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on Monetary Economics |
| By: | Paul Hubert; Rose Portier |
| Abstract: | This paper establishes the asymmetric transmission of monetary policy to nominal yields of the four largest euro area countries. We document that the effect of easing monetary surprises is stronger than the effect of monetary tightening. The asymmetry holds beyond the nonlinearities related to the economic or financial environment and does not stem from information effects. We provide evidence that this asymmetry is driven by signals about the future policy path. Decomposing euro area interest rates between common and country-specific components, we show that the common component, likely capturing expectations of future short-term rates, generates the differentiated effects, while risk premium signals amplify the asymmetry. Using textual analysis to extract policymakers’ signals about the future monetary policy space from press conferences, we find that central bank communication can affect this asymmetric transmission to yields. Our results suggest a key role for the signaling channel in determining long-term interest rates. |
| Keywords: | Term Structure, Asymmetric Effects, Central Bank Communication, Signaling, Long-Term Interest Rates |
| JEL: | E43 E52 E58 G12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:999 |
| 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; COVID-19; Monetary policy |
| JEL: | E31 E52 E58 E70 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-70 |
| By: | Grey Gordon; Julio L. Ortiz; Benjamin Silk |
| Abstract: | We examine the experience of conducting reviews of monetary policy frameworks in the major advanced foreign economies since the Federal Open Market Committee's 2019–20 review. We find that periodic reviews are becoming the norm and have often been motivated by similar developments and challenges as those facing the Federal Reserve. In some cases, reviews were opportunities to alter numerical inflation objectives or clarify how policymakers balance fostering price stability and supporting employment and activity. In addition, foreign reviews emphasized the need for policy flexibility in pursuit of mandates. They also affirmed the usefulness of central banks' existing policy toolkits, while noting some concerns and limitations. Some reviews offered recommendations to improve communications. |
| Keywords: | Monetary policy review; Monetary policy strategies; Monetary policy tools; Central bank communications; Foreign monetary policy |
| JEL: | E52 E58 F33 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-66 |
| By: | Hess T. Chung; Callum J. Jones; Antoine Lepetit; Fernando M. Martin |
| Abstract: | This paper considers robust monetary policy strategies both in situations of low demand and low inflation and when economic developments pose a tradeoff between inflation and output stabilization. We proceed in two parts. First, our quantitative analysis suggests that asymmetric average inflation targeting can provide modest benefits over other inflation-targeting strategies when the risks associated with the effective lower bound remain significant. Second, motivated by the recent experience of persistent supply shocks and rapid increases in inflation, we describe the main qualitative features of optimal policy in circumstances when the objectives of stabilizing inflation and economic activity conflict. We find that monetary policy may allow inflation to depart from the target in response to certain supply shocks or in cases when sectoral dynamics are relevant, but that it should be ready to respond forcefully and expeditiously to large inflationary shocks or if inflation expectations are at risk of becoming unanchored. |
| Keywords: | Alternative monetary policy strategies; Monetary policy communication; Effective lower bound; Supply shocks; Sectoral dynamics; Inflation surges |
| JEL: | E31 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-72 |
| By: | Anna Lipinska; Enrique Martínez García; Felipe Schwartzman |
| Abstract: | This paper examines the drivers of the 2020-23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks' responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia's invasion of Ukraine. Pandemic-related supply disruptions, a rotation of consumer spending toward goods, and commodity price increases exacerbated by Russia's invasion of Ukraine resulted in unusually large relative price increases, which required time to be absorbed. A simple Phillips curve framework suggests that the inflation surge was mainly driven by "cost push" factors, such as supply shortages and relative price shifts. Tight labor markets contributed to the persistence of above-target inflation. Despite differences in mandates of the monetary policy frameworks, central banks around the world responded similarly to recent global events. |
| Keywords: | International comparison; Inflation; Global shortages; Aggregate demand; Aggregate supply; Commodity prices; Phillips curve; Inflation expectations; Monetary policy |
| JEL: | E31 E52 E58 F33 F40 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-71 |
| By: | Allaire, Nolwenn; Le Coz, Victor; Benzaquen, Michael; Challe, Damien |
| Abstract: | Using the secured transactions recorded within the Money Markets Statistical Reporting database of the European Central Bank, we test several stylized facts regarding the interbank market of the 47-largest banks in the eurozone. We observe that the surge in the volume of traded evergreen repurchase agreements followed the introduction of the LCR regulation and we measure a rate of collateral re-use consistent with the literature. Regarding the topology of the interbank network, we confirm the high level of network stability but observe a higher density and a higher in– and out–degree symmetry than what is reported for unsecured markets. JEL Classification: E42, E51, E52, G21, G28 |
| Keywords: | collateral re-use, excess liquidity, interbank network, liquidity coverage ratio, monetary policy |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253113 |
| By: | Erwan Gautier; Frédérique Savignac; Olivier Coibion |
| Abstract: | Using a new survey of French firms’ inflation expectations that predates the inflation spike, we document i) evidence on the anchoring of inflation expectations during the inflation surge, and ii) the relevance of inflation expectations for firms’ decisions. First, we show that inflation expectations under-responded to the initial surge but then persistently overshot actual inflation dynamics. As inflation rose, firms initially perceived inflation to be less persistent than in previous years, an effect that dissipated over time. Second, we find that inflation expectations correlate with firms’ wage and price decisions. One-year expectations matter more than long-term expectations. During the inflation surge, wage and price decisions became increasingly disconnected from inflation expectations. This suggests that the scope for wage-price spirals is likely more limited than one might have expected from the surge in inflation and inflation expectations. |
| Keywords: | Lifetime Earnings, Inequality, Gender Earnings Gaps |
| JEL: | E2 E3 E4 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:995 |
| By: | Jouvanceau, Valentin; Darracq Pariès, Matthieu; Dieppe, Alistair; Kockerols, Thore |
| Abstract: | This paper examines the macroeconomic impact of substantial tariffs imposed by the second Trump administration on imports from China and the euro area and their transmission through direct and indirect channels. Using the ECB-Global 3.0 semi-structural model, we show that tariffs raise US import prices and lead to tighter US monetary policy, with the managed float of the renminbi partly offsetting adverse effects in China, while appreciation of the dollar undermines US export competitiveness. In the euro area, euro depreciation provides limited output support but intensifies imported inflation and triggers additional policy tightening. We assess the sensitivity of these results to key assumptions, such as the global amplification of inflation via dominant US dollar invoicing, partial trade diversion, and alternative monetary policy frameworks that attenuate monetary tightening and output contraction. Quantitative assessments of tariffs enacted up to 26 May 2025 and of an escalation scenario indicate significant global output losses and heightened inflationary pressures, requiring widespread policy rate increases. Further escalation of the trade conflict magnifies these effects. These findings quantify the economic cost of tariff related trade disputes and highlight the challenges central banks face in navigating the trade off between price stability and growth. JEL Classification: F12, F41, F42 |
| Keywords: | dominant-currency pricing, open-economy, semi-structural model, tariffs |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253117 |
| By: | Lenin Arango-Castillo; María José Orraca; Regina Briseño |
| Abstract: | Using a sample of advanced and emerging economies, this paper studies the volatility of three inflation measures from January 2001 to March 2023, employing variants of the GARCH model that account for the sign, magnitude, and persistence of shocks. The results show that the inflation surge during the COVID-19 pandemic coincided with increased volatility in several countries. However, this is not the norm in the studied period. Descriptive evidence indicates that a strong positive correlation between inflation and its volatility within countries was observed at the beginning of the Global Financial Crisis and during the pandemic, two periods characterized by global inflationary pressures and high commodity prices, whereas in other periods, this correlation is nonexistent or weak. |
| Keywords: | Inflation;Volatility;COVID-19 Pandemic;Global Inflation |
| JEL: | E31 C32 C51 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdm:wpaper:2025-13 |
| By: | François Gourio; Benjamin K. Johannsen; J. David López-Salido |
| Abstract: | In this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review. We then summarize the structure of the 2019–20 review, which included Fed Listens events, a flagship research conference, a series of staff analyses, and related Federal Open Market Committee (FOMC) deliberations. Finally, we present the main outcomes of the review, with particular attention paid to changes to the FOMC’s Statement on Longer Run Goals and Monetary Policy Strategy. |
| Keywords: | Federal Reserve; Framework review; Consensus statement; Inflation targeting; Effective lower bound |
| JEL: | E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-65 |
| By: | Fukker, Gábor; Sydow, Matthias; Mimun, Anisa Tiza |
| Abstract: | This paper investigates the effects of monetary policy on banks and non-bank financial institutions (NBFIs), with particular attention to the role of financial stress. We use high-frequency identified monetary policy shocks and state-dependent local projections to capture non-linear responses across financial sectors. Drawing on aggregated balance sheet data, including total assets, debt securities, and loans, we find that monetary tightening leads to broad-based contractions in total assets and debt holdings, with particularly pronounced effects for banks and investment funds. Loan responses are more heterogeneous, but money market funds and pension funds exhibit notable declines in loan exposures, especially under high-stress conditions. Importantly, we find that financial stress significantly amplifies the contractionary effects of monetary policy across all sectors and asset classes. Our results highlight the differentiated roles and vulnerabilities of financial intermediaries in the transmission of monetary policy and underline the importance of financial conditions in determining its overall effectiveness. JEL Classification: E52, G23 |
| Keywords: | monetary policy identification, non-bank financial intermediaries, non-bank lending activities, state-dependent local projections |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253114 |
| By: | Mundle, Sudipto (Centre for Development Studies); Mehta, Madhur (National Institute of Public Finance and Policy) |
| Abstract: | This article reviews the conduct of monetary policy in India during periods of slow growth in the first quarter of the 21st century. Using standard univariate filtering techniques, the article first identifies periods of slow growth, i.e., periods of negative output gap. It then uses the inflation rate and other supporting indicators to determine whether these periods were demand or supply constrained. The article then reviews the conduct of monetary policy during each of these episodes. An important takeaway is that monetary policy in the Indian context is very complex. Taylor type rules or even rules linking monetary policy stance to binding demand or supply constraints are by themselves inadequate for the conduct of monetary policy. They need to be combined with discretion and judgements based on comprehensive, detailed assessments of economic conditions. The article also reviews time lags and effectiveness in the transmission of monetary policy during both the Multiple Indicator Regime and the Inflation Targeting regime, particularly with reference to the interest rate channel. We find that transmission occurs with a time lag of 2-3 quarters, however it remains incomplete. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/437 |
| By: | Enzinger, Matthias; Gechert, Sebastian; Heimberger, Philipp; Prante, Franz; Romero, Daniel F. |
| 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. |
| Keywords: | Meta-analysis, conventional monetary policy, interest rate, output, inflation, price level, publication bias |
| JEL: | C83 E32 E43 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:264 |
| By: | Michael D. Bauer; Travis J. Berge; Giuseppe Fiori; Francesca Loria; Molin Zhong |
| Abstract: | This paper discusses the measurement, assessment, and communication of risks and uncertainty that are relevant for monetary policy. It provides a taxonomy of policy-relevant uncertainty related to the state and the structure of the economy, and the formation of expectations. A wide range of tools is available to assess and quantify uncertainty and the balance of risks. Qualitative assessments of uncertainty—in policy statements, minutes, and speeches—are the main tools to communicate uncertainty and the balance of risks across major central banks. However, the use of quantitative tools for such communications including scenario analysis—is evolving, and so far no clear consensus has emerged for best practices. |
| Keywords: | macroeconomic uncertainty; monetary policy; central bank communication |
| JEL: | E50 E58 |
| Date: | 2025–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:101776 |
| By: | Giacomo Mangiante; Pascal Meichtry |
| Abstract: | This paper investigates the distributional effects of conventional monetary policy and forward guidance. Using a structural VAR model, we estimate their impact on macroeconomic aggregates and consumption inequality in the United States. While aggregate real and financial variables respond similarly to both policy tools, their effects on consumption inequality diverge significantly. Conventional monetary policy shocks lead to countercyclical inequality, whereas forward guidance announcements result in a procyclical response, driven by heterogeneous reactions across the household spending distribution. We rationalize these contrasting outcomes both empirically and through a tractable New Keynesian model featuring household heterogeneity and government redistribution. In the model, a fiscal adjustment that differs in timing and magnitude induces a sharper decline in consumption among financially constrained households following conventional rate hikes but a more muted effect under forward guidance. These findings highlight the importance of accounting for the distributional consequences of different monetary policy tools and emphasize the critical role of fiscal policy in shaping inequality dynamics. |
| Keywords: | Household Heterogeneity, Forward Guidance, Inequality, Monetary Policy, Hand-to-Mouth, Fiscal Transfers |
| JEL: | D31 E21 E52 E58 E62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:996 |
| By: | Michael D. Bauer; Travis J. Berge; Giuseppe Fiori; Francesca Loria; Molin Zhong |
| Abstract: | This paper discusses the measurement, assessment, and communication of risks and uncertainty that are relevant for monetary policy. It provides a taxonomy of policy-relevant uncertainty related to the state and the structure of the economy, and the formation of expectations. A wide range of tools is available to assess and quantify uncertainty and the balance of risks. Qualitative assessments of uncertainty—in policy statements, minutes, and speeches—are the main tools to communicate uncertainty and the balance of risks across major central banks. However, the use of quantitative tools for such communications—including scenario analysis—is evolving, and so far no clear consensus has emerged for best practices. |
| Keywords: | Macroeconomic uncertainty; Monetary policy; Central bank communication |
| JEL: | E50 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-73 |
| By: | Domenech Palacios, Mar |
| Abstract: | This paper examines whether firm-specific cyclical and idiosyncratic risk profiles influence corporate bond spreads and the transmission of monetary policy. I extend the standard excess bond premium (EBP) framework of Gilchrist & Zakrajšek (2012) to allow investors’ required compensation for default risk to vary with firm-level risks. Incorporating these effects reveals that a significantly larger share of a monetary policy shock’s impact on credit spreads is driven by changes in default risk compensation (as opposed to the EBP). In particular, for firms with more cyclical risk, up to one-fourth of the additional spread widening following a contractionary monetary policy shock reflects higher expected default compensation, substantially more than implied by the traditional EBP. By contrast, firms with high idiosyncratic risk show no strong differential response to monetary policy shocks relative to other firms. JEL Classification: D22, E43, E44, E52, G12 |
| Keywords: | cyclicality, excess bond premium, monetary policy, risk, sentiment |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253118 |
| By: | Maksym Homeniuk (National Bank of Ukraine) |
| Abstract: | This paper estimates Ukraine's inflation attention threshold using a text-based proxy derived from the relative frequency of the word "inflation" in parliamentary speeches. During a relatively stable macroeconomic period between 2017 and 2022, the estimated threshold is approximately 9-10%. This finding aligns with results obtained using Google Trends data, where attention increased just prior to inflation reaching double-digit levels. Crucially, the parliamentary proxy also facilitates estimation for another stable period preceding the global financial crisis (2002-2007). The remarkably similar threshold estimates across both stable periods suggest that attention dynamics in Ukraine exhibit structural consistency under non-crisis conditions. These findings underscore the value of parliamentary speech analysis as a robust tool for tracking inflation salience in contexts with limited data availability. |
| Keywords: | inflation, attention, parliamentary speeches, threshold regression, monetary policy |
| JEL: | C82 D83 E31 E52 E71 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ukb:wpaper:03/2025 |
| By: | Brent Bundick; Isabel Cairó; Nicolas Petrosky-Nadeau |
| Abstract: | This paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound. Second, since monetary policy leans against these inflationary pressures, a shortfalls rule implies a limited effect on average outcomes in the labor market. Finally, studies suggest that monetary policy can offset higher-than-desired average inflation under a shortfalls rule by leaning more strongly against deviations of inflation from the 2 percent objective, thereby keeping longer-term inflation expectations well anchored. |
| Keywords: | Asymmetric monetary policy strategies; Maximum employment; Effective lower bound |
| JEL: | E32 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-68 |
| By: | Vasilki Dimakopoulou; George Economides; Apostolis Philippopoulos |
| Abstract: | This paper investigates whether the new expenditure rule of the European Union (EU) can restore dynamic stability and determinacy with bounded public debt in an otherwise unstable economic environment. We build upon the standard New Keynesian dynamic general equilibrium model so as to compare our results to the well-known results of Leeper (1991, 2016) and, more generally, to the literature on the fiscal-monetary policy mix. We find that the EU's new fiscal rule, despite its intentions, works practically like active fiscal policy. Given this, it does not leave room for active monetary (interest rate) policy; instead, the central bank has to accommodate the active fiscal policy which means that the policy interest rate can react only weakly to inflation. This will undermine the ECB's key mandate. |
| Keywords: | fiscal rules, macroeconomic policy assignment |
| JEL: | E62 E63 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12139 |
| By: | Ekaterina V. Peneva; Jeremy B. Rudd; Daniel Villar Vallenas |
| Abstract: | This paper examines the Board staff's inflation forecast misses over the years following the COVID-19 outbreak, focusing on a timeline of what staff members knew when and lessons learned along the way. The staff significantly underestimated both the size and persistence of the inflationary surge that followed the reopening of the U.S. economy. As a result, staff members made various changes to their forecasting procedures, including using new types of data to inform their assessment of supply-demand imbalances in product and labor markets and to guide their judgmental forecast. Throughout, an important difficulty was the lack of similar historical episodes upon which to base a quantitative analysis. Over time, the innovations helped improve the staff's ability to understand and forecast inflation during this period. However, considerable uncertainty remains about the quantitative contributions of the various drivers of the pandemic-period inflation as well as the applicability of the lessons from this episode for forecasting. |
| Keywords: | Inflation forecasting; Inflation dynamics; Phillips curve; covid-19 pandemic |
| JEL: | E31 E37 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-69 |
| By: | Christophe Blot; Paul Hubert; Fabien Labondance |
| Abstract: | We investigate whether dissent in monetary policy committees affects asset prices. We exploit a feature of the ECB communication for identification: the revelation of dissent during press conferences is separated from policy decision announcements. Following a narrative approach, we compute a novel granular index of ECB dissent for each instrument and identify the dissent direction. Using tick data, we isolate asset price changes exactly when dissent is revealed. Dissent has a strong negative effect on stock prices, that operates specifically around status quo decisions. Dissent is a key driver of stock prices on these days, explaining one-third of their variation. |
| Keywords: | Asset Prices, Disagreement, Monetary Policy Committee, Bad News, European Central Bank |
| JEL: | G14 E43 E52 D70 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1001 |
| By: | Rochelle M. Edge; Dan Li |
| Abstract: | This paper proposes an approach to enhance the Federal Reserve's readiness to undertake market-functioning asset purchases during Treasury market disruptions. It notes that by tilting the SOMA Treasury portfolio toward bills rather than maintaining a maturity structure proportionate to that of outstanding Treasury debt—often viewed as the most neutral portfolio—the Fed can create a larger volume of reinvestments each month that can serve as a “war chest” for undertaking market-functioning asset purchases. This structure of the SOMA Treasury portfolio enables market-functioning asset purchases to be made without expanding the balance sheet or increasing reserves. This avoids the need for close monitoring of reserves when asset purchases are eventually unwound, while also allowing for a clearer differentiation between asset purchases undertaken to support market functioning and asset purchases undertaken to ease financial conditions. Under reasonable assumptions, bills portfolio shares r |
| Keywords: | Bills-tilted portfolio; Financial stability; Central bank balance sheet; Treasury market functioning; Soma portfolio composition; Market-functioning asset purchases |
| JEL: | E44 E52 E58 G01 G12 G18 H63 |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-77 |
| By: | Anna Florio; Daniele Siena; Riccardo Zago |
| Abstract: | This paper studies how participation and position in Global Value Chains (GVCs) affect the slope of the Phillips Curve (PC) and, consequently, the ability of monetary policy to control inflation. Using data from the European Monetary Union (EMU) and value added measures of GVCs, we show that, beyond the role of trade openness, higher participation leads to a flatter PC. This evidence is consistent with the theoretical literature emphasising how globalisation can reduce the sensitivity of prices to unemployment due to stronger strategic complementarities, to higher market power and to imperfect exchange rate pass through. On the other hand, the role of GVC position is not statistically significant. |
| Keywords: | Monetary Policy, Global Value Chains, Phillips Curve, Price Stickiness, Variable Markups |
| JEL: | E32 F41 F62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:970 |
| By: | Vaishali Garga; Edward P. Herbst; Alisdair McKay; Giovanni Nicolo; Matthias Paustian |
| Abstract: | We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary policy strategy. Alternative scenarios can illustrate salient risks and how monetary policy might respond if those risks were to materialize. However, using alternative scenarios in policy deliberations and communications requires important implementation choices. |
| Keywords: | Uncertainty; Risk management; Robust monetary policy strategies; Scenario analysis; Monetary policy communication |
| JEL: | E31 E32 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-74 |
| By: | Gary B. Gorton; Chase P. Ross; Sharon Y. Ross |
| Abstract: | Banks can use the discount window to fend off a run by prepositioning assets with the Fed and borrowing against them. Following the March 2023 bank runs, policymakers have considered mandatory prepositioning, arguably the largest update to the lenderof-last-resort toolkit in over a century. We study the forces that shape the largest banks’ prepositioning. We show that run-prone uninsured-deposit flows causally drive prepositioning and that banks face a prepositioning stigma, even absent borrowing. Prepositioning is no panacea—banks still need good assets to borrow against—but it can help at the margin. |
| JEL: | E02 G20 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34266 |
| By: | Chao Gu; Janet Hua Jiang; Liang Wang |
| Abstract: | We construct a New Monetarist model with labor market search and identify two channels that affect the long-term relationship between inflation and unemployment. First, inflation lowers wages through bargaining because unemployed workers rely more heavily on cash transactions and suffer more from inflation than employed workers: this wage-bargaining channel generates a downward Phillips curve without assuming nominal rigidity. Second, inflation increases the firm’s financing costs, which discourages job creation and increases unemployment; this cash-financing channel leads to an upward-sloping Phillips curve. We calibrate our model to the U.S. economy. The improvement in firm financing conditions can explain the observation that the slope of the long-run Phillips curve has switched from positive to negative post-2000. |
| Keywords: | Business fluctuations and cycles; Credit and credit aggregates; Inflation and prices; Labour markets |
| JEL: | E24 E31 E44 E51 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-26 |
| By: | Yosuke Fukunishi (Graduate School of Economics, The University of Tokyo); Haorong Qiu (Graduate School of Economics, The University of Tokyo); Akihiko Takahashi (Graduate School of Economics, The University of Tokyo); Fan Ye (Graduate School of Economics, The University of Tokyo) |
| Abstract: | This study introduces a novel generative modeling framework for simulating the term structure of interest rates. In recent years, generative models have achieved significant progress in image generation and are increasingly being applied to finance. To the best of our knowledge, this is the first study to apply a generative model—specifically, a diffusion model—to the term structure of interest rates. Furthermore, we extend the framework to incorporate conditional generation mechanisms and v-parameterization. The training dataset consists of spot yield curves constructed from daily overnight index swap (OIS) rates using cubic Hermite splines. As base conditioning variables, we use short-term interest rates and changes in consumer price indexes (CPIs). Empirical analysis covering the period from 2015 to 2025 demonstrates that our model successfully reproduces the level and shape of yield curves corresponding to historical macroeconomic conditions and short-term interest rate environments. Additionally, when incorporating further conditioning variables related to quantitative easing policies, monetary base, current account balances, and nominal gross domestic product (GDP), we find that the inclusion of quantitative easing indicator notably enhances the model’s output relative to the base conditioning case. This suggests improved robustness and representational capacity under expanded conditioning. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf604 |
| By: | Klodiana Istrefi; Florens Odendahl; Giulia Sestieri |
| Abstract: | We track how markets reacted to over 5, 000 communication events by Governing Council members. We find that communication between monetary policy meetings often moves markets as much as formal ECB decisions, and helps identify how monetary policy affects interest rate expectations, stock markets, inflation, and unemployment in the euro area. <p> Nous suivons la manière dont les marchés ont réagi à plus de 5 000 événements de communication des membres du Conseil des gouverneurs. Nous constatons que la communication entre les réunions de politique monétaire fait autant réagir les marchés que les décisions formelles de la BCE et contribue à identifier la manière dont la politique monétaire influe sur les anticipations de taux d’intérêt, les marchés d’actions, l’inflation et le chômage dans la zone euro. |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:411 |
| By: | John H. Cochrane |
| Abstract: | Inflation surged in 2021-2023 from a classic fiscal shock: money and debt that financed huge spending, without a plan for repayment. Neither money nor supply shocks offer a coherent alternative explanation. Inflation eased, with no recession, once the fiscal shock was over. Higher interest rates could have brought inflation down earlier, but could not have stopped it. Going forward, higher interest rates will raise debt service costs, and thus perversely raise inflation unless fiscal policy can tighten. High debt and structural deficits also mean that the US may lose the fiscal space to borrow in the next crisis. |
| JEL: | E4 E40 E50 H6 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34257 |
| By: | Győző Gyöngyösi; Judit Rariga; Emil Verner |
| Abstract: | We study how foreign currency debt exposure shapes household adjustment to a large exchange rate depreciation. Using household survey and bank customer data during Hungary's 2008 currency crisis, we find that foreign currency borrowers cut consumption one-for-one with increased debt service, consistent with a foreign currency Fisher channel. Both the quantity and quality of expenditures decline, indicating a "flight from quality." Debt revaluation has a limited effect on overall labor supply, but there is substitution toward foreign income and home production. Our findings point to the relevance of open-economy models with incomplete markets, heterogeneous foreign currency exposures, and liquidity constraints. |
| JEL: | D12 E20 E3 F3 F30 F31 F34 G01 G5 G51 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34234 |
| By: | Julius Mattern; Christoph Meyer |
| Abstract: | As modern economies increasingly adopt digital and instant payments, ensuring the resilience of payment systems and maintaining public trust have become more critical. This paper extends the network and clustering approach of Glowka et al. (2025) to identify critical participants in real-time gross settlement (RTGS) systems - those whose failure could disrupt system continuity. Our extension incorporates three key dimensions: payment type (interbank vs. customer), intrayear temporal frequency, and transaction view (value vs. volume). With these dimensions, we derive an extensive set of granular criticality scenarios and weight each scenario result by its economic activity to reflect its operational relevance. Applying this method to transaction data from SIC, Switzerland's RTGS system, we find that, beyond large international banks, mid-sized domestic banks and, occasionally, financial market infrastructures also play critical roles, especially during periods of heightened economic activity and night-time settlement hours. These criticality results are consistent, although some participants feature more prominently in the volume-based view. Our findings provide system operators and regulators with complementary tools to meet the Principles for Financial Market Infrastructures (PFMI), enabling context-specific assessment of criticality in RTGS systems and informing realistic stress test scenarios amid a rapidly evolving payment landscape. |
| Keywords: | Payment system, Systemic risk, Settlement, Central bank, Customer payments |
| JEL: | E42 D62 E44 E58 G21 J33 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-14 |
| By: | Albin Salmon; Vincent Fleuriet; Paul Vertier |
| Abstract: | This paper investigates the effects on children and adult height of currency crises experienced during childhood. It uses survey data from Demographic and Health Surveys (DHS) collected in 57 countries between 1986 and 2023 for hundreds of thousands of children and adults, combined with a monthly dataset indicating the start of currency crises between 1970 and 2017. It finds that children facing a currency crisis between their birth and the date of the survey tend to be shorter, by about - 0.1 standard deviation (SD). Reduced food affordability explains part of the results: estimated effects are larger in net food importing developing countries and smaller when controlling for inflation. Children growing up during a currency crisis are less likely to eat any solid food and to have a diversified diet on the day preceding the survey, mostly because of a reduced consumption of nutrient-rich non-starchy food. Early exposure to currency crises have persistent effects on adult height. Adults having faced a currency crisis between their birth and 10 years old are on average shorter than their peers, with a maximum effect of about -0.04 SD for crises experienced between 5-6 years old. They are also less likely to have completed secondary or higher education. Our results are unlikely to be influenced by differential selection in parenting across households’ wealth levels, and are robust to a large number of alternative specifications and sample restrictions. |
| Keywords: | Currency Crises, Malnutrition, Human Development |
| JEL: | F31 I14 J13 O15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1003 |
| By: | Angelini, Elena; Bokan, Nikola; Ciccarelli, Matteo; Lalik, Magdalena; Zimic, Srečko |
| Abstract: | This paper introduces the European Central Bank’s Multi Country model (ECB-MC), a coherent macroeconomic framework designed to support economic forecasting and policy analysis within the Eurosystem. The ECB-MC captures the economic dynamics of the five major economies in the euro area – Germany, France, Italy, Spain, and the Netherlands – which account for more than 80 percent of the euro area total GDP. By incorporating detailed structural features and data-driven insights, the model provides the main reference for the ECB’s staff macroeconomic projections, acting as a disciplined tool for forecasting, enabling scenario, risk and sensitivity analyses, and giving a framework to understand the transmission channels of various economic shocks. The paper offers a detailed account of the structure, the estimation and the model properties, and provides a primer on the potential uses of the ECB-MC in the Eurosystem macroeconomic projections. JEL Classification: C3, C5, E5, E6 |
| Keywords: | euro area countries, forecasting, monetary policy, semi-structural model |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253119 |
| By: | Carol Bertaut; Ester Faia; Ṣebnem Kalemli-Özcan; Camilo Marchesini; Simon Paetzold; Martin Schmitz |
| Abstract: | We use administrative security-level data from the U.S. and Euro Area (EA) portfolios to estimate asset demand and supply elasticities by exploiting exogenous variation in bond-specific currency wedges. Employing a Bartik-style shift-share identification approach, we document extensive heterogeneity in investor demand responsiveness to exogenous changes in the price of currency risk, conditional on the issuer characteristics. Demand for AE-bonds is always inelastic, whereas for EM-bonds, elasticity depends on investor type and currency: insurance/pension, nonbanks and banks have finite-elastic demand for EM-bonds that are issued in their own (investor) currency. For EM-issuer-currency bonds, only EA non-bank investors increase the share of these bonds in their portfolio when currency wedges widen, suggesting they accept higher currency risk for higher returns. In response, issuers adjust their supply endogenously: an exogenous increase of 8 basis point in currency wedges leads to a 0.26% decline in local currency bond issuance relative to GDP. We develop a theoretical framework where debt issuance decisions take into account heterogenous demand of investors in terms of their response to changes in the price of currency risk. |
| JEL: | F30 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34275 |
| By: | Marco Pinchetti |
| Abstract: | Geopolitical shocks are not all alike -- different classes of geopolitical shocks can have different macroeconomic implications, particularly on inflation. This paper exploits the comovement between the Geopolitical Risk Index (GPR) developed by Caldara and Iacoviello (2022) and oil prices across major geopolitical events to disentangle two types of geopolitical shocks within a structural VAR model for the US economy. The VAR estimates suggest that geopolitical shocks associated with disruptions in energy markets are on average inflationary and contractionary. In contrast, geopolitical shocks associated with macroeconomic developments that are unrelated to energy markets are on average deflationary and contractionary. To validate this interpretation, the paper exploits the heterogeneity across sectoral output and prices of the US economy to show that a sector’s response to a geopolitical shock depends on its energy intensity. Sectors characterized by higher energy intensity are subject to larger output losses and price increases in response to geopolitical energy shocks. |
| Keywords: | Geopolitical Risk, Business Cycles, Energy, High-Frequency Sign Restrictions, High-Frequency Identification. |
| JEL: | E31 E32 Q41 Q43 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1005 |
| By: | Alberto Maria Mongardini; Alessandro Mei |
| Abstract: | From viral jokes to a billion-dollar phenomenon, meme coins have become one of the most popular segments in cryptocurrency markets. Unlike utility-focused crypto assets like Bitcoin or Ethereum, meme coins derive value primarily from community sentiment, making them vulnerable to manipulation. This study presents a cross-chain analysis of the meme coin ecosystem, examining 34, 988 tokens across Ethereum, BNB Smart Chain, Solana, and Base. We characterize the tokenomics of meme coins and track their growth in a three-month longitudinal analysis. We discover that among high-return tokens (>100%), an alarming 82.6% show evidence of extensive use of artificial growth strategies designed to create a misleading appearance of market interest. These include wash trading and a form of manipulation we define as Liquidity Pool-Based Price Inflation (LPI), where small strategic purchases trigger dramatic price increases. We also find evidence of schemes designed to profit at the expense of investors, such as pump and dumps and rug pulls. In particular, most of the tokens involved had previously experienced wash trading or LPI, indicating how initial manipulations often set the stage for later exploitation. These findings reveal that manipulations are widespread among high-performing meme coins and suggest that their dramatic gains are often likely driven by coordinated efforts rather than natural market dynamics. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.01963 |
| By: | Kaebi, Mohammed Mehdi (Insper - Instituto de Ensino e Pesquisa); Ferreira Batista Martins, Igor (Örebro University School of Business) |
| Abstract: | This paper examines the role of long-run and cyclical components of interest rate differentials in explaining the returns to currency carry strategies. We show that long-run differentials account for most of the profitability, while cyclical differentials play only a limited role. A simple strategy that goes long currencies above the median long-run differential and shorts those below delivers a statistically and economically significant annualized excess return of 2.48%. Relative to traditional carry, our strategy achieves a higher Sharpe ratio, lower turnover and a less negative skewness. We introduce a new tradable carry factor that explains the cross section of currency returns beyond the benchmark carry factor. |
| Keywords: | Carry trade; currencies; long-run interest rates; trend-cycle decomposition. |
| JEL: | F31 G12 G15 |
| Date: | 2025–09–26 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:oruesi:2025_010 |
| By: | Wagner, Julia; de Brauw, Alan; Bloem, Jeffrey R.; Ambler, Kate |
| Abstract: | Agriculture remains the backbone of rural economies across much of both Sub-Saharan Africa and South and Southeast Asia, employing 54 and 43 percent of the workforce, respectively, and providing livelihoods for most of the rural poor (GSMA, 2020; Nair and Varghese, 2020). Yet, financial transactions in agri-food value chains continue to rely overwhelmingly on cash. The 2021 Global Findex survey finds that most adults in low- and middle-income countries who were paid for agricultural products received their payment in cash. On average, one in four recipients, and fewer than one in six in Sub-Saharan Africa, received agricultural payments into an account (Nair and Varghese, 2020; Demirgüç-Kunt et al., 2022). This reliance on cash introduces a range of inefficiencies and risks, including high transaction costs, security vulnerabilities, lack of transparency, and exclusion from formal financial services (BTCA, 2023a). Digitalizing agricultural payments offers a promising solution to these challenges. Digital financial ser vices (DFS) for the agriculture sector, including mobile money, e-wallets, digital banking, digital credit, savings products, insurance, and e-commerce solutions tailored to agricultural value chains, can facilitate safer, faster, and more transparent transactions while simultaneously connecting farmers and intermediary actors to broader financial ecosystems (GSMA, 2020). By digitalizing payments, farmers can build verifiable financial histories that enable access to formal credit and insurance markets, manage income more effectively, and reduce the risks associated with cash handling. For agribusinesses, digital payments offer substantial operational efficiencies: they lower cash handling costs, improve procurement transparency, support traceability initiatives crucial for compliance with international sustainability standards, and enhance supplier loyalty through faster and more reliable payment processes (Beaman et al., 2014; Nair and Varghese, 2020; BTCA, 2023a). |
| Keywords: | agriculture; value chains; digital technology; rural economics; finance |
| Date: | 2025–07–14 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:ifprwp:175632 |
| By: | Olivier Coibion; Erwan Gautier; Maxime Ponsart; Frédérique Savignac |
| Abstract: | Every quarter, the Banque de France collects inflation expectations from 1, 700 business leaders. They correctly anticipated the magnitude of the 2022–23 inflationary wave. Their expectations reacted in a more temporary and moderate way. With their expectations returning to 2% since 2024 and a strong consensus surrounding this scenario, companies remain confident that prices will remain stable over the long term. <p> Chaque trimestre, la Banque de France collecte les anticipations d’inflation auprès de 1 700 chefs d’entreprise. Ceux-ci ont correctement perçu l’ampleur de la vague inflationniste de 2022-2023. La réaction de leurs anticipations a été plus transitoire et modérée. Le retour à 2 % de leurs anticipations depuis 2024 et le fort consensus autour de ce scénario confirment la confiance des entreprises dans une stabilité durable des prix. |
| Date: | 2025–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:407 |