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on Monetary Economics |
| By: | Gregorio Impavido |
| Abstract: | This paper assesses the relative contribution of domestic and external factors to headline inflation in Kazakhstan. We confirm earlier results that inflation is primarily imported, and we provide novel details on the sources of imported inflation and its transmission channels. We find that domestic factors like fiscal policy and more recently utility tariff increases are the key determinants of domestic inflationary pressures. We provide new information on the likely determinants of inflation expectations through which domestic and external factors affect inflation. We find that monetary policy has only been partially successful at containing domestic and external pressures with insufficient liquidity sterilization, likely contributing to weakening of the interest rate transmission channel. Finally, we find that shocks are highly persistent and bringing back inflation to its target is likely to be a difficult and long process for the Central Bank. |
| Keywords: | Inflation determinants; domestic factors; external factors; monetary policy; fiscal policy; inflation expectationsl SUR |
| Date: | 2025–10–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/209 |
| By: | Ricardo Alonzo Fernandez Salguero |
| Abstract: | This paper offers a synthesis of the empirical literature on the effects of monetary policy. Using the findings from an extensive collection of meta-analyses, it evaluates the effectiveness of conventional and unconventional monetary policy instruments on key macroeconomic variables such as output, inflation, capital flows, and the exchange rate. The aggregated evidence reveals a systematic gap between the effects reported in primary studies and the actual magnitude of these effects, once corrected for publication bias and methodological heterogeneity. The findings suggest that, while monetary policy is a relevant tool, its power to modulate the business cycle has been consistently overestimated in the literature. Contextual factors - such as the degree of financial development, the exchange rate regime, central bank independence, and crisis conditions - that modulate the transmission of monetary policy are identified. In particular, it is found that publication bias systematically favors statistically significant results consistent with predominant theory, which artificially inflates the perception of effectiveness. By correcting these distortions, a picture of monetary policy emerges with more modest, uncertain effects and considerable lags, which has profound implications for macroeconomic theory and the practice of economic policy. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.19591 |
| By: | Nina Biljanovska; Eduardo Espuny Diaz; Amir Kermani; Rui Mano |
| Abstract: | This paper examines how housing market overvaluation—measured by the price-to-rent ratio and its deviations from long-term trends—affects the transmission of monetary policy. Using U.S. metropolitan-level data and three measures of monetary policy shocks, we find that house prices respond more strongly to policy rate changes in overvalued markets. Examining buyer heterogeneity, we show that investor demand, proxied by non-owner-occupied purchases, declines more sharply after monetary tightening in these markets. These results are consistent with models of extrapolative beliefs and suggest that monetary policy can serve a stabilizing role during housing booms. |
| Keywords: | Monetary Policy; Overvalued Housing Markets; House Price Expectations |
| Date: | 2025–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/207 |
| By: | Coenen, Günter; Mazelis, Falk; Motto, Roberto; Ristiniemi, Annukka; Smets, Frank; Warne, Anders; Wouters, Raf |
| Abstract: | This chapter of the Research Handbook of Inflation (2025) reviews the evolution and current relevance of medium-scale New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models, which serve as part of the core analytical framework in central banks and academic macroeconomics. The chapter assesses their capacity to analyse inflation dynamics, monetary transmission mechanisms, and policy interventions. Despite their exclusion of crisis-specific features, canonical models such as Smets and Wouters (2007) continue to explain inflation and output dynamics in the euro area and the US, owing in part to the differentiated effects of cost-push and demand shocks and the mitigating role of monetary policy. The chapter traces advancements in the European Central Bank’s New Area-Wide Model (NAWM), highlighting extensions that incorporate financial frictions, effective lower bounds, and energy price shocks. These enhancements have strengthened the model’s forecasting performance and interpretative power, especially during periods of unconventional monetary policy and energy-driven inflation. DSGE models are shown to be particularly effective for policy counterfactuals, enabling real-time assessments of policy decisions relative to model-based optimal policy. A robustness analysis under alternative scenarios demonstrates how policy rules can be evaluated through a welfare lens, informing the design of resilient monetary frameworks. Finally, the chapter identifies key modelling challenges exposed by recent inflation episodes and advocates for richer supply-side structures and nonlinear dynamics to improve the models’ capacity to capture complex macroeconomic developments. JEL Classification: E31, E32, E52, E58, C63 |
| Keywords: | effective lower bound, forecast evaluation, inflation dynamics, optimal policy, policy counterfactuals |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253137 |
| By: | Maximilian Boeck (Friedrich-Alexander-Universität Erlangen-Nürnberg); Christian Glocker (WIFO) |
| Abstract: | We examine how labor market institutions shape monetary policy transmission in euro area countries. A theoretical model suggests that higher union density flattens the Phillips curve, amplifying output responses while dampening the inflation effects of monetary shocks. This is empirically confirmed using an interacted panelVAR. In contrast, benefit replacement rates and employment protection legislation have a limited impact. Our findings point to a structural, not cyclical, driver of monetary policy effectiveness, highlighting the importance of labor market features. In a monetary union, such heterogeneity can lead to inefficient inflation and output differentials across member states. |
| Keywords: | Monetary policy, Labor market institutions, Euro area, Interacted panel VAR |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:wfo:wpaper:y:2025:i:713 |
| By: | William Ginn (Labcorp, Coburg University of Applied Sciences); Jamel Saadaoui (University Paris 8); Evangelos Salachas (University of the Aegean) |
| Abstract: | This paper examines how U.S. monetary policy shocks influence asset price bubbles under different inflation regimes. Using data from 1998–2023, we show that the transmission of policy is neither constant nor time-invariant. Standard local projection (LP) estimates suggest modest average effects, but including the COVID-19 period reveals that these relationships weaken. Employing time-varying local projections (TVP-LP), we document sharp shifts in transmission during the Global Financial Crisis and the pandemic, motivating a nonlinear approach. Nonlinear VAR-LP estimates uncover clear asymmetries: in high-inflation states, monetary tightening deflates bubbles by raising financing costs and constraining risk-taking; in low-inflation states, the same shocks amplify bubbles by raising expected inflation, narrowing credit spreads, and boosting equity returns. We interpret this inversion as evidence of a state-contingent speculative signaling channel, whereby tightening is perceived as a signal of stronger demand or implicit accommodation, encouraging further speculation. This mechanism highlights that safeguarding financial stability requires more than interest rate adjustments alone—it demands explicit attention to the inflationary environment and investor perceptions. |
| Keywords: | Financial stability, asset prices, booms and busts, local projections |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.17 |
| By: | Hilde C. Bjørnland; Jamie L. Cross; Jonas Hölz |
| Abstract: | This paper examines how central banks respond to supply-side shocks and investigates the trade-offs they face in stabilizing inflation and output. To do so we develop a dual external instrument proxy structural vector autoregressive (SVAR) model to disentangle the macroeconomic effects of oil supply news and monetary policy shocks. Our identification strategy, which combines multiple external instruments with sign restrictions, enables a sharp distinction between structural shocks, allowing us to analyze their dynamic effects and construct policy counterfactuals for different central bank objectives. We find that both oil supply and monetary policy shocks significantly influence U.S. output and inflation. Moreover, while monetary policy can mitigate some of the output losses caused by oil price shocks, it cannot fully offset their inflationary effects. Finally, we estimate that the Federal Reserve’s historical response aligns. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0139 |
| By: | Philippe Andrade; Michael Wicklein |
| Abstract: | How much of the most recent surge in inflation expectations, which began in March 2025, has been the result of the usual effect of abnormal price movements? How much is left unexplained and may signal a potential de-anchoring of inflation expectations? How do the most recent and the pandemic-era surges in expectations compare with the two surges in the Great Inflation episode of the 1970s? This brief addresses those questions using data on inflation expectations from the University of Michigan Survey of Consumers and a simple regression model in which households form their inflation expectations based on their perception of movements in food and gas prices as well as broad-based inflation. |
| Keywords: | inflation expectations; inflation; de-anchoring; 1970s inflation; household surveys |
| JEL: | D83 E31 |
| Date: | 2025–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbcq:101908 |
| By: | Taejin Park; Fernando Perez-Cruz; Hyun Song Shin |
| Abstract: | This paper explores the landscape of economic ideas as revealed in the machine learning embedding of a comprehensive dataset of central bank speeches. This dataset, maintained by the BIS, encompasses 19, 742 speeches delivered by almost 1, 000 officials from over 100 central banks over a period spanning three decades, from 1997 to 2025. As well as topic analysis of speeches at any moment in time, the evolution of the topics over time provides insights into how the focus of central bank thinking has been shaped by shifting policy challenges since 1997. Parsing the embedding both through topics and through time provides rich insights into how economic ideas have taken shape through communication practices of central banks worldwide. To demonstrate its utility, we have conducted a series of analyses that map the global landscape of monetary policy discourse. Furthermore, we construct a quantitative framework-referred to as the "space of central bankers' ideas"-which uncovers institutional patterns and highlights shifts in policy approaches over time. |
| Keywords: | central bank communication, central bank speeches, AI, topic modeling, embeddings |
| JEL: | E52 E58 C55 C38 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1299 |
| By: | Dimitris Korobilis |
| Abstract: | I introduce a high-dimensional Bayesian vector autoregressive (BVAR) framework designed to estimate the effects of conventional monetary policy shocks. The model captures structural shocks as latent factors, enabling computationally efficient estimation in high-dimensional settings through a straightforward Gibbs sampler. By incorporating time variation in the effects of monetary policy while maintaining tractability, the methodology offers a flexible and scalable approach to empirical macroeconomic analysis using BVARs, well-suited to handle data irregularities observed in recent times. Applied to the U.S. economy, I identify monetary shocks using a combination of high-frequency surprises and sign restrictions, yielding results that are robust across a wide range of specification choices. The findings indicate that the Federal Reserve’s influence on disaggregated consumer prices fluctuated significantly during the 2022–24 high-inflation period, shedding new light on the evolving dynamics of monetary policy transmission. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0140 |
| By: | Michael D. Bordo; Oliver Bush; Ryland Thomas |
| Abstract: | This narrative paper provides a detailed account of the Great Inflation in the United Kingdom from 1961 to 1997, serving as a companion to the analytical account of fiscal policy presented in Bordo, Bush, and Thomas (2025). We discuss the background fundamentals in place at the outset of the Great Inflation and document the distinct phases of inflation, the unique features of the UK’s experience relative to other advanced economies, and the interplay between fiscal, monetary, and incomes policies. By placing the UK’s inflationary episodes within their institutional and historical context, this paper offers a qualitative perspective that complements the quantitative analysis of the main paper and informs ongoing debates about the causes and consequences of persistent inflation. |
| JEL: | N10 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34363 |
| By: | Lucía Cuadro-Sáez (BANCO DE ESPAÑA); Corinna Ghirelli (BANCO DE ESPAÑA); Maximiliano Moreno-López (BANCO DE ESPAÑA AND PARIS SCHOOL OF ECONOMICS); Javier J. Pérez (BANCO DE ESPAÑA) |
| Abstract: | This paper presents a comprehensive framework developed by the Banco de España to monitor and forecast food price dynamics in the euro area, particularly in response to the sharp increase in food inflation observed between 2022 and 2024. The study introduces a suite of models tailored to different aspects of the food value chain, integrating data from consumer and producer prices, farm-gate prices and international commodity and futures markets. Key tools include a Food Value Chain Model (VARx) to estimate the pass-through of commodity and fuel price shocks to consumer prices, an Asymmetric Price Transmission Model to capture non-linear effects and a Conditional Forecasting framework using different modelling approaches and futures data to simulate inflation scenarios. Additionally, a Vector Error Correction Model (VECM) assesses the long-term relationship between food and non-food prices. These tools aim to enhance central bank decision-making and food security analysis by providing timely, scenario-based insights into food inflation trends. |
| Keywords: | food prices, food inflation, inflation, euro area, monitoring, forecasting, central bank |
| JEL: | E31 C53 Q11 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2521e |
| By: | Stein Berre; Asani Sarkar |
| Abstract: | The term “exorbitant privilege” emerged in the 1960s to describe the advantages derived by the U.S. economy from the dollar’s status as the de facto global reserve currency. In this post, we examine the exorbitant privilege that accrued to the Netherlands in the eighteenth century, when the Dutch guilder enjoyed global reserve currency status. We show how the private actions of financial institutions created and maintained this privilege, even in the absence of a central bank. While privilege benefited the Dutch financial system in many ways, it also laid the seeds of later financial crisis. |
| Keywords: | exorbitant privilege; reserve currency; Netherlands; eighteenth century |
| JEL: | N13 N23 |
| Date: | 2025–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101924 |
| By: | Eleonora Granziera; Vegard H. Larsen; Greta Meggiorini; Leonardo Melosi |
| Abstract: | We examine how speeches by Federal Open Market Committee (FOMC) members, including regional Fed presidents, shape private sector expectations. Speeches that signal rising inflationary pressures prompt both households and professional forecasters to raise their inflation expectations, consistent with Delphic effects. Only professional forecasters respond to Odyssean communications—statements about the Fed’s intended policy response—leaving Delphic effects as the dominant channel for households. These household responses are driven by speeches from regional presidents, likely due to greater visibility in regional media coverage. A general equilibrium model, featuring agents who differ in their ability to interpret Odyssean signals, explains this heterogeneity. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0142 |
| By: | Drago Bergholt; Øistein Røisland; Tommy Sveen; Ragnar Torvik |
| Abstract: | There is a common view that if monetary and fiscal policy are to be used together for macroeconomic stabilization, they should pull in the same direction. We challenge this view by analyzing the optimal policy mix in a small open economy. We show that when the economy is hit by inflation shocks or exchange rate shocks, monetary and fiscal policy should pull in opposite directions. This policy mix makes more effective use of the exchange rate channel of monetary policy, allowing inflation to be reduced after a shock with lower costs in terms of unemployment. Only in the case of demand shocks, or if there are significant costs associated with the active use of the interest rate, should monetary and fiscal policy pull in the same direction. We then consider automatic stabilizers. As we show, for demand shocks, automatic stabilizers imply that monetary and fiscal policy pull in the same direction. For inflation and exchange rate shocks, on the other hand, automatic stabilizers imply that the two policy instruments pull in opposite directions. These policy interactions are all consistent with our results on the optimal policy mix. Strong automatic stabilizers could therefore serve as a substitute for optimal discretionary fiscal policy in open economies. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0141 |
| By: | Dimitrios Anastasiou (Athens University of Economics and Business - Department of Business Administration); Apostolos G. Katsafados (Athens University of Economics and Business - Department of Accounting and Finance; Bank of Greece); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Christos Tzomakas (Athens University of Economics and Business) |
| Abstract: | Building on the methodology of Gorodnichenko et al. (2023), we reconstruct and propose a novel measure that quantifies the voice sentiment of the Chair of the Federal Reserve press conference responses and examine its impact on the stock price crash risk of U.S. banks. We find that a more positive vocal sentiment, indicative of happiness, significantly reduces banks' ex-ante crash risk, whereas negative emotions, such as sadness and anger, amplify it. Our findings suggest that, beyond the textual content of monetary policy statements, the emotional delivery of central bank communication plays a critical role in shaping financial stability outcomes. |
| Keywords: | US banks, Stock Price Crash Risk, Voice Sentiment, Financial Stability |
| JEL: | G01 G21 G41 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2572 |
| By: | Giuseppe Gurrado; Donato Masciandaro |
| Abstract: | In the ongoing race between new digital currencies, a crucial factor for success will be their relative ability to gain acceptance as a medium of exchange, shaping the demand for money. Focusing on the emerging competition between stablecoins and CBDCs, this analysis offers quantitative insights into which of the two is gaining more attention among different audiences, exploring both academic and public interest in recent years. The growth rates of academic publications on stablecoins and CBDCs, after alternating periods of predominance, now appear to converge, even though research on CBDCs remains higher in absolute terms. However, beyond academia, public attention confirms the possibility of stablecoins catching up. The observed cycles of attention for the two digital currencies highlight the importance of specific events, as well as the relevance of contextual and country-specific factors. |
| Keywords: | Central Bank Digital Currencies, Cryptocurrencies, Stablecoin, Money Demand, Social Networks |
| JEL: | B22 C91 E41 E42 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25254 |
| By: | William Bergman (Loyola University) |
| Abstract: | This paper examines the Federal Reserve's current financial losses—unprecedented in scale—and the questionable accounting practices it uses to downplay their impact. It argues that the Fed's self-defined accounting standards, particularly the creation of a "deferred asset" to mask negative equity, obscure the fiscal consequences for the U.S. government and taxpayers. The analysis connects today's losses to longstanding institutional practices, notably the Fed's flawed cost-recovery accounting for its Fedwire payment system. These issues first emerged in the late 1990s and early 2000s, when the author, then a Fed staffer, challenged the internal logic used to claim that Fedwire guaranteed payments and still avoided subsidies. The paper includes as an appendix the original 2002 draft, "Fedwire: A Subsidy That Fully Recovers Its Cost?", which helped reveal the moral hazard and accounting inconsistencies that contributed to the 2008 crisis and continue to shape central bank risk and governance today. |
| Keywords: | Federal Reserve, Central bank accounting, Fedwire, daylight overdrafts, Payment systems, financial crisis, monetary policy, financial regulation |
| JEL: | E0 E58 E42 G28 H83 L50 |
| Date: | 2024–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp237 |
| By: | Karen Mathiasen (Center for Global Development); Nico Martinez (Center for Global Development) |
| Abstract: | Stablecoins, a form of cryptocurrency pegged to and backed by another asset (usually US dollars), are reshaping the global financial landscape. Unlike fiat currency, they can be issued by private companies, and barriers to entry are relatively low. Stablecoins are appealing because they can process cross-border transactions much faster and more cheaply than conventional payments systems such as SWIFT and Western Union and offer a secure store of value. While most stablecoin activity now involves buying and selling other cryptocurrencies, this is starting to change, with increased stablecoin use for remittances and international settlements. The passage of the US GENIUS Act has accelerated their legitimacy and adoption, helping drive stablecoin transaction volumes to trillions of dollars. Yet their proliferation also poses substantial risks, including banking sector instability, regulatory arbitrage, weaker transmission of monetary policy, and the spread of illicit finance, all of which could destabilize the global financial system. In this paper, we explore these trends and discuss what the international financial institutions should be doing to support countries as they navigate the stablecoin phenomenon. We argue that the International Monetary Fund and World Bank should be much more proactive, and we propose a new agenda for action, starting with the adoption of clear criteria for country engagement on stablecoins and strengthened surveillance activities. |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:365 |
| By: | Luis Araujo; Leo Ferraris; Marco Mantovani; Daniela Puzzello |
| Abstract: | Sovereign digital currencies are about to be launched in several countries. A key feature of this intangible counterpart of cash is its traceability. Using a microfounded monetary model, we show that traceability can be exploited to incentivize liquidity transfers among traders, thus stimulating production and trade. We empirically test the theoretical prediction through a controlled laboratory experiment. We find that sovereign digital currency stimulates production and trade, provided that the authorities actively help promote its acceptability. |
| Keywords: | digital currency, cash, monetary policy, laboratory experiment |
| JEL: | E40 C90 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:557 |
| By: | Flavio Angelini (University of Perugia); Stefano Herzel (DEF, University of Rome "Tor Vergata"); Marco Nicolosi (Università La Sapienza) |
| Abstract: | We adopt an affine short-rate model for the contemporaneous evolution of the term structures based on EURIBOR and on eSTR. The model is based on the observation that the risk-free rate follows a constant trajectory and moves only at deterministic times (depending on the European Central Bank meetings). We calibrate the model using Kalman filtering on a panel of term structure zero rates and compare its performances to the dynamic version of the Nelson-Siegel model, both in- and out-of-sample. The model is able to reproduce some common features of the term structure dynamics, such as the “snake” shaped term structure volatility and the fact that the volatility increases in periods containing the meeting dates. We analyze the sensitivity of the eSTR term structure to variations in monetary policy expectations and apply the model to estimate the level and the probability distribution of the future rates, and to show how to compute the fallback risk of a on-going contract in case EURIBOR would be replaced by eSTR. |
| Keywords: | Affine Short-Rate Models, Bond Yields, Deterministic Jump Times, Fallback Risk, eSTR Transition |
| JEL: | C5 C6 E4 E5 |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:613 |
| By: | Yongheng Hu |
| Abstract: | In this paper, we model USD-CNY bilateral exchange rate fluctuations as a general stochastic process and incorporate monetary policy shock to examine how bilateral exchange rate fluctuations affect the Revealed Comparative Advantage (RCA) index. Numerical simulations indicate that as the mean of bilateral exchange rate fluctuations increases, i.e., currency devaluation, the RCA index rises. Moreover, smaller bilateral exchange rate fluctuations after the policy shock cause the RCA index to gradually converge toward its mean level. For the empirical analysis, we select the USD-CNY bilateral exchange rate and provincial manufacturing industry export competitiveness data in China from 2008 to 2021. We find that in the short term, when exchange rate fluctuations stabilize within a range less than 0.2 RMB depreciation will effectively boost export competitiveness. Then, the 8.11 exchange rate policy reversed the previous linear trend of the CNY, stabilizing it within a narrow fluctuation range over the long term. This policy leads to a gradual convergence of provincial RCA indices toward a relatively high level, which is commensurate with our numerical simulations, and indirectly enhances provincial export competitiveness. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.15169 |
| By: | Goldfayn-Frank, Olga; Kieren, Pascal; Trautmann, Stefan T. |
| Abstract: | Economists widely rely on measures of inflation expectations and uncertainty elicited via density forecasts. This method, where respondents assign probabilities to pre-specified ranges, has been subjected to criticism particularly in the recent times of high and volatile inflation. We propose a new method to elicit the full distribution of inflation expectations, which is rooted in decision theory and can be implemented in standard surveys. In two large surveys and one laboratory experiment, we demonstrate that it leads to well-defined expectations that fulfil both subjective and objective quality criteria. The method is neither perceived as more difficult nor does it take more time to complete compared to the current standard. In contrast to density forecasts, the method is robust to differences in the state of the economy and thus allows comparisons across time and across countries. The method is portable and can be applied to elicit different macroeconomic expectations. |
| Keywords: | Inflation expectations, measurement, macroeconomic beliefs, surveys |
| JEL: | D84 E31 E37 E71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:328248 |
| By: | Rodrigue Dossou-Cadja (Sapienza University of Rome, Paris School of Economics, Ecole des Hautes Etudes en Sciences Sociales) |
| Abstract: | The January 11, 1994, CFA franc devaluation stands as the most significant macroeconomic reform in nearly a century of the Franc Zone system, particularly following the political independences of former African French colonies in the 1960s. Whilst conventional narratives attribute it to fiscal excesses in major economies like Côte d’Ivoire and Cameroon, newly uncovered archival data from the Banque de France, the Bank of England, the Bundesbank (the latter two sourced from Eichengreen and Naef, 2022), and the IMF challenge this view. Instead, I reinstate the devaluation within a much broader common African-European experience: the 1992–93 European Monetary System (EMS) crisis. Evidence unveils its critical role in shoring up the French franc’s credibility amidst the crisis and suggests a new ‘democratic Franc Zone’s Transition Committee’ within the Banque de France/Eurosystem for future governance. |
| Keywords: | CFA franc devaluation, Franc Zone, European Monetary System, Currency crisis, Political Independences, Narrative approach |
| JEL: | F N |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.18 |
| By: | Syngjoo Choi; Bongseop Kim; Young-Sik Kim; Ohik Kwon; Soeun Park |
| Abstract: | To overcome the lack of data in predicting the payment preference for central bank digital currency (CBDC), we conducted a discrete choice experiment that varied the attributes of payment methods among over 3, 500 participants in Korea. We identified key attributes, such as the discount rate and the issuance form, that shape the demand for payment methods. The predicted usage shares of existing payment methods closely align with their actual usage patterns in Korea, which lends credible support for the external validity of our experimental design. Building on this validation, we further predict that CBDC, when introduced, will be preferred over cash and mobile fast payment but less preferred than credit and debit cards, with its adoption rate as the most preferred payment method ranging 19−27% of respondents. |
| Keywords: | payment preference, retail CBDC, discrete choice experiment |
| JEL: | E40 E50 C90 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1296 |
| By: | Hongzhe Wen; R. S. M. Lau |
| Abstract: | Stablecoins have emerged as a significant component of global financial infrastructure, with aggregate market capitalization surpassing USD250 billion in 2025. Their increasing integration into payment and settlement systems has simultaneously introduced novel channels of systemic exposure, particularly liquidity risk during periods of market stress. This study develops a hybrid monetary architecture that embeds fiat-backed stablecoins within a central bank-anchored framework to structurally mitigate liquidity fragility. The proposed model combines 100 percent reserve backing, interoperable redemption rails, and standing liquidity facilities to guarantee instant convertibility at par. Using the 2023 SVB USDC de-peg event as a calibrated stress scenario, we demonstrate that this architecture reduces peak peg deviations, shortens stress persistence, and stabilizes redemption queues under high redemption intensity. By integrating liquidity backstops and eliminating maturity-transformation channels, the framework addresses run dynamics ex ante rather than through ad hoc intervention. These findings provide empirical and theoretical support for a hybrid stablecoin-CBDC architecture that enhances systemic resilience, preserves monetary integrity, and establishes a credible pathway for stablecoin integration into regulated financial systems. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.10469 |
| By: | Juan Passadore; Giovanni Sciacovelli; Ms. Filiz D Unsal; Carlos van Hombeeck |
| Abstract: | We present an Open Economy HANK model with relevant features for Low-Income Countries (LICs): hand-to-mouth households and a subsistence consumption for tradable goods. With the model calibrated for a representative LIC, we illustrate our broader framework with a shock to external prices. The shock causes a consumption-led recession, an increase in inflation and a drop in real wages. Consumption inequality rises: poor households cannot insure against the shock, unlike richer households who can tap into their wealth. Monetary policy is unable to substantively improve poorer households’ welfare, due to offsetting effects on real wages and labor demand. Simulations of the effects of alternative monetary policy responses on inequality yield similar findings. In this setting, fiscal transfers are a more effective tool for redistribution across households. |
| Keywords: | Monetary Policy; Inequality; Open Economy HANK; Low-income Countries |
| Date: | 2025–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/204 |
| By: | Nicolas M. Burotto (Universidad Andres Bello) |
| Abstract: | I develop a discrete-time Keynesian D/Z model in which inflationary inertia arises from distributional conflict between firms and workers. The mechanism centers on aspiration gaps—the divergence between actual real wages and income targets—which, when combined with strong bargaining power, generate persistent inflation even after conventional macroeconomic gaps close. The model shows that equilibrium in real wages does not guarantee distributional balance, and that market mechanisms alone cannot restore stability. This underscores the need for a "social consensus" that moderates aspiration dynamics and defuses conflict-driven inflationary pressures. |
| Keywords: | inflation inertia; distributional conflict; aspiration gaps; effective demand; wage-price dynamics. |
| JEL: | E12 E25 E31 |
| Date: | 2025–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp235 |
| By: | Robin Brooks; Eswar S. Prasad |
| Abstract: | The dominant currency paradigm posits that dollar invoicing reduces the potency of exchange rate depreciations in boosting export volumes. This implies that export elasticities with respect to the exchange rate are small, rendering even large depreciations ineffectual in the short term. We incorporate two innovations versus existing work. First, we allow for nonlinearities, permitting large depreciations to disproportionately lift exports. Second, we control for banking crises, which accompany many depreciations. Our baseline export elasticity—without nonlinearities or banking crisis controls—is -0.3, consistent with prevailing “elasticity pessimism.” This elasticity rises to between -0.5 and -0.8 within two years for depreciations above 20 percent without banking crises. |
| JEL: | F14 F41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34371 |
| By: | Carlo Brunetta; Amit Chaudhary; Stefano Galatolo; Massimiliano Sala |
| Abstract: | Dynamically distributed inflation is a common mechanism used to guide a blockchain's staking rate towards a desired equilibrium between network security and token liquidity. However, the high sensitivity of the annual percentage yield to changes in the staking rate, coupled with the inherent feedback delays in staker responses, can induce undesirable oscillations around this equilibrium. This paper investigates this instability phenomenon. We analyze the dynamics of inflation-based reward systems and propose a novel distribution model designed to stabilize the staking rate. Our solution effectively dampens oscillations, stabilizing the yield within a target staking range. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.11065 |
| By: | Małgorzata Olszak (UW - Uniwersytet Warszawski [Polska] = University of Warsaw [Poland] = Université de Varsovie [Pologne]); Christophe Godlewski (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg); Iwona Kowalska (UW - Uniwersytet Warszawski [Polska] = University of Warsaw [Poland] = Université de Varsovie [Pologne]); Agnieszka Paciorek (UW - Uniwersytet Warszawski [Polska] = University of Warsaw [Poland] = Université de Varsovie [Pologne]) |
| Abstract: | Abstract In this study, we investigate the effects of macroprudential policies on banks' net interest margins (NIMs) using 3000 banks in 28 European Union countries from 1996 to 2019. Macroprudential tightening results in an immediate 2 basis point (bp) decrease in the NIMs, an increase in interest income (IIEA) of 7 bp, and an increase in interest expense (IEEA) of almost 10 bp. But the last two decline by 10.5 and 10.1 bp respectively 1–2 years later. The effect depends on the instrument type and varies based on the capital ratio and credit risk, but holds in high- and low-rate environments. |
| Keywords: | Low-rate JEL Classification E44, E58, G21, G28, Risk, Capital, Macroprudential policy instruments, Net interest margin, Net interest margin Macroprudential policy instruments Capital Risk Low-rate JEL Classification E44 E58 G21 G28 |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05298459 |
| By: | Sangwa, Sixbert; MUTABAZI, Placide |
| Abstract: | Escalating U.S. net-interest payments now rival flagship budget lines and are projected to surpass 4 percent of GDP within a decade, while unfunded Social Security and Medicare liabilities exceed $70 trillion. In parallel, over-the-counter derivatives outstanding approach $700–800 trillion in notional value, embedding opaque leverage that could transmit shocks globally. Purpose: This study probes how the confluence of sovereign debt strain, entitlement promises, and derivatives exposure can destabilize the dollar’s reserve-currency privilege and maps reforms capable of forestalling a debt-driven systemic rupture. Methods: An integrative review of Congressional Budget Office forecasts, BIS derivatives statistics, and peer-reviewed network-risk models is synthesized through a tri-theoretical lens that combines Modern Monetary Theory, Minsky’s Financial Instability Hypothesis, and network-based systemic-risk science. Results: Vector-error-correction analysis reveals that a one-point rise in the U.S. debt-to-GDP ratio lifts global derivatives gross-market value by 0.7 percent within two quarters, indicating tight macro-financial coupling. Stress scenarios show that breaching a 120 percent debt-to-GDP threshold alongside derivatives GMV above 10 percent of GDP elevates one-notch downgrade odds to 50 percent within two years. These dynamics threaten confidence in dollar assets, erode the “exorbitant privilege, ” and could precipitate non-linear contagion through shadow-banking channels. Conclusions: A coordinated package—gradual entitlement reform, primary-balance fiscal rules, maturity-extension of Treasuries, reinforced CCP cover-two capital, and expanded bilateral central-bank swap lines—can realign fiscal sustainability with financial-network resilience. Infusing policy with a biblical stewardship ethic (“the borrower is servant to the lender, ” Prov 22:7) underscores the moral imperative to curb excessive leverage. Timely adoption would safeguard global liquidity, buttress U.S. monetary sovereignty, and preserve the dollar’s hegemonic role. |
| Date: | 2025–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:zvf3g_v1 |