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on Monetary Economics |
| By: | Magin, Jana; Neyer, Ulrike; Stevens, Alexandra |
| JEL: | E41 E42 C92 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325448 |
| By: | Bui, Dzung; Hayo, Bernd |
| JEL: | C83 D83 D84 E31 E37 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325379 |
| By: | Klose, Jens; Barry, Mamdou-Lamine; Bruns, Brenton Joey; Kandemir, Sinem; Smirnov, Victor; Tillmann, Peter |
| JEL: | E58 E52 E44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325365 |
| By: | Neyer, Ulrike; Stempel, Daniel; Stevens, Alexandra |
| Abstract: | Households differ in their consumption baskets and inflation rates along the wealth and income distribution. We use German data to show that subsistence consumption is a main driver of these differences: the share of subsistence consumption in overall consumption is significantly higher for households at the lower end of the wealth and income distribution. We construct a price index for subsistence consumption and show that this price index exhibits larger volatility than the price indices constructed for the average consumption basket and the basket of households with average and high income. We then set up a Heterogeneous Agent New Keynesian (HANK) model that incorporates these facts to analyze the consequences of different consumption baskets and inflation heterogeneity for monetary policy transmission. We find that heterogeneous consumption baskets across households weaken monetary policy transmission. This is due to the heterogeneous responses of inflation rates to monetary policy shocks across households, larger labor supply heterogeneity, and a novel indirect transmission channel of monetary policy operating through the real value of subsistence consumption. |
| Keywords: | HANK model, inflation heterogeneity, inequality, monetary policy transmission, subsistence consumption |
| JEL: | E12 E21 E31 E32 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:dicedp:327105 |
| By: | Hahn, Volker; Marenčák, Michal |
| JEL: | D01 E70 E52 E50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325361 |
| By: | Semik, Sofia |
| JEL: | E52 H23 Q43 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325397 |
| By: | Engin Kara |
| Abstract: | How firms respond to uncertainty determines economic policy effectiveness. Using Brexit as a natural experiment, I document that flexible price-setters—those most responsive to monetary policy—paradoxically reduce adjustment more than sticky firms under uncertainty. This ‘curse of flexibility’ reverses menu cost models’ foundational prediction that flexibility amplifies responses. Under uncertainty, resetting prices exposes firms to symmetric shocks, while maintaining current prices provides partial insulation. Flexible-price firms can afford to exploit this differential exposure by waiting; sticky-price firms cannot. This creates a policy challenge: uncertainty weakens monetary transmission when needed most, as flexible firms—the most responsive channel—become more cautious during crises. |
| Keywords: | menu costs, price stickiness, uncertainty, state-dependent pricing, heterogeneous firms, monetary policy transmission |
| JEL: | E31 D83 E52 D21 L11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12166 |
| By: | Gareis, Johannes; Minasian, Ryan |
| Abstract: | In this paper, we examine how different household consumption items respond to monetary policy shocks in the euro area. Specifically, we classify household consumption along two key dimensions: durability and essentiality. Our findings reveal pronounced heterogeneity in responses across these dimensions. First, durable items are highly sensitive to monetary policy shocks, whereas non-durable items exhibit weaker responses. Second, non-essential items react more strongly than essential items. Finally, we demonstrate that durability and essentiality each independently shape the sensitivity of household consumption to monetary policy shocks, with durable non-essential items being most strongly affected. JEL Classification: E21, E52, E44, E32, C23 |
| Keywords: | durability, essentiality, household consumption, monetary policy shocks, monetary policy transmission |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253127 |
| By: | Jaemin Jeong; Eunseong Ma; Choongryul Yang |
| Abstract: | When do households listen to the Fed? We show the answer lies in a simple but powerful force: household attention to macroeconomic conditions. We develop a model where attention acts as a crucial gatekeeper for the pass-through of policy news to beliefs, and confirm its predictions using household survey data. We find that belief revisions to monetary policy surprises are concentrated among attentive individuals—particularly those with high financial stakes—and this effect strengthens dramatically during uncertain times. This implies the expectations channel is most potent when it matters most, suggesting policymakers should account for the time-varying and heterogeneous nature of public attention. |
| Keywords: | Inflation expectations; Monetary policy; Rational inattention; Behavioral macroeconomics |
| JEL: | D83 D84 E31 E52 |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-84 |
| By: | Andros Kourtellos; Christos Antonios Statheas; Marios Zachariadis |
| Abstract: | Quite a lot. We use a very large dataset of inflation expectations formed by households across the euro-area over the period 2004:1-2023:11 to assess the degree of existing heterogeneity, and whether features of the households’ cross-sectional distribution in these economies are informative for inflation realizations. We summarize the heterogeneity across households using a recent functional data approach, and show that the functional components affect inflation realizations across the euro-area. This points to a role for the distribution of inflation expectations in the Phillips Curve relation, beyond the role of consensus expectations implied by models which do not allow for such heterogeneity. Moreover, we find that the inflationary impact of the functional components differs across high-inflation and low-inflation environments. Importantly, empirical models that account for the distribution of past expectations of current inflation in addition to the distribution of current expectations of future inflation, do better during the period under study as compared to models that include only the forward-looking component, especially during turbulent times. This suggests that rational inattention models with heterogeneity would be a good starting point for building macroeconomic models which can give an empirically relevant Phillips Curve relation. |
| Keywords: | inflation, inflation expectations, heterogeneity, functional regression. |
| JEL: | E31 D84 |
| Date: | 2025–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:ucy:cypeua:02-2025 |
| By: | Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail: athanasios.orphanides@mit.edu)) |
| Abstract: | The post-pandemic inflation surge underscores that monetary policy continues to be hampered by two long-standing challenges: the pretence of knowledge and the proclivity for discretion. Focusing on the Federal Reserve, this paper demonstrates how simple policy rules, designed to be robust under imperfect knowledge, can mitigate these challenges. The Fed's post-pandemic policy error-maintaining excessive accommodation as inflation pressures mounted-could have been avoided with guidance from a simple natural growth targeting rule that had been included in the Fed's Bluebook/Tealbook starting in 2004, but was not disclosed to the public in real time. Formal adoption and disclosure of such a rule can help discipline discretion and improve both the conduct and communication of monetary policy. |
| Keywords: | Policy discretion, Simple rules, Natural growth targeting, Inflation surge |
| JEL: | E52 E58 E61 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:25-e-09 |
| By: | Eduardo Amaral; Rafael Guerra; Ilhyock Shim; Alexandre Tombini |
| Abstract: | Global factors shaped financial conditions in Latin America in 2025, with exchange rate appreciations against the US dollar loosening conditions in most countries. Short-run monetary policy transmission in the region operates through financial conditions. In general, monetary easing leads to looser financial conditions and faster short-term output growth. Measurement of overall financial conditions depends on the methodologies and assumptions used to construct financial conditions indices (FCIs). Understanding these differences helps central banks to use FCIs as an input to monetary policy. |
| Date: | 2025–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:113 |
| By: | Den Haan, Wouter J.; Ferrari, Alessandro; Mazelis, Falk; Ristiniemi, Annukka |
| Abstract: | We develop a model in which agents face unemployment risk, but also age and eventually retire. We study the impact of different retirement schemes on life-cycle consumption and the monetary transmission mechanism. Agents save because of a fall in income upon retirement, changes along the life-cycle wage profile, and unemployment risk. Changes in retirement policies affect the distribution of available assets (bonds) among the middle aged and the young, which in turn can have a strong impact on the ability of the young to insure themselves against unemployment risk. Interestingly, it is possible that an increase in retirement benefits leads to higher consumption levels during sustained unemployment spells even though the associated increase in taxes reduces unemployment benefits. The reason is that this policy induces the middle aged to save less which leaves more of the available asset supply to the young. A reduction in the interest rate has a bigger impact on those for whom labor market conditions improve the most and – due to a larger negative income effect – has a smaller impact on those who save more. In terms of the aggregate impact of monetary-policy shocks, our paper confirms conventional wisdom that the expansion is magnified in the presence of incomplete markets, since it is then accompanied by a fall in precautionary savings. The novel aspect of our analysis is that the extent of the incompleteness, i.e., the ability of those subject to unemployment risk to insure themselves, is endogenous. Specifically, it is reduced as the young (middle-aged) hold a larger (smaller) fraction of the available asset supply and this distribution is not only affected by retirement policies, but also by government bond supply and the life-cycle wage profile. Thus, understanding the distribution of assets across different age cohorts is not only important for understanding life-cycle consumption patterns, but also business cycles. JEL Classification: E43, E52, E21, E24 |
| Keywords: | aging, monetary-policy shocks, New-Keynesian model, precautionary savings, unemployment risk |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253125 |
| By: | Tereza Vesela (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation); Jaromir Baxa (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation) |
| Abstract: | To estimate the impact of disagreement about expected inflation on the transmission of monetary policy in the Czech Republic, this article makes three novel contributions to the literature. First, we reconstruct a series of inflation expectations and calculate their disagreement from qualitative expectations of future price developments back to 2001. We document the limited anchoring of expectations despite consistently low inflation close to or below the inflation target. Second, we infer monetary policy shocks from high-frequency financial data, bringing a novel perspective on the policy of the Czech National Bank. Third, using smooth-transition local projections, we find that when disagreement about future inflation is high, the transmission of unanticipated monetary policy surprises is weakened: inflation and inflation expectations display muted or even counterintuitive (positive) responses to policy tightening. This suggests that in such environments, policy surprises are interpreted less as changes in the stance of policy and more as signals about underlying economic conditions, consistent with the signalling effect of monetary policy highlighted in recent literature. Our findings suggest that unanticipated monetary policy is more effective when disagreement is low, implying that clear communication strategies and, where needed, stronger policy reactions to inflation can play a role in improving transmission. Our results have profound implications for the formulation and implementation of monetary policy in small open economies where central banks in practice consider interest rate differentials vis-Ã -vis main central banks in their policy decisions. |
| Keywords: | Inflation Expectations; Monetary Policy Transmission; Disagreement; High-Frequency Identification; Regime-Switching Models; Local Projections |
| JEL: | E31 E52 E58 C32 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_19 |
| By: | Toth, Mark |
| JEL: | E32 E52 R12 R21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325390 |
| By: | Giuzio, Margherita; Kapadia, Sujit; Kaufmann, Christoph; Storz, Manuela; Weistroffer, Christian |
| Abstract: | This paper examines the interplay between macroprudential policy, monetary policy and the non-bank financial intermediation (NBFI) sector, drawing on recent research and zooming in particularly on evidence from the euro area2. It documents the growth in the NBFI sector over the past two decades and its particular role in financing the real economy, assesses systemic risks that can emanate from the sector, considers how it interacts with monetary policy, and discusses the implications for macroprudential regulation. Firms are increasingly turning to capital markets for debt financing, with the NBFI sector thereby increasing its provision of credit to the real economy relative to banks. At the same time, the growth of market-based finance has been accompanied by increased liquidity and credit risk in the NBFI sector, together with pockets of high leverage. Monetary policy has also intersected with these dynamics. Recent episodes have shown that vulnerabilities in the NBFI sector can amplify market dynamics and create systemic risk in a highly interconnected financial system. Against this backdrop, the resilience of the NBFI sector should be strengthened, including from a macroprudential perspective, to support financial stability and the smooth transmission of monetary policy. Several open issues and challenges remain for future research and policy making. JEL Classification: G01, G23, G28 |
| Keywords: | financial regulation, financial stability, insurance corporations, investment funds, monetary policy, non-bank financial intermediation |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253130 |
| By: | Agustin S. Benetrix (Department of Economics, Trinity College Dublin); Beren Demirolmez (European Stability Mechanism) |
| Abstract: | We study currency dominance in global portfolio debt, focusing on the US dollar and the euro. Our key contribution is the Dominance Ratio (DR), a new indicator that refines the measurement of currency internationalisation by excluding debt held by the regions issuing those currencies (the US for dollars, the Euro Area for euros). Using the DR, we find that the internationalisation of the dollar and euro evolves slowly and remains unaffected by short-term uncertainty shocks. However, these shocks affect the geographical distribution of dollar and euro debt. Trade policy uncertainty reduces euro concentration, increasing relative dollar concentration, whilst geopolitical risk shocks diminish both absolute and relative dollar concentrations, particularly when adjusted for currency scale using the DR. |
| Keywords: | currency dominance, dollar, euro, portfolio debt, uncertainty shocks |
| JEL: | E4 F21 F34 F41 F51 G1 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1025 |
| By: | Lea Best; Benjamin Born; Manuel Menkhoff |
| Abstract: | The sensitivity of firms’ investment to interest rates is central to the transmission of monetary policy, yet direct firm-level evidence is scarce. We provide such evidence using the ifo Business Survey of German firms, combining hypothetical vignettes, open-ended questions, and rich firm-level information. The vignette design implies a semi-elasticity of investment to loan rates of 7 percent—a partial-equilibrium effect roughly half the total corporate investment response to monetary policy shocks. Adjustment is heterogeneous: many firms do not adjust, often citing cash buffers or a lack of profitable opportunities, while adjusters revise plans sharply. Responsiveness is dampened by sticky hurdle rates but amplified by financial constraints, labor shortages, and capital durability. Managers’ narratives about monetary policy transmission to investment emphasize the direct interest rate channel, rarely mentioning general-equilibrium channels, and many do not consider monetary policy changes. Local projections show the direct interest rate channel plays a first-order role in output dynamics after monetary policy shocks. |
| Keywords: | interest rates, firm investment, survey experiment, monetary policy, narratives, hurdle rates, aggregate investment |
| JEL: | D25 E43 E52 G31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12167 |
| By: | Mosler, Martin; Schaltegger, Christoph; Mair, Lukas; Brandt, Przemyslaw |
| JEL: | E31 M41 N14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325423 |
| By: | Linda S. Goldberg; Samantha Hirschhorn |
| Abstract: | Global factors, like monetary policy rates from advanced economies and risk conditions, drive fluctuations in volumes of international capital flows and put pressure on exchange rates. The components of international capital flows that are described as global liquidity—consisting of cross-border bank lending and financing of issuance of international debt securities—have sensitivities to risk conditions that have evolved considerably over time. This risk sensitivity has been driven, in part, by the composition and business models of the financial institutions involved in funding. In this post, we ask whether these same features have led to changes in the pressures on currency values as risk conditions evolve. Using the Goldberg and Krogstrup (2023) Exchange Market Pressure (EMP) country indices, we show that the features of financial institutions in the source countries for international capital do influence how destination countries experience currency pressures when risk conditions change. Better shock-absorbing capacity in financial institutions moderates the pressures toward depreciation of currencies during adverse global risk events. |
| Keywords: | currency; depreciation; Foreign exchange market; risk; bank capital |
| JEL: | F3 |
| Date: | 2025–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101760 |
| By: | Masyayuki Okada (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: masayuki.okada@boj.or.jp)); Kazuhiro Teramoto (Graduate School of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, Japan. 186-8603. (Email: k.teramoto@r.hit-u.ac.jp)) |
| Abstract: | This paper proposes a novel mechanism explaining why large firms exhibit stronger stock price responses to monetary policy surprises. Empirically, we show that endogeneity arising from the ex-post predictability of these surprises disproportionately affects large firms, leading to overestimated stock return responses. We develop an asset pricing model with granular-origin aggregate fluctuations and investors' imperfect knowledge of monetary policy rule parameters. The model demonstrates that belief revisions about the policy stance drive both monetary policy surprises and heterogeneous stock price responses through changes in the risk premium - even without investor heterogeneity or differential effects of policy shocks on firm fundamentals. |
| Keywords: | monetary policy surprises, stock returns, high-frequency identification, partial information, learning, granular-origin aggregate fluctuations |
| JEL: | E43 E44 E52 E58 G12 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:25-e-06 |
| By: | Henrique S. Basso (BANCO DE ESPAÑA AND CEMFI); Omar Rachedi (ESADE, UNIVERSITAT RAMON LLULL) |
| Abstract: | Leveraging variation in robot adoption across U.S. metropolitan areas, we document that automation reduces the sensitivity of inflation to unemployment. To rationalize this finding, we build a New Keynesian model with search frictions in the labor market where robot adoption flattens the Phillips curve. The key channel is the option value of automation: the threat of automating labor tasks alters workers’ effective bargaining power, muting the wage sensitivity to unemployment. We validate the relevance of this channel in the data by showing that robot adoption reduces the sensitivity of inflation to unemployment relatively more in highly unionized metropolitan areas. |
| Keywords: | E24, E31, J31, O33 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2536 |
| By: | A. Hakan Kara; Alp Simsek |
| Abstract: | Türkiye's response to post-pandemic inflation is a cautionary tale of how political pressure for low interest rates can create macroeconomic instabilities. While central banks worldwide raised interest rates to combat inflation in 2021-2023, Turkish authorities pursued the opposite strategy: cutting real rates to deeply negative levels while implementing financial engineering tools, FX interventions, and financial repression to stabilize markets. The centerpiece was a novel FX-protected deposit scheme (KKM) that guaranteed depositors against currency depreciation, shifting exchange rate risk to the government balance sheet. We provide a detailed account of this policy experiment and develop a theoretical model focusing on how KKM functions and creates vulnerabilities. Our model reveals that pressure to keep interest rates below inflation-targeting levels can lead to an interconnected destabilizing sequence. Low rates generate inflation, current account deficits, and exchange rate depreciation. KKM provides partial stabilization by effectively raising rates for savers while maintaining low rates for borrowers. However, this creates growing contingent fiscal burdens and vulnerability to self-fulfilling currency and sovereign debt crises. This explains additional policies adopted including capital flow management, financial repression, and return to orthodox monetary policy. As central banks worldwide face renewed pressure to set lower policy rates, Türkiye's experience illustrates the consequences. |
| JEL: | E43 E52 E58 F31 F32 F41 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34287 |
| By: | YiLi Chien; Zhengyang Jiang; Matteo Leombroni; Hanno Lustig |
| Abstract: | We compute the cross-country transfers that result from unconventional monetary policy in the Eurozone. The ECB funds the expansion of its aggregate balance sheet mostly by issuing bank reserves and cash in core countries. The national central banks (NCBs) in periphery countries then borrow from the core NCBs at below-market rates to fund the asset purchases and bank lending. In addition, NCBs in the periphery lend more to their own banks at below market rates. To compute the cross-country transfers, we compare the resulting cross-country distribution of NCB income to a counterfactual scenario without the ECB and without non-marketable intra-Eurozone debt. We document significant and persistent transfers from the core to the periphery. |
| Keywords: | unconventional monetary policy; financial repression; monetary union; Target2 |
| JEL: | E42 E52 F33 G15 |
| Date: | 2025–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101808 |
| By: | Stracca, Livio |
| Abstract: | This study examines the drivers of inflation levels, inflation variability, and growth variability collectively representing long-term central bank performance across 37 advanced economies in the Great Moderation era. A key finding is that central bank performance is consistently linked to the overall quality of institutions, while central bank-specific factors such as independence, exchange rate regimes, or inflation targeting show no significant impact. The analysis is extended to the 2022 inflation resurgence, using pre-2022 country characteristics. The results indicate that reliance on imports from Russia (likely gas) and its interaction with post-COVID GDP growth are the primary determinants, suggesting that the inflation surge was not a reversal of the Great Moderation. JEL Classification: E31, E32, E52 |
| Keywords: | Great Moderation, inflation, institutions, monetary policy, Rule of Law |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253124 |
| By: | Dimitris Georgarakos; Geoff Kenny; Justus Meyer; Maarten van Rooij |
| Abstract: | Global temperatures are rising at an alarming pace and public awareness of climate change is increasing, yet little is known about how these developments affect consumer expectations. We address this gap by conducting a series of experiments within a large-scale, population-representative survey of euro area consumers. We randomly assign consumers to hypothetical global temperature change scenarios, after which we elicit their expectations for inflation and key macroeconomic indicators under these conditions. We find that a 0.5°C rise in global temperatures leads to a 0.65 percentage point increase in five-year-ahead inflation expectations, with effects particularly pronounced among consumers with greater awareness of climate change. Additionally, respondents expect adverse impacts of global warming on economic growth, employment, public debt, tax burdens, and their well-being. Despite these pessimistic expectations, many consumers demonstrate limited willingness to pay for mitigating further temperature increases. Instead, they place primary responsibility for climate action on governments. Our findings underscore the interplay between climate change and economic expectations, highlighting the potential implications for monetary and fiscal policy in a warming world. |
| Keywords: | Climate change; Global Warming; Consumer expectations; Randomized Control Trial (RCT); Consumer Expectations Survey (CES) |
| JEL: | D12 E31 E52 H31 Q54 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:843 |
| By: | Arvai, Kai; Coimbra, Nuno |
| JEL: | E42 F02 F33 N10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325376 |
| By: | Mark A. Carlson; Mary-Frances Styczynski |
| Abstract: | Depository institutions (DIs) periodically experience liquidity shocks, for instance due to unusually large customer payment needs or deposit withdrawals. In such cases, the DI may need to obtain funding on a short-term basis in order to bolster their liquidity position. One possible source of such funding is the Federal Reserve's discount window. |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-08-29-1 |
| By: | Nakov, Anton; Ghassibe, Mishel |
| Abstract: | Business cycles with pronounced inflation can have sectoral origins and often feature a growing share of price-adjusting firms. Rationalizing such phenomena requires enhancing our modeling toolkit. We do that by building a non-linear equilibrium multi-sector framework featuring a general input-output network and optimal decisions on the timing and size of price adjustments. The interaction of our ingredients creates equilibrium cascades: large movements in aggregates trigger price adjustment decisions on the extensive margin. Following demand shocks, such as monetary interventions, networks dampen cascades, thus slowing down price adjustment decisions and giving central banks substantial power to stimulate the real economy with limited inflationary consequences. In contrast, under supply shocks, networks amplify cascades, leading to fast increases in the frequency of repricing and large inflationary swings. Applied to Euro Area data, the interaction of networks with cascades allows to quantitatively match the surges in inflation and repricing frequency in the post-Covid era. JEL Classification: E31, E32 |
| Keywords: | large shocks, menu costs, networks, non-linear business cycles |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253123 |
| By: | Weiß, Maximilian; Kohler, Thomas; L'Huillier, Jean-Paul; Phelan, Gregory |
| JEL: | D82 E31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325458 |
| By: | Jake D. Orchard |
| Abstract: | This paper shows that adverse macroeconomic shocks systematically increase inflation for low-income households relative to high-income households. I document two key facts: (i) during every U.S. recession since 1959, aggregate spending shifts toward products disproportionately purchased by low-income households (necessities); and (ii) relative prices of necessities rise during recessions. These patterns can be explained by a model with non-homothetic demand and a concave production possibility frontier: shocks that reduce expenditure induce households to reallocate spending from luxuries to necessities, raising their relative prices. I empirically show that this mechanism operates for both demand and supply shocks, using monetary policy and oil price news shocks. Incorporating this mechanism into a quantitative model reproduces most of the variation in necessity prices and shares from 1961 to 2024. The model shows that the fall in expenditure due to a recessionary shock similar to the Great Recession leads inflation to increase by more than 1.5 percentage points for low-income households relative to high-income households. The results suggest that low-income households are hit twice by adverse shocks: once by the shock itself and again as their price index increases relative to that of other households. |
| Keywords: | Inflation; Non-homotheticity; Real income inequality; Business cycle |
| JEL: | E30 D12 |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-85 |
| By: | Colin Weiss |
| Abstract: | I examine how governments have managed their holdings of gold and dollar reserves in recent decades, a period when gold’s share of aggregate international reserves rose and the dollar’s share fell. Using data on central banks’ reserve currency composition and official sector purchases of U.S. assets, I argue that gold reserve accumulation is generally not associated with de-dollarization of international reserves at the country level, except in a few prominent cases. Instead, gold purchases are more consistent with most countries pursuing a modest diversification of international reserves that does not solely target a reduced dollar share. My evidence suggests that this characterization also applies to gold reserve accumulation in 2022 and 2023. Finally, I show that, while gold’s importance as a store of value for the official sector has grown since 2000, its use as a unit of account and a medium of exchange remains limited. |
| Keywords: | International Reserves; Gold; Dollar |
| JEL: | F30 F31 F33 |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1420 |
| By: | Manuel Gonzalez-Astudillo; Diego Vilán |
| Abstract: | A challenge for conducting monetary policy in a currency union is the diverse economic conditions among member states. Such disparities can drive natural interest rates apart, thereby undermining the stabilizing role of a unified monetary policy. To assess the stance of monetary policy across Eurozone-19 countries, we estimate their natural rates of interest (r∗) and inflation trends (π∗) to construct a measure of the country-level neutral nominal interest rates (r∗ + π∗) over 1999-2025, using a semistructural model that jointly characterizes the trend and cyclical components of key macroeconomic variables such as output, unemployment, inflation, 10-year government bond yields, and the common policy interest rate. Our setup improves upon those in the existing literature by allowing both a short-run interest rate gap—driven by the (shadow) policy rate—and a long-run interest rate gap—driven by the country-specific 10-year government bond yields—to affect and reflect economic conditions. We also impose cointegration between the dynamics of the country-specific latent variables and common counterparts to incorporate co-movements across the euro area economies. Our results show that the stance of monetary policy is homogeneous across the countries in our sample, but that a relatively highly degree of heterogeneity emerges at key historical turning points. |
| Keywords: | Common monetary policy challenges; Euro area economies; Interest rate gap; Neutral interest rate; Sovereign debt risk |
| JEL: | C32 E32 E42 E52 |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-87 |
| By: | David Bowman |
| Abstract: | The effective federal funds rate (EFFR) declined by about 10 basis points on every month end from 2016 to February 2018. Then, in March 2018, this pattern suddenly stopped (Figure 1). This Note discusses the dynamics behind the federal funds market, including its relationship with repo markets, to explain this change and to better understand the behavior of money markets during the period of the Federal Reserve’s quantitative tightening between October 2017 and September 2019. |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-09-19-4 |
| By: | Takuya Iinuma (Yokohama City University and Analyst, Sumitomo Mitsui Trust Asset Management Co., Ltd. (E-mail: m245161a@yokohama-cu.ac.jp)); Yoshiyuki Nakazono (Professor, Yokohama City University and Visiting Professor, Tohoku University (E-mail: nakazono@yokohama-cu.ac.jp)); Kento Tango (Visiting Lecturer, Yokohama City University (E-mail: m225162a@yokohama-cu.ac.jp)) |
| 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. |
| Keywords: | homophily, imperfect information, inattention, monetary policy, policy communication, political preferences, social identity |
| JEL: | D84 E31 E52 E58 E71 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:25-e-05 |
| By: | Dalgic, Husnu C. |
| JEL: | E44 F32 F41 G15 D84 E71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325452 |
| By: | Victor Le Coz (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay); Michael Benzaquen (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, CFM - Capital Fund Management); Damien Challet (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay, FiQuant - Chaire de finance quantitative - MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay) |
| Abstract: | We propose a minimal model of the secured interbank network able to shed light on recent money markets puzzles. We find that excess liquidity emerges due to the interactions between the reserves and liquidity ratio constraints; the appearance of evergreen repurchase agreements and collateral re-use emerges as a simple answer to banks' counterparty risk and liquidity ratio regulation. In line with prevailing theories, re-use increases with collateral scarcity. In our agent-based model, banks create money endogenously to meet the funding requests of economic agents. The latter generate payment shocks to the banking system by reallocating their deposits. Banks absorbs these shocks thanks to repurchase agreements, while respecting reserves, liquidity, and leverage constraints. The resulting network is denser and more robust to stress scenarios than an unsecured one; in addition, the stable bank trading relationships network exhibits a core-periphery structure. Finally, we show how this model can be used as a tool for stress testing and monetary policy design. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05273328 |
| By: | Frache, Serafin; Lluberas, Rodrigo; Pedemonte, Mathieu; Turén, Javier |
| Abstract: | Motivated by the dominant role of the US dollar, we explore how monetary policy (MP) shocks in the United States can affect a small open economy through the expectation channel. We combine data from a panel survey of firms' expectations in Uruguay with granular information about firms' debt position. We show that a contractionary MP shock in the United States reduces firms' inflation and cost expectations in Uruguay. This result contrasts with the effect of this shock on the Uruguayan economy. We study mechanisms related to how firms and managers experience in different monetary policy regimes can explain the results and discuss their implications. |
| Keywords: | Firms’ expectations;Global financial cycle;Monetary policy spillovers |
| JEL: | E31 E58 F41 D84 E71 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14286 |
| By: | Daniel A. Dias; Sophia Scott |
| Abstract: | This paper shows that U.S. commercial banks' funding betas rise predictably with the length, magnitude, and direction of each monetary policy cycle: longer cycles and those with larger changes in the policy rate yield stronger pass-through in both tightening and loosening cycles, with modest asymmetry favoring slightly greater transmission during loosening cycles. Nondeposit liabilities consistently adjust more than deposits. Crucially, at the aggregate banking-system level and across banks grouped by size, this cycle-dependent relationship has remained remarkably stable over three decades, highlighting the durability and predictability of interest-rate transmission to banks' funding costs. |
| Keywords: | Bank funding betas; Deposit vs. nondeposit funding costs; Monetary policy cycles; Interest-rate transmission |
| JEL: | C22 E44 G21 |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-83 |
| By: | Peter Bofinger |
| Abstract: | The paper discusses the functions and the potential of stablecoins as an innovative payment system: Stablecoins constitute a new payment object which can be used for a direct exchange on the infrastructures provided by blockchains and crypto exchanges. For the discussion of stablecoins It is important to distinguish between bond-based and bank-based stablecoins: While the former use bank deposits as collateral, the latter use short-term treasuries. Bond-based stablecoins have an attractive business model. They enable direct international.payments, i.e. without an intermediary, based on a safe transaction asset. Market dynamics reveal significant network effects: the system is characterized by the US dollar as the dominant currency denomination, a duopoly of two issuers, and a small number of blockchains. In the last few years, the dominant issuers have demonstrated resilience even during periods of economic shocks. The macroeconomic effects of bank-based stablecoins are limited, since they cannot create loans. However, bond-based stablecoins can create money by purchasing government bonds. While bank-based stablecoins create financial stability risks by interconnecting banks and stablecoin issuers, bond-based stablecoins do not present this risk. The Digital Euro is not an alternative to stablecoins: Its use is limited to the euro area, it is designed for retail payments and it only allows asset holdings for private households. |
| Keywords: | crypto currencies, blockchain, stablecoins. Digital Euro, cyrpto exchanges |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:imk:studie:100-2025 |
| By: | Daniel O. Beltran; Julio L. Ortiz |
| Abstract: | We explore differences in the dynamics of core inflation between Europe and North America using a Bayesian time series filter that decomposes the level of core inflation in the major advanced economies into regional, global, and country-specific components. We find a prominent role for both regional and global factors. Historically, the two regional components have at times diverged. Using reduced-form regressions, we examine the economic drivers behind the changes in our estimated global and regional components of U.S. core inflation, focusing on the post-pandemic inflation surge and subsequent pullback. The global component is associated with global supply frictions and past energy shocks. The North American regional component is associated with labor market tightness in the region. |
| Keywords: | Regional inflation; Dynamic Linear Model; Core inflation |
| JEL: | C11 C32 C53 E31 F00 |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1421 |
| By: | Chadha, J. S.; Corrado, G.; Corrado, L.; Buratta, I. D. L. |
| Abstract: | We investigate whether macroprudential policies support broader economic stability, particularly the welfare of households. For this purpose, we develop a New Keynesian business cycle model with agents subject to credit constraints and asset price fluctuations. The model differentiates between savers, who own firms and banks, and borrowers. The commercial bank sets the loan rate as a function of risk, specifically the value of housing collateral. We use occasionally binding constraints to capture nonlinearities arising from the zero lower bound (ZLB) on the policy interest rate and the borrowing constraint faced by borrower households. We examine two macroprudential tools: a countercyclical loan-to-value (LTV) ratio and a bank reserve requirement. We find that macroprudential tools significantly reduce the volatility of consumption and lending cycles and decrease both the expected frequency and severity of ZLB episodes. More generally, by attenuating the variance of the business cycle, particularly for borrower households, macroprudential tools reduce the need for monetary policy interventions. |
| JEL: | E32 E44 E51 E58 E62 |
| Date: | 2025–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2561 |
| By: | Nghiem, Giang; Marenčák, Michal |
| JEL: | C33 D84 E31 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325454 |
| By: | de Brauw, Alan; Gilligan, Daniel O.; Herskowitz, Sylvan; Roy, Shalini |
| Abstract: | Mobile money can be a vehicle for improving financial access, particularly among disadvantaged populations. For mobile money systems to play this role, though, members of disadvantaged groups must both enroll in and begin to use mobile money systems. In this paper, we describe a randomized trial conducted in collaboration with a bank in Somali region, Ethiopia, that attempted to stimulate use among recent mobile money enrollees in areas near refugee camps. We provide one group with a small transfer to their mobile money account and another group is told they will receive a small transfer if they first make three transactions of any type within a promotional period. The unconditional transfer induces a 9.3 percentage point increase in customers making at least one transaction, while the conditional transfer has no significant effect. The effect is larger among men, but there is evidence that it also induces use among women. |
| Keywords: | access to finance; refugees; gender; digital technology; currencies; finance; mobile phones; Ethiopia; Eastern Africa; Africa |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:ifprid:162765 |
| By: | Kumhof, Michael |
| JEL: | E44 E52 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc25:325358 |
| By: | Daniel O. Beltran; Julio L. Ortiz |
| Abstract: | The COVID-19 pandemic recovery created inflationary pressures globally. These effects, however, were felt differently across countries and regions. |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-09-19-3 |
| By: | Chang Ma; Alessandro Rebucci; Sili Zhou |
| Abstract: | Chinese private portfolio equity outflows, though small compared to other Chinese outflows, are growing rapidly because of capital account liberalization and capital flight. Using granular stock-holding data on Qualified Domestic Institutional Investor (QDII) mutual funds, we identify a nascent financial channel of international transmission of Chinese monetary policy to world stocks. Event study analysis around monetary policy announcement days reveals that monetary policy tightening depresses returns of country equity indexes and individual U.S. stocks with QDII fund exposure relative to non-exposed stocks. The results are robust to controlling for the real transmission channel of Chinese monetary policy and other confounders. The effect is driven by smaller and less liquid firms, but not by China-concept stocks or those highly exposed to China's macroeconomic shocks. We also find that the results are driven by household portfolio rebalancing from more to less risky assets following the announcement. |
| JEL: | F30 G10 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34291 |
| By: | Kagerer, Benedikt; Pancaro, Cosimo; Reghezza, Alessio; De Vito, Antonio |
| Abstract: | This paper investigates how unrealized losses on banks’ amortized cost securities affect monetary policy transmission to bank lending in the euro area. Leveraging the sharp increase in interest rates between 2022 and 2023 and using granular supervisory data on security holdings and loan-level credit register data, we show that a one percentage point increase in the share of unrealized losses on amortized cost securities amplifies the contractionary effect of monetary tightening on lending supply by approximately one percentage point. This effect is more pronounced for weakly capitalized and less liquid banks, and those relying more on uninsured deposits. We further document that banks respond to growing unrealized losses by raising capital and passing through interest rate increases to depositors via higher deposit betas. Importantly, banks that employ interest rate hedging strategies can fully offset the negative impact of unrealized losses on credit supply. The contraction in lending is particularly severe for smaller borrowing firms, highlighting the uneven economic consequences of hidden balance sheet fragilities during a tightening cycle. JEL Classification: E43, E52, G21, G32, M41 |
| Keywords: | amortized cost accounting, bank lending, monetary policy transmission, security holdings, unrealized losses |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253129 |