Q54 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202529 |
| By: | Samin Abdullah; Manjola Tase |
| Abstract: | We find that an increase in policy rate uncertainty is associated with an increase in MMF portfolio allocations towards assets with shorter-dated maturities. We also find that the direction of uncertainty matters: MMF portfolio maturity is more sensitive to uncertainty when it relates to changes in expectations for a larger increase or a smaller decrease in the policy rate than when it relates to changes in expectations for a smaller increase or a larger decrease in the policy rate. Furthermore, for MMF that are eligible to participate at the Federal Reserve's Overnight Reverse Repurchase Agreement (ON RRP) facility, we find that when policy rate uncertainty increases, MMF adjust their portfolio composition by increasing their take-up at the facility. This suggests that the ON RRP facility helps smooth fluctuations in short-term funding markets. |
| Keywords: | Money market funds; Portfolio allocations; Monetary policy expectations; Uncertainty; Federal Reserve; ON RRP |
| JEL: | G11 G23 E52 |
| Date: | 2025–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-63 |
| By: | Sharjil M. Haque; Young Soo Jang; Jessie Jiaxu Wang |
| Abstract: | This paper examines how banks’ financing of nonbank lenders affects monetary policy transmission. Using supervisory bank loan-level data and deal-level private credit data, we document an intermediation chain: Banks lend to Business Development Companies (BDCs)—large private credit providers—which then lend to firms. As monetary tightening restricts bank lending, firms turn to BDCs for credit, prompting BDCs to borrow more from banks. This intermediation chain raises borrowing costs, as banks charge BDCs higher rates, which BDCs pass on to firms. Consistent with this pass-through, bank-reliant BDCs respond more strongly to monetary tightening, and BDC-dependent firms grow more but exhibit weaker interest coverage ratios. Overall, while bank lending to nonbanks mitigates credit contraction and supports investment during tightening, it amplifies monetary transmission by elevating borrowing costs and financial distress risk. |
| Keywords: | Banks and nonbanks; Monetary policy transmission; Business development companies (BDCs); Private credit; Credit chain |
| Date: | 2025–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-59 |
| By: | Alexander Hammerl; Georg Beyschlag |
| Abstract: | Stablecoins promise par convertibility, yet issuers must balance immediate liquidity against yield on reserves to keep the peg credible. We study this treasury problem as a continuous-time control task with two instruments: reallocating reserves between cash and short-duration government bills, and setting a spread fee for either minting or burning the coin. Mint and redemption flows follow mutually exciting processes that reproduce clustered order flow; peg deviations arise when redemptions exceed liquid reserves within settlement windows. We develop a stochastic model predictive control framework that incorporates moment closure for event intensities. Using Pontryagin's Maximum Principle, we demonstrate that the optimal control exhibits a bang-off-bang structure: each asset type is purchased at maximum capacity when the utility difference exceeds the corresponding difference in shadow costs. Introducing settlement windows leads to a sampled-data implementation with a simple threshold (soft-thresholding) structure for rebalancing. We also establish a monotone stress-response property: as expected outflows intensify or windows lengthen, the optimal policy shifts predictably toward cash. In simulations covering various stress test scenarios, the controller preserves most bill carry in calm markets, builds cash quickly when stress emerges, and avoids unnecessary rotations under transitory signals. The proposed policy is implementation-ready and aligns naturally with operational cut-offs. Our results translate empirical flow risk into auditable treasury rules that improve peg quality without sacrificing avoidable carry. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.09429 |
| By: | Admire Tarisirayi Chirume; James Hurungo; Brandon Aaron Chinoperekweyi |
| Abstract: | This study explores the effects of climate shocks on South Africas macroeconomic stability and monetary policy dynamics through a simulation-based dynamic stochastic general equilibrium model. It incorporates climate variability as a key factor influencing inflation expectations, output and other macroeconomic variables. The paper examines how climate-induced disruptions such as changes in agricultural productivity, natural disasters and environmental conditions affect inflation, employment, exchange rates and interest rates over a 50-year horizon (20252075). The findings reveal that climate variability significantly affects inflation expectations and economic output, necessitating adaptive monetary policies that incorporate climate risks. The study underscores the importance of integrating climate considerations into macroeconomic frameworks to enhance the resilience of South Africas economy, emphasising policy measures such as interest rate adjustments, climate-informed inflation targeting and long-term strategic planning to mitigate climate-related economic disruptions. |
| Date: | 2025–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11087 |
| By: | Rodrigo Dias; Gavan Fitzsimons; Eesha Sharma |
| Abstract: | Prices have reached record-high levels, and inflation is one of the primary concerns for consumers worldwide. Interestingly, changes in prices are in part a self-fulfilling prophecy: if consumers expect prices to rise, prices will rise. Moreover, consumers’ future price expectations influence policymaking, firms’ decisions, and consumer choice. Across 11 studies (N = 289, 437), including a nine-wave longitudinal survey, a multinational study in twelve countries, a multidecade study with 250, 000+ consumers, and multiple experiments, we show that consumers who feel more financially constrained expect future prices to be higher, compared to consumers who feel less financially constrained. We demonstrate that this effect is driven by pain of paying: financially constrained consumers experience greater pain when paying for purchases, causing them to expect higher prices in the future. Accordingly, this effect is stronger in product categories, countries, and historical periods in which paying for purchases is especially painful. Finally, we show that consumers’ future price expectations are consequential, predicting stockpiling and a preference for fixed-price contracts among financially constrained consumers. Overall, the current work underscores the role of future price expectations as a driver of consumer behavior, demonstrates how these expectations are formed, and offers insights for consumers, marketers, and policymakers. |
| Keywords: | inflation; financial constraints; pain of paying; inflation expectations; consumer finances |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:101513 |
| By: | Ozili, Peterson K; Okeke, Esther Ngozika; Obiora, Kingsley I. |
| Abstract: | Wars occur frequently in the world today. Wars cause economic distortions, and they lead to adverse human, economic and social consequences. Monetary policy actions can be used to cushion the adverse effects of war on the economy. Monetary authorities can respond to war by developing wartime monetary policy frameworks to control inflation and to support the war economy throughout the war. This article explores some monetary policy options that central banks can adopt during war. They include increase interest rate at the start of the war to control inflation expectations, hold interest rate at the same level when there is high uncertainty around war, decrease interest rate when war is battering the economy on multiple fronts, decrease cash reserve requirements on bank deposits during war as was observed in Russia, keep liquidity ratio fixed or increase it during war as was seen in Ukraine, the sale of government securities during war should be considered as well as and the unpopular and least advisable option of printing money to increase money supply during war. The recommended wartime monetary policy options in the study are useful to economists, central banks and governments who are facing war in their countries. |
| Keywords: | Monetary policy; central bank interest rate; monetary policy rate; war; economic impact of war; inflation; cash reserve ratio; money supply; liquidity ratio; interest rate; banks |
| JEL: | E42 E44 E51 E52 E58 E59 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125397 |
| By: | Daniele Ballinari; Jessica Maly |
| Abstract: | We enhance sentiment analysis in the foreign exchange (FX) market by fine-tuning large language models (LLMs) to better understand and interpret the complex language specific to FX markets. We build on existing methods by using state-of-the-art open source LLMs, fine-tuning them with labelled FX news articles and then comparing their performance against traditional approaches and alternative models. Furthermore, we tested these fine-tuned LLMs by creating investment strategies based on the sentiment they detect in FX analysis articles with the goal of demonstrating how well these strategies perform in real-world trading scenarios. Our findings indicate that the fine-tuned LLMs outperform the existing methods in terms of both the classification accuracy and trading performance, highlighting their potential for improving FX market sentiment analysis and investment decision-making. |
| Keywords: | Large language models, Sentiment analysis, Fine-tuning, Text classification, Natural language processing, Foreign exchange, Financial markets |
| JEL: | F31 G12 G15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-11 |
| By: | Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); J. Scott Davis (Federal Reserve Banks - Federal Reserve Bank of Dallas); Eric van Wincoop (University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)) |
| Abstract: | Global non-US banks have significant dollar exposure both on and off their balance sheet. We develop a model to analyze their adjustment to dollar funding shocks, whether from reduced direct lending or external dollar shortages. The model provides insight into banks' responses through borrowing, lending, and FX swap positions, as well as the impact on their net worth, their probability of default and CIP deviations. Implications of the model are confronted with data on the response of non-US global banks to major dollar funding shocks. We examine the benefits from buffering these shocks through central bank dollar swap lines or local currency lending by the central bank. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2565 |
| By: | Theodore Kapopoulos (Athens University of Economics and Business - Department of Accounting and Finance); Dimitrios Anastasiou (Athens University of Economics and Business - Department of Business Administration); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Athanasios Sakkas (Athens University of Economics and Business - Department of Accounting and Finance) |
| Abstract: | We investigate the relationship between global geopolitical risk and bank deposit flows across a wide panel of European countries. Motivated by the pivotal role of deposit stability for financial intermediation and systemic resilience, we explore whether geopolitical shocks alter depositors' portfolio choices. Using quarterly country-level data and employing the Geopolitical Risk Index (GPR) of Caldara and Iacoviello (2022) along with its sub-indices (GPR Acts and GPR Threats), we document that rising global geopolitical risk significantly increases aggregate bank deposits. Specifically, a one-standard-deviation increase in geopolitical risk is associated with an average rise of €13.3 billion in household deposits and €5.6 billion in corporate deposits, highlighting the sizable financial reallocation triggered by global uncertainty. This positive effect is channelled through a reallocation from riskier assets to deposits, with a stronger reaction observed among households compared to firms. Our findings suggest that bank deposits act as a safe-haven asset in periods of heightened global tensions, complementing the flight-to-safety phenomenon documented in sovereign bond markets. The results have important implications for financial stability analysis, monetary policy transmission and banks' liquidity risk management under geopolitical stress. |
| Keywords: | bank deposit flows, geopolitical risk, financial instability |
| JEL: | G4 G21 F51 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2564 |
| By: | Ifrim, Adrian; Kollmann, Robert; Pfeiffer, Philipp; Ratto, Marco; Roeger, Werner |
| Abstract: | Based on an estimated two-region dynamic general equilibrium model, we show that the persistent productivity growth differential between the Euro Area (EA) and rest of the world (RoW) has been a key driver of the EA trade surplus since the launch of the Euro. A secular decline in the EA’s spending home bias and a trend decrease in relative EA import prices account for the stability of the EA real exchange rate, despite slower EA output growth. By incorporating trend shocks to growth and trade, the analysis departs from much of the open-economy macroeconomics literature which has focused on stationary disturbances. Our results highlight the relevance of non-stationary shocks for the analysis of external adjustment. |
| Keywords: | global growth divergences, trade balance, real exchange rate, estimated DSGE model, Euro Area, demand and supply shocks, persistent growth shocks |
| JEL: | C5 E2 E3 F3 F4 |
| Date: | 2025–07–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125401 |
| By: | Albertazzi, Ugo; Ferrando, Annalisa; Gori, Sofia; Rariga, Judit |
| Abstract: | This paper explores empirically the cost channel of monetary policy transmission during the recent period of monetary policy tightening in the euro area. We combine unique data on firms’ selling price expectation from the Survey on the access to finance of enterprises (SAFE), information on firms’ borrowing from the euro area-wide credit register (AnaCredit) and ECB monetary policy surprises. Firms revise upwards their one-year-ahead selling price expectations following monetary announcements in a tightening cycle and this effect increases in firms’ working capital exposure. The paper provides supportive evidence on the existence of a cost channel of monetary policy, adding to our understanding of monetary policy transmission to firms in the euro area. JEL Classification: G30, E52, D84 |
| Keywords: | firm financing, monetary policy, selling price expectations |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253097 |
| By: | López-Noria, Gabriela; Pedemonte, Mathieu |
| Abstract: | We study how monetary policy affects inflation uncertainty. Using a survey of Mexican firms and exploiting quasi-random variation in the response date, we estimate the effect of a monetary policy decision and surprise on firms perceived inflation uncertainty. We find that a one percentage point contractionary monetary policy reduces inflation uncertainty by 0.02 percentage points. We explore how this result is affected by levels of higher and lower aggregate uncertainty. We find that monetary policy tightening is twice as effective in reducing inflation uncertainty in periods of higher economic uncertainty, such as trade uncertainty. Our findings highlight the role of monetary policy in reducing inflation uncertainty. We discuss that in periods of uncertainty, monetary authorities face a trade-off between stimulating the economy and increasing uncertainty about the inflation outlook. |
| Keywords: | survey data;inflation uncertainty;firms expectations |
| JEL: | E31 E52 D80 D84 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14223 |
| By: | Danilo Leiva-León; Viacheslav Sheremirov; Jenny Tang; Egon Zakrajšek |
| Abstract: | This paper develops an econometric framework for identifying latent factors that provide real time estimates of supply and demand conditions shaping goods- and services-related price pressures in the U.S. economy. The factors are estimated using category-specific personal consumption expenditures (PCE) data on prices and quantities, using a sign-restricted dynamic factor model that imposes theoretical predictions of the effects of fluctuations in supply and demand on prices and associated quantities through factor loadings. The resulting estimates are used to decompose total PCE inflation into contributions from common factors—goods demand, goods supply, services demand, services supply, and inflation expectations—and category specific idiosyncratic components. Validation exercises demonstrate that the estimated factors provide an informative and coherent narrative of inflation dynamics over time and can be effectively used for forecasting and policy analysis. |
| Keywords: | inflation; goods; services; supply; demand; expectations; dynamic factor models; sign restrictions; factor loadings |
| JEL: | C11 C32 E31 |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:101428 |
| By: | Dzung Bui (Philipps-Universität Marburg); Bernd Hayo (Philipps-Universität Marburg) |
| Abstract: | This paper provides background information on the questionnaires and basic descriptive statistics for a representative survey of the German population, conducted on our behalf by Dynata in February–March 2025. The survey covers topics related to inflation perceptions and expectations, knowledge about monetary and financial issues, and includes an experiment assessing whether supply constraint scenarios affect laypersons’ inflation expectations. A broad set of socio-demographic and economic indicators was also collected. |
| Keywords: | Household survey, Inflation perception, Inflation expectation, Supply disruptions, Economic literacy, Germany |
| JEL: | D12 D84 E31 E71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mar:magkse:202519 |
| By: | Colin Weiss |
| Abstract: | With public debt at high levels, some governments have begun to explore financing additional expenditures without raising taxes while also not increasing public debt outstanding. One possibility is using proceeds from valuation gains on gold reserves, as has been floated in the U.S. and Belgium recently. |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-08-01-2 |
| By: | Guangling Liu; Christopher D. Solomon |
| Abstract: | Conventional macroeconomics has viewed inflation as a monetary phenomenon through the Quantity Theory of Money. Ever-increasing sovereign debt globally has caused concern among economists. These concerns follow not from the ability of governments to repay their debt, but rather from the impact of sizeable debt portfolios on price levels. The Fiscal Theory of the Price Level epitomizes these concerns, contrasting the traditional view on inflation by arguing that it is a fiscal phenomenon caused by debt issuance without real backing. |
| Keywords: | Monetary and fiscal policy, Inflation, Sovereign debt, Macroeconomics |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-52 |
| By: | Degryse, Hans; De Jonghe, Olivier; Laeven, Luc; Zhao, Tong |
| Abstract: | This paper studies the role of collateral using the euro area corporate credit registry, Ana-Credit. We document key facts about the importance, distribution, and composition of collateral, including its presence, types, and values. On average, 70% of credit amounts are collateralized. Real estate and financial assets are the most pledged, while physical movable assets and other intangible assets are less present. In addition, we show that the aggregate collateral value pledged to the banking sector is substantial, driven mainly by real estate in most countries. For the first time, we examine the collateral channel in bank credit using the actual value of individual collateral. By exploiting within-firm and within-bank variations for newly issued secured loans, we find that the elasticity of collateral value to loan commitment amounts is around 0.7-0.8. This collateral value elasticity exhibits substantial country and time heterogeneity, which can be explained by legal, financial, and macro conditions. JEL Classification: E32, G21, G33 |
| Keywords: | bank credit, collateral channel, corporate financing, secured debt |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253095 |
| By: | Piergallini, Alessandro |
| Abstract: | I develop flexible- and sticky-price general equilibrium models that embody endogenous corporate financing decisions affecting firm value due to distortionary taxes. Nominal interest-rate variations impact the costs of debt and equity capital asymmetrically and thereby induce firms to modify the financial structure, altering the gap between the optimization-based weighted average cost of capital and the real interest rate. Under these circumstances, I characterize conditions under which rules-based monetary policies that set the nominal interest rate as an increasing function of the inflation rate induce aggregate stability in the form of a unique stable equilibrium. In contrast to what is commonly argued, I demonstrate that both passive interest rate policies, which underreact to inflation, and mildly active interest rate policies, which overreact to inflation but below a threshold reflecting both tax and capital structures, ensure determinacy of equilibrium. Conversely, excessively aggressive inflation-fighting monetary actions are destabilizing in the presence of price stickiness by generating either multiple equilibria or the nonexistence of stable equilibria. Under the stabilizing monetary regimes, I prove that macroeconomic dynamics following either interest rate normalization or temporary monetary tightening critically depend upon the tax code and the steady-state debt-equity ratio. |
| Keywords: | Corporate Finance; Firm Financial Structure; Weighted Average Cost of Capital; Distortionary Taxation; Interest Rate Policy; Equilibrium Dynamics; Monetary Policy Shocks. |
| JEL: | E31 E52 G32 H24 H25 |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125362 |
| By: | Viacheslav Sheremirov; Hillary Stein |
| Abstract: | This paper shows that global inflation dynamics have a sizable regional component. Using a balanced panel of 61 countries that starts in 1970, we document that while the global factor, defined as the dominant principal component, explains a large portion of inflation variation in advanced economies, a model with only one principal component is less successful for developing countries. By contrast, a hierarchical dynamic factor model, which includes a global (unconstrained) factor and regional (restricted) factors, performs substantially better for emerging market and developing economies. The regional factors are linked to commodity prices and help improve the accuracy of inflation forecasts at the country level. Employing an unsupervised machine-learning technique, we show that the estimated clusters of countries, grouped according to similarities in inflation dynamics, exhibit a strong regional pattern. Our findings suggest that policymakers in developing countries should pay close attention to inflation dynamics in their neighboring countries. |
| Keywords: | clustering; developing countries; globalization; inflation |
| JEL: | E3 E5 F4 F6 |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:101461 |
| By: | Iustina Alina Boitan (Bucharest University of Economic Studies); Thomas Paulovici (Bucharest University of Economic Studies, Doctoral School of Finance) |
| Abstract: | The paper investigates the potential of Central Bank Digital Currencies (CBDCs) to enhance financial inclusion by improving access to digital financial services for unbanked populations, particularly in developing economies where the issue of financial exclusion and low access to financial services is endemic. Our analytical interest substantiates inthe growing interest exhibited by central banks and international financial institutions regarding the emergence of this new type of state-backed digital currency. CBDCs represent digital forms of central bank money that may serve as complement to cash and other payment instruments in a secure, efficient, and accessible payment environment, unlike cryptocurrencies, which operate on decentralized networks. While CBDCs offer promising features such as cost efficiency, security, and accessibility, several challenges, including design deficits, digital and financial literacy barriers, and regulatory considerations must be addressed to ensure their effectiveness. Through a systematic review of existing academic literature, empirical evidence and case studies from some developing or emerging economies, this study examines positive impacts as well as the challenges of these CBDCs in promoting financial inclusion. In particular, it investigates the theoretical mechanisms through which CBDCs could enhance access to financial services, and the challenges that may hinder their effectiveness. Furthermore, the analysis draws on a series of case studies from some of the early CBDC adopters, to identify the real-world impact of CBDCs on financial inclusion. The findings suggest that while CBDCs have the potential to bridge financial gaps, their success depends on strategic design and implementation as well as on complementary policies. The paper further discusses policy recommendations for designing CBDCs that maximize their potential as an inclusion-enhancing tool. |
| Keywords: | Central Bank Digital Currencies, Central Banks, Financial Inclusion, Digital Payments, Developing Economies, eNaira, Sand Dollar |
| JEL: | E50 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15116731 |