nep-mon New Economics Papers
on Monetary Economics
Issue of 2025–09–08
37 papers chosen by
Bernd Hayo, Philipps-Universität Marburg


  1. Inflation Since the Pandemic: Lessons and Challenges By Ina Hajdini; Adam Hale Shapiro; Andrew Lee Smith; Daniel Villar Vallenas
  2. The capital puzzle By Eduardo Amaral
  3. Details matter: Loan pricing and transmission of monetary policy in the euro area By Vilerts, Kārlis; Anyfantaki, Sofia; Beᶇkovskis, Konstantīns; Bredl, Sebastian; Giovannini, Massimo; Horky, Florian Matthias; Kunzmann, Vanessa; Lalinský, Tibor; Lampousis, Athanasios; Lukmanova, Elizaveta; Petroulakis, Filippos; Zutis, Klāvs
  4. Collateral easing and safe asset scarcity: How money markets benefit from low-quality collateral By Greppmair, Stefan; Paludkiewicz, Karol; Steffen, Sascha
  5. Central Bank Digital Currency: Demand Shocks and Optimal Monetary Policy By Hanfeng Chen; Maria Elena Filippin
  6. Monetary unions with heterogeneous fiscal space By Bellifemine, Marco; Couturier, Adrien; Jamilov, Rustam
  7. Strike while the Iron is Hot - Optimal Monetary Policy with a Nonlinear Phillips Curve By Peter Karadi; Anton Nakov; Galo Nuño; Ernesto Pastén; Dominik Thaler
  8. Transitory or Persistent? What the Frequency of Price Changes May Tell Us about Inflation By Christopher D. Cotton; Vaishali Garga
  9. Heterogeneous UIPDs Across Firms: Spillovers from U.S. Monetary Policy Shocks By Miguel Acosta-Henao; Maria Alejandra Amado; Montserrat Martí; David Perez-Reyna
  10. Beyond the short run: Monetary policy and innovation investment By Schmöller, Michaela; Goldfayn-Frank, Olga; Schmidt, Tobias
  11. Monetary policy, real effective exchange rate and output gap in Morocco: an analysis in the presence of economic shocks By Imad Bassite; Younes El Khattab
  12. Federal Reserve Communication and the COVID-19 Pandemic By Jonathan Benchimol; Sophia Kazinnik; Yossi Saadon
  13. Reserves, Sanctions and Tariffs in a Time of Uncertainty By Menzie D. Chinn; Jeffrey A. Frankel; Hiro Ito
  14. Monetary Policy Communication and Social Identity: Evidence from a Randomized Control Trial By Takuya Iinuma; Yoshiyuki Nakazono; Kento Tango
  15. Monetary Policy Shocks and their Effects across the Wealth Distribution: Evidence from new European data By Cima, Simone; Moreno, Marco
  16. Inflation, Monetary Policy, and Capital-Labor Inequality By Fabio Milani
  17. The Economic Impact of the Deposit Interest Rate Adjustment Speed By Patrick Gruning
  18. onetary Economics at 30: A Reexamination of the Relevance of Money in Cashless Limiting Monetary Economies By Ricardo Lagos
  19. A tail of labor supply and a tale of monetary policy By Cristiano Cantore; Haroon Mumtaz; Filippo Ferroni; Angeliki Theophilopoulou
  20. Dollar Funding Fragility and Non-U.S. Global Banks By Philippe Bacchetta; J. Scott Davis; Eric Van Wincoop
  21. How do quantitative easing and tightening affect firms? By Egemen Eren; Denis Gorea; Daojing Zhai
  22. Climate change monetary policy and price stability in South Africa By Yixiao Tan; Dimitrios P. Tsomocos; Xuan Wang
  23. Central bank communication with non-experts: insights from a randomized field experiment By Jung, Alexander; Mongelli, Francesco Paolo
  24. The Passthrough of Treasury Supply to Bank Deposit Funding By Wenhao Li; Yiming Ma; Yang Zhao
  25. The Dynamics of Deposit Flightiness and its Impact on Financial Stability By Kristian Blickle; Jian Li; Xu Lu; Yiming Ma
  26. Inside (the) Money Machine: Modeling Liquidity, Maturity and Credit Transformations By Shalva Mkhatrishvili
  27. Optimal Monetary and Fiscal Policies in Disaggregated Economies By Lydia Cox; Jiacheng Feng; Gernot J. Müller; Ernesto Pastén; Raphael Schoenle; Michael Weber
  28. The Post-2015 German Lending Surge - What Role for QE? By Eiblmeier, Sebastian
  29. Payment Frictions, Capital Flows, and Exchange Rates By Marco Reuter; Mr. Itai Agur; Alexander Copestake; Maria Soledad Martinez Peria; Mr. Ken Teoh
  30. The Impact of Central Bank Climate Communication on Green Bonds By Mrs. Marina Conesa Martinez
  31. Monetary Policy Effectiveness in Kazakhstan: Results With a Small Macro Model By Gregorio Impavido
  32. Could migrant families encourage the adoption of CBDCs in developing countries? By Dominique Torre; Qing Xu
  33. FOMC In Silico: A Multi-Agent System for Monetary Policy Decision Modeling By Sophia Kazinnik; Tara M. Sinclair
  34. Tariffs, Stablecoins, and the Demand for Dollars By Anantha Divakaruni; Peter Zimmerman
  35. The effects of temperature and rainfall anomalies on Mexican inflation By Arango-Castillo Lenin; Mart\'inez-Ram\'irez Francisco
  36. An AI-powered Tool for Central Bank Business Liaisons: Quantitative Indicators and On-demand Insights from Firms By Nicholas Gray; Finn Lattimore; Kate McLoughlin; Callan Windsor
  37. The Price of Delay: Supply Chain Disruptions and Pricing Dynamics By Salome Baslandze; Simon Fuchs

  1. By: Ina Hajdini; Adam Hale Shapiro; Andrew Lee Smith; Daniel Villar Vallenas
    Abstract: This paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response. Measures of short-term inflation expectations increased alongside realized inflation, especially those of households and firms, which may have contributed to inflation’s persistence through price- and wage-setting behavior. However, measures of longer-term inflation expectations remained generally well anchored, which likely prevented a larger or more lasting increase in inflation. The stability of longer-term inflation expectations, together with easing supply and demand imbalances, allowed inflation to fall from its peak in mid-2022 without a large increase in unemployment. We conclude by reviewing some lessons learned from this episode as well as potential risks to inflation going forward.
    Keywords: inflation; inflation expectations; covid19; monetary policy
    JEL: E31 E52 E58 E70
    Date: 2025–08–29
    URL: https://d.repec.org/n?u=RePEc:fip:fedfwp:101543
  2. By: Eduardo Amaral
    Abstract: Can a central bank tighten monetary policy and real interest rates fall under monetary dominance? Introducing endogenous capital into the New Keynesian model allows real interest rates to move in any direction at the impact of a positive persistent monetary policy shock. This raises concerns that the real interest rate channel is only observational - not structural - in these models. This paper demonstrates that the puzzle goes beyond capital. It emerges when the elasticity of an endogenous state variable to a persistent shock is high enough to sink inflation expectations, inducing the endogenous (or systematic) component of the monetary policy rule to sufficiently offset its exogenous component. The channel is indeed structural, but conventional definitions of the natural interest rate (r-star) and real interest rate gap can be misleading, particularly following events that significantly disrupt investment, such as pandemics, financial crises or trade wars. As an alternative sign-consistent gauge of the monetary policy stance, I propose the real interest rate gap that neutralizes the effect of shocks on endogenous state variables. From 1965Q1 to 2023Q3, it was often a better predictor of future inflation and helped telling the history of monetary policy in the United States.
    Keywords: monetary policy, new Keynesian model, natural interest rate
    JEL: E43 E52 E58
    Date: 2025–09
    URL: https://d.repec.org/n?u=RePEc:bis:biswps:1288
  3. By: Vilerts, Kārlis; Anyfantaki, Sofia; Beᶇkovskis, Konstantīns; Bredl, Sebastian; Giovannini, Massimo; Horky, Florian Matthias; Kunzmann, Vanessa; Lalinský, Tibor; Lampousis, Athanasios; Lukmanova, Elizaveta; Petroulakis, Filippos; Zutis, Klāvs
    Abstract: Does the maturity of the relevant risk-free rate influence the strength of monetary policy pass-through to interest rates on new loans? To address this question, we present novel empirical evidence on lending practices across all euro area countries, using AnaCredit data covering nearly seven million new loans issued to non-financial corporations in 2022-2023. We document substantial variation in (a) the prevalence of fixed- vs floating-rate loans, (b) rate fixation periods, and (c) reference rates. This variation results in lending rates being exposed to different segments of the risk-free rate yield curve which, in turn, influence their sensitivity to monetary policy changes. We show that loans linked to shorter-maturity risk- free rates experience more pronounced monetary pass-through. Importantly, this effect is not purely mechanical, as part of the effect is offset by adjustments in the premium, revealing previously less-explored heterogeneity in the pass-through to lending rates.
    Keywords: Lending Rates, Interest Rate Pass-Through, Fixed-Rate Loans, Floating-RateLoans
    JEL: E52 E43 G21 E58
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:zbw:bubdps:324665
  4. By: Greppmair, Stefan; Paludkiewicz, Karol; Steffen, Sascha
    Abstract: We show that central bank lending against lower quality collateral can improve conditions in the repo market. For identification we take advantage of a pandemic- related temporary extension of the collateral framework of the European Central Bank (ECB), which allows banks to pledge previously ineligible credit claims as collateral for refinancing operations. We use a difference-in-differences approach and exploit banks that do not mobilize credit claims ex ante as a control group. We find that banks affected by the temporary extension pledge newly eligible credit claims in order to reduce the encumbrance of high-quality marketable assets. Treated banks lend out these marketable assets as collateral in the repo market, which helps to alleviate asset scarcity.
    Keywords: asset scarcity, money markets, monetary policy, collateral framework
    JEL: E43 E44 E58 G21
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:zbw:bubdps:324664
  5. By: Hanfeng Chen; Maria Elena Filippin
    Abstract: We study the implications of a central bank digital currency (CBDC) for the transmission of household preference shocks and for welfare in a New Keynesian framework where the CBDC competes with bank deposits for household resources and banks have market power. We show that an increase in the benefit of CBDC has a mildly expansionary effect, weakening bank market power and significantly reducing the deposit spread. As households economize on liquid asset holdings, they reduce both CBDC and deposit balances. However, the degree of bank disintermediation is low, as deposit outflows remain modest. We then examine the welfare implications of CBDC rate setting and find that, compared to a non-interest-bearing CBDC, the gains with standard coefficients for a CBDC interest rate Taylor rule are modest, but they become considerable when the coefficients are optimized. Welfare gains are higher when the CBDC provides a higher benefit.
    Date: 2025–07
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2507.15048
  6. By: Bellifemine, Marco; Couturier, Adrien; Jamilov, Rustam
    Abstract: This paper develops a multi-country Heterogeneous-Agent New Keynesian (HANK) model of a monetary union with ex-ante heterogeneity in legacy public debt across member states. We calibrate the model to the euro area and show that, following symmetric aggregate shocks, the systematic monetary policy reaction induces heterogeneous national outcomes, driven by differences in fiscal space. This generates a trade-off between union-wide macroeconomic stabilization and cross-country synchronization of economic activity for the central bank. We characterize a possibility frontier between union-wide inflation stability and cross-country synchronization, which is traced out by varying the degree of the central bank's hawkishness towards inflation. We study the role of deficit caps, fiscal and political unions, and augmented Taylor rules as instruments to navigate the stabilization–synchronization trade-off.
    Keywords: fiscal space; fiscal union; heterogeneous agents; monetary union
    JEL: E52 F41 F42
    Date: 2025–08–22
    URL: https://d.repec.org/n?u=RePEc:ehl:lserod:128186
  7. By: Peter Karadi; Anton Nakov; Galo Nuño; Ernesto Pastén; Dominik Thaler
    Abstract: We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides micro-foundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large costpush shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. When facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model.
    Date: 2024–10
    URL: https://d.repec.org/n?u=RePEc:chb:bcchwp:1025
  8. By: Christopher D. Cotton; Vaishali Garga
    Abstract: This brief shows how distinguishing between the dynamics of frequently and infrequently adjusted prices can provide insight into the nature of inflation—whether inflation pressures are new and transitory or sustained and spreading. It breaks down the non-rent portion of the Consumer Price Index into two subindexes, one for products that change prices frequently (the flexible sector) and one for products that change prices infrequently (the sticky sector).
    Keywords: sticky prices; inflation; prices; persistence; spillover; Consumer Price Index
    JEL: E31 E52 E58
    Date: 2025–08–27
    URL: https://d.repec.org/n?u=RePEc:fip:fedbcq:101517
  9. By: Miguel Acosta-Henao; Maria Alejandra Amado; Montserrat Martí; David Perez-Reyna
    Abstract: This paper investigates the granular transmission of U.S. monetary policy shocks to deviations from the uncovered interest rate parity (UIPDs) in emerging economies. Using a comprehensive dataset from Chile that accounts for firm-bank relationships and the time-variant characteristics of both firms and banks, we uncover several key findings: (1) Shocks to the federal funds rate (FFR) increase banks’ costs of foreign borrowing. (2) These higher credit costs disproportionately affect small firms, raising their UIPDs more than for large firms. (3) This size-differentiated impact stems from the relatively higher interest rates on domestic currency loans faced by small firms. (4) In contrast, interest rates on dollar-denominated loans respond homogeneously across all firms. (5) We find no differential effect on loan quantities, suggesting an active role of credit supply and demand. We rationalize these findings with a small open economy model of corporate default that incorporates heterogeneous firms borrowing from domestic banks in both foreign and domestic currencies. In our model, a higher FFR reduces the marginal cost of defaulting on domestic-currency debt for small firms more than for large firms.
    Date: 2025–05
    URL: https://d.repec.org/n?u=RePEc:chb:bcchwp:1043
  10. By: Schmöller, Michaela; Goldfayn-Frank, Olga; Schmidt, Tobias
    Abstract: This paper provides novel empirical evidence on the impact of monetary policy on innovation investment using unique firm-level data. First, we document the ef- fect of a large, systematic monetary tightening (ECB rate increases from 0% to 4.5% during 2022-23), with average firm-level innovation cuts of 20%. These cuts persist over the medium term, indicating a sustained innovation slowdown. Second, we use the survey to identify elasticities of innovation expenditure to exogenous policy rate changes. Responses to hikes and cuts are significant and largely symmetric at the baseline rate (4.5%), though we detect potential state-dependent asymmetry due to the extensive margin. The financing channel emerges as one of the trans- mission channels, with more pronounced effects in firms with higher shares of bank loans and variable-rate loans. Crucially, we show that monetary policy transmits via aggregate demand, with stronger responses in firms with pessimistic demand expectations. Forward guidance provides substantial additional stimulus by re- ducing uncertainty about future rates, suggesting long-term, supply-side effects of announcements. These results challenge monetary long-run neutrality and are sug- gestive of policy endogeneity of R∗ operating through innovation-driven technology growth.
    Keywords: Monetary Policy Transmission, R&D, Endogenous Growth, ForwardGuidance, R∗
    JEL: E52 E22 E24 O30 D22
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:zbw:bubdps:324662
  11. By: Imad Bassite (Laboratoire de performance économique et logistique Faculté des Sciences Juridiques, Économiques et Sociales (FSJES) - Mohammedia Université Hassan II de Casablanca); Younes El Khattab (Enseignant chercheur - Laboratoire de performance économique et logistique Faculté des Sciences Juridiques, Économiques et Sociales (FSJES) - Mohammedia Université Hassan II de Casablanca)
    Abstract: This article examines the impact of monetary policy, inflation and the real effective exchange rate (REER) on the output gap in Morocco, in an economic context marked by recurring internal and external shocks. Using an ARDL model on annual data covering the period 1990-2023, the study distinguishes between the short-term and long-term effects of the main macroeconomic variables on the output gap. The results show that money supply has a significant short-term effect, reflecting the relative effectiveness of monetary policy in stimulating demand and mitigating cyclical gaps. In contrast, in the long term, only the TCER has a positive and significant influence, highlighting the crucial role of external competitiveness in reducing the output gap. Inflation, on the other hand, has no statistically significant impact, reflecting the caution of Moroccan monetary policy in the face of inflationary risks. The article recommends close coordination between monetary and exchange rate instruments, as well as a strengthening of structural policies, in order to ensure greater macroeconomic resilience.
    Abstract: Cet article examine l'impact de la politique monétaire, de l'inflation et du taux de change effectif réel (TCER) sur l'output gap au Maroc, dans un contexte économique marqué par la récurrence de chocs internes et externes. En mobilisant un modèle ARDL sur des données annuelles couvrant la période 1990–2023, l'étude distingue les effets à court et à long terme des principales variables macroéconomiques sur l'écart de production. Les résultats montrent que la masse monétaire a un effet significatif à court terme, traduisant l'efficacité relative de la politique monétaire pour stimuler la demande et atténuer les écarts conjoncturels. En revanche, à long terme, seul le TCER exerce une influence positive et significative, mettant en évidence le rôle crucial de la compétitivité externe dans la réduction de l'output gap. L'inflation, quant à elle, ne présente pas d'impact statistiquement significatif, ce qui reflète la prudence de la politique monétaire marocaine face aux risques inflationnistes. L'article recommande une coordination étroite entre les instruments monétaires et de change, ainsi qu'un renforcement des politiques structurelles, afin de garantir une meilleure résilience macroéconomique.
    Keywords: ARDL, Morocco, competitiveness, inflation, exchange rate, output gap, monetary policy, monetary policy output gap exchange rate inflation ARDL Morocco competitiveness
    Date: 2025–07–28
    URL: https://d.repec.org/n?u=RePEc:hal:journl:hal-05190487
  12. By: Jonathan Benchimol (Bank of Israel); Sophia Kazinnik (Stanford University); Yossi Saadon (Bank of Israel)
    Abstract: In this study, we examine the Federal Reserve’s communication strategies during the COVID-19 pandemic, comparing them with communication during previous periods of economic stress. Using specialized dictionaries tailored to COVID-19, unconventional monetary policy (UMP), and financial stability, combined with sentiment analysis and topic modeling techniques, we identify a distinct focus in Fed communication during the pandemic on financial stability, market volatility, social welfare, and UMP, characterized by notable contextual uncertainty. Through comparative analysis, we juxtapose the Fed’s communication during the COVID-19 crisis with its responses during the dot-com and global financial crises, examining content, sentiment, and timing dimensions. Our findings reveal that Fed communication and policy actions were more reactive to the COVID-19 crisis than to previous crises. Additionally, declining sentiment related to financial stability in interest rate announcements and minutes anticipated subsequent accommodative monetary policy decisions. We further document that communicating about UMP has become the “new normal†for the Fed’s Federal Open Market Committee meeting minutes and Chairman’s speeches since the Global Financial Crisis, reflecting an institutional adaptation in communication strategy following periods of economic distress. These findings contribute to our understanding of how central bank communication evolves during crises and how communication strategies adapt to exceptional economic circumstances.
    Keywords: Central bank communication, unconventional monetary policy, financial stability, text mining, COVID-19
    JEL: E
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:inf:wpaper:2025.10
  13. By: Menzie D. Chinn; Jeffrey A. Frankel; Hiro Ito
    Abstract: We analyze the determinants of individual central bank holdings of international reserves, as shares of gold, dollar, euro, pound, yen and yuan, over the 1999-2022 period. We augment standard economic determinants of size, exchange rate volatility, currency pegs and bilateral trade with bilateral political/economic variables such as disagreement in UN voting, military alliances, and financial and trade sanctions. These variables augment uncertainty measures such as global Economic Policy Uncertainty, US monetary and trade policy uncertainty, and the VIX. In addition, we investigate whether the US imposition of tariffs in 2018 had any measurable impact on dollar and other holdings. We conclude that financial sanctions and trade policy uncertainty have a statistically and economically significant effect on holdings of the US dollar. US tariffs had an economically – but not statistically – significant impact on shares of foreign exchange reserves: dollar shares fell by 2.1% and other shares rose by 0.8%. These findings can inform the debate regarding some of the benefits and costs of using such geo-economic policies.
    JEL: F33
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:nbr:nberwo:34177
  14. By: Takuya Iinuma; Yoshiyuki Nakazono; Kento Tango
    Abstract: This paper investigates how social identity influences the assimilation of monetary policy information. We conduct a randomized control trial in Japan to test whether consumers respond more strongly to inflation forecasts from the Bank of Japan (BOJ) when the message is delivered by a narrator who shares their social identity. Respondents are randomly assigned to hear the BOJ’s forecast in either standard Japanese or the Osaka dialect, both narrated by a female speaker. We find that individuals are significantly more likely to revise their inflation expectations toward the BOJ’s forecast when the narrator shares the respondent’s gender, dialect, or political alignment. Women are more responsive to forecasts delivered by a female narrator; Osaka residents react more strongly to messages in the Osaka dialect; and government supporters exhibit greater belief updating in response to BOJ forecasts. These findings suggest that central banks can enhance the effectiveness of their communication by tailoring messages to align with the social identities of target audiences, although it is essential to recognize potential risks.
    Date: 2025–08–13
    URL: https://d.repec.org/n?u=RePEc:toh:tupdaa:74
  15. By: Cima, Simone (Central Bank of Ireland and Department of Economics, Trinity College Dublin.); Moreno, Marco (Central Bank of Ireland and Department of Economics, Trinity College Dublin.)
    Abstract: We use new data on the distribution of wealth in the euro area and employ panel local projections to estimate the different impact of ECB monetary policy shocks on households across the wealth distribution. We look at how policy affects the value of their assets, the composition of their balance sheets, their investment decisions, and overall wealth inequality. We find that in response to a contractionary shock, poorer households display a substantial decline in their assets and in their overall net wealth. Conversely, the total wealth of the very richest is not significantly affected. This different response leads to a moderate increase in overall wealth inequality. We further perform a decomposition of asset movements caused by the shock, isolating the effect of revaluations and of household investment. We observe that the response of household wealth due to a monetary policy shock occurs primarily through revaluation effects.
    Keywords: Wealth Inequality, Monetary Policy, Distributional Wealth Accounts, Local Projections.
    JEL: D31 E44 E52
    Date: 2025–07
    URL: https://d.repec.org/n?u=RePEc:cbi:wpaper:6/rt/25
  16. By: Fabio Milani
    Abstract: This paper estimates a New Keynesian model with heterogeneous agents to study the interactions among monetary policy, macroeconomic shocks, and the distribution of income between capital and labor. The model assumes two types of households: workers, who supply labor to firms and receive wage income, and capitalists, who own the firms and enjoy the corresponding profits. There are nominal rigidities in both the goods and labor markets. The structural model is estimated using Bayesian methods to match U.S. data on consumption, corporate profits, wages, inflation, and nominal interest rates, on a sample spanning more than six decades. The empirical results show that contractionary monetary policy and inflationary price-markup shocks lead to increases in inequality. Negative wage markup shocks, which proxy for declining workers' bargaining power, are major drivers of peaks in inequality over the sample; together with price markup shocks, they also account for a significant share of the changes in inequality after COVID.
    Keywords: Heterogeneous-Agent New Keynesian model, income distribution between capital and labor, monetary policy and inequality, inflation and inequality.
    JEL: E25 E31 E32 E52 E58
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_12065
  17. By: Patrick Gruning (Latvijas Banka)
    Abstract: During the recent monetary policy tightening cycle, the pass-through of monetary policy to interest rates offered by commercial banks and the size of bank profits have attracted substantial attention. In this study, I explore the economic effects of reducing the adjustment speed of monetary policy changes to deposit interest rates, using a suitable New-Keynesian dynamic stochastic general equilibrium model. A lower deposit interest rate adjustment speed increases macroeconomic volatility but decreases the volatility of the credit spread (except in the case of a very low adjustment speed). Bank net interest income and aggregate consumption typically increase relative to a model where the deposit interest rate perfectly tracks the monetary policy rate, while aggregate output and investment dynamics deteriorate. Introducing a tax on the interest income earned by setting deposit interest rates below the monetary policy rate leads to amplified short- and medium-run macroeconomic costs. However, the tax improves long-run economic dynamics.
    Keywords: Monetary policy, Financial intermediaries, Deposit interest rates, New Keynesian DSGE model, Excess bank interest income tax
    JEL: E31 E32 E44 E52 H25
    Date: 2025–08–18
    URL: https://d.repec.org/n?u=RePEc:ltv:wpaper:202505
  18. By: Ricardo Lagos
    Abstract: The well-known cashless-limiting result in Woodford (1998) has become the theoretical foundation for a large body of work that treats the costs and benefits of holding money as irrelevant for monetary transmission. I reexamine this result and find that it relies on a peculiar credit-market structure consisting of perfectly competitive, zero-interest deferred payment arrangements. I show that the result breaks down when the microstructure is generalized to allow for an endogenous interest rate and market power in credit intermediation. The tenuousness of this influential result should give pause to the widespread practice of basing monetary policy advice on models without money.
    JEL: E5
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:nbr:nberwo:34155
  19. By: Cristiano Cantore; Haroon Mumtaz; Filippo Ferroni; Angeliki Theophilopoulou
    Abstract: We study the interaction between monetary policy and labor supply decisions at the household level. We uncover evidence of heterogeneous responses and a strong counter-cyclicality of hours worked in the left tail of the income distribution following a monetary policy shock in the U.S. Specifically, while aggregate hours and labor earnings decline after a monetary tightening, individuals at the bottom of the income distribution increase their hours worked. Moreover, this positive labor supply response is quantitatively significant, substantially dampening the decline in aggregate hours worked. We show that the empirical patterns are consistent with a standard one-asset HANK model featuring endogenous labor supply. The model reveals that strong income effects at the bottom of the distribution can account for the observed countercyclical labor responses, highlighting how labor supply adjustments act as an additional margin through which households smooth consumption. Comparing this specification to a model with a homogeneous labor supply, we find that labor supply heterogeneity reduces the aggregate MPC and attenuates the transmission of monetary policy through aggregate demand. As a result, the output cost of disinflation is lower in economies where poorer households can flexibly adjust their labor effort, easing the trade-off faced by the central bank.
    JEL: E52 E32 C10
    Date: 2025–09
    URL: https://d.repec.org/n?u=RePEc:bol:bodewp:wp1210
  20. By: Philippe Bacchetta; J. Scott Davis; Eric Van Wincoop
    Abstract: Global non-U.S. 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-U.S. 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.
    Keywords: GSIB Banks; U.S. Dollar Liquidity; CIP Deviations; Liquidity Swap Lines
    JEL: F30 F40
    Date: 2025–08–12
    URL: https://d.repec.org/n?u=RePEc:fip:feddwp:101523
  21. By: Egemen Eren; Denis Gorea; Daojing Zhai
    Abstract: We study how firms respond to quantitative easing (QE) and quantitative tightening (QT) policies of the Federal Reserve. We construct a novel time series of maturity-specific central bank balance sheet shocks covering multiple QE and QT programs. In response to central bank purchases of government bonds, we find that, on average, firms adjust their debt maturity structure, reduce interest expenses and accumulate cash, while their total debt, capital and employment remain largely unchanged. The impact of these policies differs depending on the targeted maturity segment and the credit quality of firms. Policy transmission primarily runs via bond markets. There are positive spillovers to high-rated non-US firms. Our findings can inform the design of balance sheet policies.
    Keywords: quantitative easing, quantitative tightening, debt, maturity, real effects
    JEL: E44 G11 G12 G23
    Date: 2025–09
    URL: https://d.repec.org/n?u=RePEc:bis:biswps:1286
  22. By: Yixiao Tan; Dimitrios P. Tsomocos; Xuan Wang
    Abstract: Climate change affects the effectiveness of monetary policy, particularly in maintaining price stability. In a two-period theoretical model with heterogeneous agents, monetary policy and climate externalities, we establish that a trade-off exists between climate change and inflation. In addition, lower interest rates for green investments enhance economic growth and aggregate social welfare when carbon tax is not at the optimal level. Our analysis suggests that green monetary policy and carbon emission taxes are complementary rather than substitutes. Our findings provide policy implications for balancing climate change mitigation and economic stability for the South African Reserve Bank.
    Date: 2025–08–28
    URL: https://d.repec.org/n?u=RePEc:rbz:wpaper:11089
  23. By: Jung, Alexander; Mongelli, Francesco Paolo
    Abstract: We would like to thank Philipp Lane, Klaus Adam, Michael Ehrmann, Christophe Kamps, Timo Reinelt, Annalisa Ferrando, Philippine Cour-Thimann, Felix Hammermann, Davide Romelli, Andreas Kapounek, and colleagues from DG Communication for for their valuable feedback on earlier versions of this paper. This paper was presented at the 2025 AEA Conference in San Francisco, and we appreciate the feedback and suggestions received from the participants. We would also like to thank colleagues from 11 Business Areas of the ECB for their presentations to visitors, as well as colleagues from DG Communications for their support in conducting the surveys with the visitor groups, especially Alexandra Kroppenstedt, Nadia Bates, Christian Scherf, and Emma-Katharina David. This experiment is pre-registered in the AEA RCT registry (ID: AEARCTR-0012902). Declaration of Interest: Jung is employed by the European Central Bank. The views expressed in this article are those of the authors and do not necessarily reflect those of the ECB. The authors remain responsible for any errors or omissions. JEL Classification: C83, C93, D83, D84, E31, E58
    Keywords: behavioral economics, central bank communication, inflation expectations, monetary policy knowledge, randomized controlled trial
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253103
  24. By: Wenhao Li; Yiming Ma; Yang Zhao
    Abstract: We demonstrate the passthrough of Treasury supply to bank deposits through bank market power. We show that a larger Treasury supply crowds out deposits with disproportionate effects in more competitive deposit markets. A larger Treasury supply further curtails bank lending and affects bank funding structure. The explanatory power of Treasury supply is not driven by other shocks to deposit demand and supply. In comparison, monetary policy rate hikes have a larger impact on deposit funding in more concentrated markets, consistent with the deposits channel of monetary policy. Our empirical findings are rationalized in a model of imperfect deposit competition.
    JEL: E50 G21
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:nbr:nberwo:34154
  25. By: Kristian Blickle; Jian Li; Xu Lu; Yiming Ma
    Abstract: We document that deposit flightiness varies significantly over time, peaking after Covid-19. Elevated deposit flightiness coincides with QE and low interest rates. We rationalize these trends based on heterogeneity in investors’ convenience value. Investors in the banking system value the convenience benefits of deposits more than outside investors. Following deposit inflows, e.g., due to QE's reserve expansions, the marginal depositor in the banking system becomes less convenience seeking and the risk of panic runs increases. As a result, policy rate hikes are more destabilizing when preceded by QE. Our findings reveal a novel linkage between conventional and unconventional monetary policy.
    JEL: E5 E50 G2 G21 G23
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:nbr:nberwo:34128
  26. By: Shalva Mkhatrishvili
    Abstract: The key function of banks in the real world is endogenously creating (inside) money. But they do so facing solvency, liquidity and maturity risks and being subject to regulatory and demand constraints. These five aspects, representing the eventual breaks on banks’ money-creation abilities, are tightly and nonlinearly interlinked. Yet, there is no tractable quantitative macro framework that models endogenous money creation while simultaneously addressing these interlinkages. In this paper we develop a tractable macro-banking model trying to fill this gap, emphasizing two key frictions: the capital adequacy constraint (generating a credit risk premium) and the central bank’s collateral base constraint (generating a liquidity risk premium). The model simulations produce conclusions, about both normal times as well as stress episodes, many of which were frequently overlooked. For instance, it shows how – within capital requirements – setting lower risk weights on secured loans may lead to an expansion of unsecured loans. It also reveals subtle interactions between capital and liquidity regulations. The model also creates a certain bridge between a money-centered view of the price level and the fiscal theory of the price level.
    Keywords: Endogenous Money Creation; Monetary Policy; Macroprudential Policy; Fiscal Theory of the Price Level; Macro-Banking Modeling
    Date: 2025–08–22
    URL: https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/166
  27. By: Lydia Cox; Jiacheng Feng; Gernot J. Müller; Ernesto Pastén; Raphael Schoenle; Michael Weber
    Abstract: The jointly optimal monetary and fiscal policy mix in a multi-sector New Keynesian model with sectoral government spending and productivity shocks entails a separation of roles: Sectoral government spending optimally adjusts to sectoral output gaps and inflation rates—a policy supported by evidence from sectoral federal procurement data. Monetary policy optimally focuses on aggregate stabilization, but deviates from a zero-inflation target; in a model calibration to the U.S., however, it effectively approximates a zero-inflation target. Because monetary policy is a blunt instrument and government spending trades off stabilization against the optimal-level public good provision, the first best is not achieved.
    Date: 2024–10
    URL: https://d.repec.org/n?u=RePEc:chb:bcchwp:1024
  28. By: Eiblmeier, Sebastian
    Abstract: This paper uses German microdata to test whether the ECB's quantitative easing (QE) spurred bank lending to non-financial firms. Bank-firm loan data allow me to control for loan demand at firm level. The share of bonds in banks’ total assets before QE serves as treatment proxy. While the effects are positive and statistically significant, they are small: Increasing the bond/asset share in a firm's lender bank by one standard deviation increases the de-trended outstanding bilateral loan volume by 3-5% of its within-sample mean. At firm level, no unambiguous effect can be observed.
    Keywords: Unconventional monetary policy, Germany, bank lending, portfolio rebalancing, panel regression
    JEL: C23 E51 E52 G11 G21
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:han:dpaper:dp-740
  29. By: Marco Reuter; Mr. Itai Agur; Alexander Copestake; Maria Soledad Martinez Peria; Mr. Ken Teoh
    Abstract: Cross-border payments are changing: existing intermediaries are upgrading their networks and new platforms based on novel digital forms of money are being explored, even as geoeconomic fragmentation is introducing new frictions. We develop a stylized model to assess the potential implications for the level and volatility of capital flows and exchange rates. On levels, we find that lower frictions in cross-border payments reduce UIP deviations and increase capital flows. On volatility, we find that the impact of lower frictions depends on the type of shock and the degree to which frictions decline. For real shocks, lower frictions increase capital flow volatility and reduce exchange rate volatility. For financial shocks, lower frictions increase exchange rate volatility while the impact on capital flow volatility is ambiguous. Specifically, when frictions decline by a small amount, capital flow volatility increases, while the opposite holds when the reduction in frictions is large. An increase in frictions reverses these results.
    Keywords: Exchange Rates; Capital Flows; Interest Parity; Payment Frictions
    Date: 2025–08–29
    URL: https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/171
  30. By: Mrs. Marina Conesa Martinez
    Abstract: This paper analyzes how central banks' communication influences corporate financial decisions and instruments. Empirically, we find that more active central bank communication is associated with a rise in firms' green bond issuance. The effect seems to be particularly strong among commercial banks, firms closely monitoring central bank climate communication, and firms with higher exposure to weather-related risks and opportunities. This likely reflects strategic responses to anticipated regulatory and market shifts.
    Keywords: Central banking; Communication; Climate change; Green bonds; Sustainable finance; Natural language processing
    Date: 2025–08–29
    URL: https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/169
  31. By: Gregorio Impavido
    Abstract: This paper assesses the effectiveness of monetary policy in Kazakhstan using a small macro model and identifies alternative plausible economic structures consistent with priors on the sign of responses of macro variables to structural shocks. Monetary policy effectiveness has increased over time.
    Keywords: Monetary policy effectiveness; SVARs; parametric restrictions; sign restrictions
    Date: 2025–08–29
    URL: https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/173
  32. By: Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur); Qing Xu (ICL, Junia, Université Catholique de Lille)
    Abstract: We examine the potential of upcoming Central Bank Digital Currencies (CBDCs) to be used as a means of transferring remittances. In a simple theoretical model, CBDCs compete with traditional channels provided by specialized intermediaries and with digital transfer options already offered by fintech companies. Their success depends on factors such as anonymity, potential conversion into cash, and the network effects generated by CBDC transactions among recipients' families.
    Abstract: Nous examinons le potentiel des futures monnaies numériques de banque centrale (CBDC) en tant que moyen de transfert de fonds. Dans un modèle théorique simple, les CBDC sont en concurrence avec les canaux traditionnels fournis par des intermédiaires spécialisés et avec les options de transfert numérique déjà proposées par les entreprises de technologie financière. Leur succès dépend de facteurs tels que l'anonymat, la possibilité de conversion en espèces et les effets de réseau générés par les transactions en CBDC entre les familles des bénéficiaires.
    Keywords: fintech, cross-border payments, E58 Central Bank Digital Currencies, D85, JEL Classification: E42 D85 E58 Central Bank Digital Currencies cross-border payments fintech, Migrants, Fintech, Cross-boarder payments, Central Bank Digital Currencies, JEL Classification: E42
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:hal:journl:halshs-05208283
  33. By: Sophia Kazinnik; Tara M. Sinclair
    Abstract: We develop a a multi-agent framework for modeling the Federal Open Market Committee (FOMC) decision making process. The framework combines two approaches: an LLM-based simulation and a Monte Carlo implementation of a generalized Bayesian voting model. Both begin from identical prior beliefs about the appropriate interest rate for each committee member, formed using real-time data and member profiles. In a simulation replicating the July 2025 FOMC meeting, both tracks deliver rates near the 4.25–4.50\% range's upper end (4.42\% LLM, 4.38\% MC). Political pressure scenario increases dissent and dispersion: the LLM track averages 4.38\% and shows dissent in 88\% of meetings; the MC track averages 4.39\% and shows dissent in 61\% of meetings. A negative jobs revision scenario moves outcomes lower: LLM at 4.30\% (dissent in 74\% of meeting), and MC at 4.32\% (dissent in 62\% of meeting), with final decisions remaining inside the 4.25-4.50\% range. The framework isolates small, scenario‑dependent wedges between behavioral and rational baselines, offering an \textit{in silico} environment for counterfactual evaluation in monetary policy.
    Keywords: Generative AI; Multi-Agent Systems; Large Language Models, Federal Open Market Committee; Monetary Policy; Simulations
    JEL: E52 E58 C63 D83 C73
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:gwc:wpaper:2025-005
  34. By: Anantha Divakaruni; Peter Zimmerman
    Abstract: Several studies have shown that aggregate demand for US dollars fell following the announcement of tariffs by the US government on April 2, 2025. Using data on stablecoins as a proxy for dollar trading, we find that the decline in dollar demand is smaller for investors in countries that saw larger increases in tariffs. Our interpretation is that, as foreign investors anticipate that tariffs will make it more expensive to acquire US dollars in the future, they buy dollars today. This channel is stronger for more liquid stablecoins and for countries with tighter capital controls, consistent with the idea that, when actual dollars are hard to acquire, stablecoins may be regarded as a substitute. Our findings cast light on the effects of the tariffs on global foreign exchange markets, as well as on the degree to which stablecoins are considered a close substitute for dollars.
    Keywords: dollars; stablecoins; tariffs; trade barriers
    JEL: F31 G15 G23
    Date: 2025–08–28
    URL: https://d.repec.org/n?u=RePEc:fip:fedcwq:101529
  35. By: Arango-Castillo Lenin; Mart\'inez-Ram\'irez Francisco
    Abstract: This paper measures the effects of temperature and precipitation shocks on Mexican inflation using a regional panel. To measure the long-term inflationary effects of climate shocks, we estimate a panel autoregressive distributed lag model (panel ARDL) of the quarterly variation of the price index against the population-weighted temperature and precipitation deviations from their historical norm, computed using the 30-year moving average. In addition, we measure the short-term effects of climate shocks by estimating impulse response functions using panel local projections. The result indicates that, in the short term, the climate variables have no statistical effect on Mexican inflation. However, in the long term, only precipitation norms have a statistical effect, and the temperature norms have no statistical impact. Higher than normal precipitation has a positive and statistically significant effect on Mexican inflation for all items.
    Date: 2025–07
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2507.14420
  36. By: Nicholas Gray (Reserve Bank of Australia); Finn Lattimore (Reserve Bank of Australia); Kate McLoughlin (Reserve Bank of Australia); Callan Windsor (Reserve Bank of Australia)
    Abstract: In a world of high policy uncertainty, central banks are relying more on soft information sources to complement traditional economic statistics and model-based forecasts. One valuable source of soft information comes from intelligence gathered through central bank liaison programs – structured programs in which central bank staff regularly talk with firms to gather insights. This paper introduces a new text analytics and retrieval tool that efficiently processes, organises, and analyses liaison intelligence gathered from firms using modern natural language processing techniques. The textual dataset spans around 25 years, integrates new information as soon as it becomes available, and covers a wide range of business sizes and industries. The tool uses both traditional text analysis techniques and powerful language models to provide analysts and researchers with three key capabilities: (1) quickly querying the entire history of business liaison meeting notes; (2) zooming in on particular topics to examine their frequency (topic exposure) and analysing the associated tone and uncertainty of the discussion; and (3) extracting precise numerical values from the text, such as firms' reported figures for wages and prices growth. We demonstrate how these capabilities are useful for assessing economic conditions by generating text-based indicators of wages growth and incorporating them into a nowcasting model. We find that adding these text-based features to current best-in-class predictive models, combined with the use of machine learning methods designed to handle many predictors, significantly improves the performance of nowcasts for wages growth. Predictive gains are driven by a small number of features, indicating a sparse signal in contrast to other predictive problems in macroeconomics, where the signal is typically dense.
    Keywords: central banking; macroeconomic policy; wages and labour costs; machine learning; econometric modelling; information retrieval systems; firm behaviour
    JEL: C5 C8 D2 E5 E6 J3
    Date: 2025–08
    URL: https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2025-06
  37. By: Salome Baslandze; Simon Fuchs
    Abstract: We study the role of supply chain disruptions in shaping consumer prices, focusing on both firms’ own import shocks and strategic responses to competitors’ disruptions. Using a newly constructed micro-level dataset that links transaction-level U.S. import data from Bills of Lading with high-frequency consumer prices and sales from a consumer panel, we develop a novel approach to estimate the price effects of cost shocks and product availability. Motivated by a model of delivery delays, cost shocks, and firm pricing, we implement a shift-share identification strategy based on delivery shortfalls, port congestion, and freight and import costs. We find sizable pass-through elasticities: firms raise prices in response to higher import costs and delivery delays, especially when disruptions persist. We also identify strategic pricing: firms—including non-importers—increase prices in response to competitors’ supply chain disruptions. Using our estimates and back-of-the-envelope calculations from the model, we show that strategic interactions significantly amplified the direct effects of supply chain shocks on consumer prices during the pandemic.
    Keywords: supply chains, inflation, delivery delays, strategic interactions, pass-through, inventory
    JEL: E31 F14
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_12079

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