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on Monetary Economics |
| By: | Ugo Albertazzi; Lorenzo Burlon; Tomas Jankauskas; Nicola Pavanini |
| Abstract: | After the Great Financial Crisis, the European Central Bank (ECB) extended its monetary policy toolbox to include the use of long-term loans to banks at interest rates close to zero or even negative. These central bank interventions were aimed at supporting the transmission of expansionary monetary policy and likely played a crucial role in bolstering the financial stability of the euro area, namely by reducing the chance of bank runs. However, quantitative evidence on the effects of these interventions on financial stability remains scant. In this post, we quantify the effectiveness of central bank lending programs in supporting financial stability through the lens of a novel structural model discussed in this paper. |
| Keywords: | central bank policies; bank runs; Imperfect Competition; structural estimation |
| JEL: | E44 E52 E58 G01 G21 L13 |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101970 |
| By: | Jbir, Hamdi |
| Abstract: | This paper studies the impact of the Bank of England’s (BoE) governance on the effect of the interaction between monetary policy and macroprudential policy on financial stability, measured by the credit-to-GDP gap. We approximate macroprudential policy with financial stability publication sentiments. We construct monetary policy shocks and financial stability sentiment shocks following the approach of Romer and Romer [2004]. Local Projections estimates of Jordà [2005] show that the interaction between monetary policy shocks and financial stability sentiment shocks reduces the credit gap, regardless of whether the two shocks move in the same or opposite direc- tions. The decline in the credit gap is rather observed after the reorganisation of the BoE’s governance structure in 2011, particularly after the creation of the Financial Policy Committee within the BoE. Further extension suggests that monetary policy communication adds information to macroprudential policy communication that influences financial agents’ beliefs about UK systemic risk, when the two policy domains are under the central bank’s umbrella |
| Keywords: | Central bank governance, Financial stability, Monetary policy, Macroprudential policy |
| JEL: | E5 G0 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125437 |
| By: | Alexandra Piller (Study Center Gerzensee and University of Bern); Marc Schranz (University of Bern); Larissa Schwaller (University of Bern) |
| Abstract: | Identifying the causal effects of monetary policy is challenging due to the endogeneity of policy decisions. In recent years, high-frequency monetary policy surprises have become a popular identification strategy. To serve as a valid instrument, monetary policy surprises must be correlated with the true policy shock (relevant) while remaining uncorrelated with other shocks (exogenous). However, market-based monetary policy surprises around Federal Open Market Committee (FOMC) announcements often suffer from weak relevance and endogeneity concerns. This paper explores whether text analysis methods applied to central bank communication can help mitigate these concerns. We adopt two complementary approaches. First, to improve instrument relevance, we extend the dataset of monetary policy surprises from FOMC announcements to policy-relevant speeches by the Federal Reserve Board chair and vice chair. Second, using natural language processing techniques, we predict changes in market expectations from central bank communication, isolating the component of monetary policy surprises driven solely by communication. The resulting language-driven monetary policy surprises exhibit stronger instrument relevance, mitigate endogeneity concerns and produce impulse responses that align with standard macroeconomic theory. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:szg:worpap:2505 |
| By: | Tarron Khemraj |
| Abstract: | The Guyana government, from 2015 to 2021, accumulated a large overdraft on its central bank account. It owed this overdraft to a binding debt ceiling limit and fractious political environment that prevented an increase in the ceiling, allowing for the auctioning of Treasury bills to create the liquidity reflux necessary to refill the account. This paper studies the macroeconomic effects of reflux (one-sided sales of Treasury bills) and broken or incomplete reflux (base money expansion) by focusing on domestic inflation, the foreign exchange (FX) rate, and the quantity of FX traded in the local market. The empirical results suggest that the inflation rate is largely driven by foreign price and oil shocks. Nevertheless, the broken reflux adversely affected the local FX market by increasing the demand for foreign currencies, marginally depreciating the exchange rate, and slightly increasing the inflation rate. The latter finding has important implications for the enormous post-2020 budget spending since the discovery of offshore oil. However, reflux was found to have a stabilizing effect on the demand for FX and inflation. Granger predictability tests provide strong evidence that the government spends first from its central bank account before reflux occurs. Finally, the paper discusses a few novel institutional features of Guyana which resemble the monetary circuit framework (with government) of neo-chartalists. |
| Keywords: | neo-chartalism; fiscal-monetary nexus; government account overdraft; inflation; excess liquidity |
| JEL: | B52 E42 E51 E58 F41 H62 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1050 |
| By: | Cobham, David |
| Abstract: | This paper, prepared as a background chapter for an edited book, considers the changes in monetary policy frameworks (MPFs) over the first quarter of the 21st century. Section 1 presents the overall global and regional trends in monetary policy frameworks from 1999 to 2023. That analysis shows that the distribution of MPFs has changed rather less in recent years. However, the paper then turns to analyse in more detail the important changes within the two most widespread MPFs, inflation targeting and loosely structured discretion, over the period. Section 2 examines the rise in inflation targeting and the changes made within that framework by a number of mainly advanced economies, which have put more emphasis on output and employment but retained the primacy of the quantitative inflation target. Section 3 examines the changes in the monetary policy instruments commonly used within the loosely structured discretion framework, which have involved substantial improvements in effectiveness over time, typically associated with developments in money and bond markets, which facilitate switches to alternative MPFs. Overall, the paper highlights what amounts to a useful refocus from the choice of monetary policy framework to the operation of monetary policy. |
| Keywords: | monetary policy frameworks; inflation targets; exchange rate targets; loosely structured discretion; money markets; bond markets |
| JEL: | E42 E44 E52 F33 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124937 |
| By: | AUGA, Esdras |
| Abstract: | This paper investigates the impact of geopolitical tensions on central bank monetary Policy responses over the period 2010-2024. Using an econometric Framework, the study reveals That such tensions exert both upward and downward pressures on Policy rates, as central Banks react to external shocks in a context of increasing global uncertainty. These responses are interpreted either as preventive measures against inflationary risks or as cautious signaling amid volatility. Howerver, the results highlight a significant heterogeneity in monetary Policy reactions across countries, reflecting divergent trajectories shaped by distinct institutional, economic, and political Framework. White the explanatory power of the model remains moderate, the findings provide valuable insights for policymakers and international institutions facing an increasingly unstable geopolitical environment. |
| Keywords: | Geopolitical tensions, divergent trajectories, monetary policy, external shocks, rising uncertainty, the global economy |
| JEL: | C33 E52 E58 F44 F51 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126565 |
| By: | Suman Basu; Emine Boz; Gita Gopinath; Francisco Roch; Filiz Unsal |
| Abstract: | We develop a tractable small-open-economy framework to characterize the constrained e cient use of the monetary policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. ‘e model features dominant currency pricing, positive premia on local currency debt arising from €nanciers’ portfolio constraints, and occasionally-binding external and domestic borrowing constraints. We characterize the conditions under which the traditional prescription—relying solely on the policy rate and exchange rate ƒexibility—remains su cient, even in the presence of externalities. By contrast, to manage noise trader ƒows into and out of the local currency debt market, FX intervention and in some cases capital inƒow taxes should be used instead of the traditional prescription. Moreover, if a country faces a mix of local currency premia and external borrowing constraints, we establish that certain regulations to limit FX mismatch may alleviate the external borrowing constraint but exacerbate the local currency premia. Finally, we show that capital controls may dominate domestic macroprudential measures in cases when external shocks trigger stress in domestic housing markets. |
| Keywords: | integrated policy framework, monetary policy, capital controls, foreign exchange intervention, macroprudential policies |
| JEL: | E58 F38 F41 G28 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpecon:2025-10 |
| By: | Fernando M. Martin |
| Abstract: | Though U.S. inflation has fallen sharply since mid-2022, this analysis finds that above-target inflation remains persistent and broad. |
| Keywords: | inflation targeting; inflation expectations |
| Date: | 2025–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:101977 |
| By: | Laura Lisset Montiel-Orozco |
| Abstract: | This working paper contrasts the neo-Keynesian and post-Keynesian theories of monetary policy for an open economy, highlighting the irrelevance of the orthodox theory and the explanatory capacity of heterodoxy for an emerging economy such as Mexico. It focuses on the role of the central bank and the case of the Mexican currency during the economic recovery after the Great Lockout. In the first section, we criticize two proposals of the 3-Equation New-Keynesian model, concluding that, implicitly, both models reaffirm the extreme neutrality of money and the exchange rate in both the short and the long runs. In contrast, we analyze the post-Keynesian exchange rate model proposed by John T. Harvey (2009). In addition, we rely on the fundamentals of the heterodox school of thought such as the financial instability hypothesis of Hyman Minsky (1994) and the relevance of capital flows for the determination of the exchange rate and its implications for economic growth and prices by Jan Kregel (2008). Finally, the erratic behavior of the excessive appreciation of the Mexican Super Peso against the dollar after the recovery of the COVID-19 crisis and in the context of global risk is presented. |
| Keywords: | Monetary Policy; New Keynesian Economics; post-Keynesian Economics; Foreign Exchange Rate; Mexico |
| JEL: | E31 E52 E10 E12 F31 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1057 |
| By: | Francesco Montaruli (Economic Research Unit, Banca d'Italia, Rome); Roberto Rinaldi (Luiss University - Rome) |
| Abstract: | This paper investigates the monetary theory of the Cambridge School, which emerged from the contributions of Alfred Marshall and Arthur Cecil Pigou between the late 19th and early 20th century. While still grounded in Fisher's quantity equation, the Cambridge School brought significant innovations to monetary theory. It emphasized the various functions of money beyond its role as a means of payment, which was the key insight of the quantity theory of money. The Cambridge School paved the way for new developments, eventually leading to John Mainard Keynes' 'A Treatise on Money' and 'The General Theory'. Specifically, Pigou examined the sum of currency and demand deposits as a ratio to nominal GDP, known as the k ratio. The Cambridge k is influenced by the current state of the economy and expectations regarding the purchasing power of money. Our analysis uses yearly time series data from Italy, spanning from its unification in 1861 to the introduction of the euro. We test the relationship between the k ratio and nominal interest rates. Our findings indicate that k follows a non-stationary process, challenging the notion of a stable velocity of circulation. However, when combined with two nominal non-stationary interest rates, we detect a cointegrating relationship which can be interpreted as a long-term equilibrium. The result of a Vector Error Correction Model (VECM) estimated over the entire time span supports the theoretical predictions of the Cambridge School. |
| Keywords: | the Cambridge School and "k"; money; integration; cointegration; VECM |
| JEL: | B10 B13 C32 E41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:workqs:qse_56 |
| By: | Pelizzon, Loriana; Mattiello, Riccardo; Schlegel, Jonas |
| Abstract: | This paper examines the rise of non-bank financial intermediaries (NBFIs) and its implications for financial stability and monetary policy transmission in the Euro Area and the United States. While the U.S. financial system has long been market-based, the Euro Area has experienced a striking expansion of NBFIs, which now account for a larger share of GDP than in the U.S. While the sector has grown significantly, much of its capital is intermediated and allocated outside the EU, reflecting missed opportunities for domestic capital market development. We argue that this pattern is a consequence of limited growth opportunities within Europe, weak financial market infrastructure, and the absence of key institutional enablers such as a sizable capital market and securitization frameworks. We further examine how NBFIs pose supervisory challenges due to geographic concentration, influence money market dynamics, and interact with monetary policy transmission. The paper concludes with policy recommendations to unlock the sector's potential - including reforms to deepen European capital markets, a unified supervisory mechanism and consideration of extending some central bank facilities to NBFIs. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:330175 |
| By: | Dimitris Korobilis; Leif Anders Thorsrud |
| Abstract: | From the perspective of flexible inflation targeting using a simple targeting rule, this paper introduces the Monetary Policy Deviation Error (MPDE) as a novel metric for assessing central bank performance and deliberations. The MPDE captures potentially time-varying shifts in the trade-off between stabilizing inflation and supporting real economic activity. Specifically, it quantifies the gap between the intended trade-off envisioned by policymakers and the trade-off realized through actual monetary policy outcomes. Under an optimal and unbiased monetary policy strategy, the MPDE should average to zero. Nonzero deviations indicate misalignment between the central bank’s stated objectives and the trade-offs actually achieved, suggesting that an alternative interest rate path would have better aligned outcomes with intentions. Applying the MPDE to evaluate the monetary policy strategies of Norges Bank and the Reserve Bank of New Zealand, we find posterior evidence supporting optimal policy alignment in the case of New Zealand. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0143 |
| By: | Michalis Nikiforos; Simon Grothe |
| Abstract: | The post-pandemic surge in inflation was accompanied by a surge in the corporate share of profits. As a result, several economists and policy makers have given to it names such as "profit-led inflation" or "sellers' inflation." The present paper discusses the extent to which profit-led inflation, as an explanation for the recent surge in inflation, is compatible with what we know about the price-setting behavior of firms, income distribution, and inflation. We do that in juxtaposition to two recent critiques: that the increase in the profit share is the result of cyclical factors, and that the increase in import prices leads to higher profit shares even under constant markups. We show that there is little evidence that the recent surge in profitability is cyclical in nature. Moreover, after outlining the Structuralist/Kaleckian theories of prices and inflation we argue that profit-led inflation does not require an increase in the markup of the firms and is consistent with these theories. In the face of large import and other price shocks even under constant markups, firms are able to pass the burden of adjustment to real wages. Thus, the term profit-led emphasizes the distributional source and consequences of inflation. We also provide an empirical examination of the markups in the post-pandemic period using data from the Compustat database. We show that, on average, firms were able to increase or maintain their markups, although there is significant heterogeneity across sectors or the position of the firms in the distribution of markups. |
| Keywords: | Inflation; Markup; Distribution; Profit-led Inflation |
| JEL: | E11 E12 E31 C67 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1037 |
| By: | Pavlina R. Tcherneva; Eric Tymoigne |
| Abstract: | This paper evaluates the relationship between monetary and fiscal policy and the relative effectiveness of macroeconomic stabilization through the lens of Modern Money Theory (MMT). We articulate previously-neglected aspects of monetary sovereignty to offer a new interpretation of the Bernanke Doctrine that emerged in the wake of the 2008 Global Financial crisis. This Doctrine validated key MMT precepts and paved the way for fiscal policy activism in response to COVID19. The paper argues that fiscal and monetary policy coordination is not new or rare. It is an intrinsic feature of sovereign monetary regimes, allowing for more effective policy responses to financial crises or pandemics. To the extent that monetary policy is able to stabilize an unstable economy, it is largely due to its fiscal components. This recognition also calls for a rethinking of fiscal policy. Originally issued as EDI Working Paper No. 08, 2022. |
| Keywords: | Modern Money Theory; MMT; Bernanke; Great Financial Crisis; history of money; monetary systems; monetary sovereignty; tax-driven money; consolidated government; government debt and deficit; quantitative easing; fiscal components of monetary policy; nonstandard Open Market Operations; COVID fiscal relief |
| JEL: | E12 E58 E61 H62 H63 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1064 |
| By: | Tanweer Akram; Khawaja Mamun |
| Abstract: | This paper models the month-over-month change in euro-denominated (EUR) long-term interest rate swap yields. It shows that the change in the short-term interest rate has an economically and statistically significant effect on the change in EUR swap yields of different maturity tenors, after controlling for various macroeconomic and financial variables, such as the month-over-month change in inflation or core inflation and the growth of industrial production, and the percentage change in the equity price index, the exchange rate, and the size of the European Central Bank's (ECB) balance sheet. It uses a generalized autoregressive conditional heteroskedasticity (GARCH) approach to model the dynamics of the monthly change in EUR swap yields and their volatility. The results of the estimated models of EUR swap yields of different maturity tenors extend the Keynesian view that the central bank's monetary policy actions have a decisive influence on long-term government bond yields and long-term market interest rates, primarily through their effects on the current short-term interest rate. |
| Keywords: | Euro Swaps; Interest Rate Swaps; Short-Term Interest Rate; Monetary Policy; European Central Bank (ECB); Generalized Autoregressive Conditional Heteroskedasticity (GARCH) |
| JEL: | E43 E50 E60 G10 G12 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1034 |
| By: | Kenneth Eva; Michael J. Lamla; Damjan Pfajfar |
| Abstract: | We document novel stylized facts regarding updating of households' inflation expectations. Using two randomized controlled trials fielded in the US and Germany where signals in the form of professionals' inflation forecasts have different perceived levels of precision, we show that households react more to information with higher levels of precision, in line with Bayesian updating. However, in contrast to Bayesian updating, they mostly respond differently to these signals in the decision to update expectations (extensive margin) and not in the size of the adjustment (intensive margin). The extensive margin also displays a pronounced asymmetry: Households more frequently update their expectations when the signal is above the prior compared to when the signal is below the prior. We propose a model where households' inflation expectations exhibit state-dependent inattentiveness to inflation signals. In times of high uncertainty, elevated inflation expectations may persist due to the increased information processing costs of uncertain inflation signals and the relatively smaller welfare losses of not adjusting expectations when signals are below priors (disinflations) compared to when signals are above priors (accelerating inflation). Our model provides microfoundations for the asymmetric loss function that is commonly assumed to explain biases in inflation expectations. |
| Keywords: | inflation expectations; rational inattention; signal uncertainty; randomized controlled trial; survey experiment |
| JEL: | E31 E52 E58 D84 |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:101930 |
| By: | Santiago Camara; Jeanne Aublin |
| Abstract: | This paper studies the spillovers of European Central Bank (ECB) interest rate shocks into the Canadian economy and compares them with those of the U.S. Federal Reserve (Fed). We combine a VAR model and local projection regressions with identification strategies that explicitly purge information effects around policy announcements. We find that an ECB rate hike leads to a depreciation of the Canadian dollar and a sharp contraction in economic activity. The main transmission channel is international trade: ECB shocks trigger a decline in oil prices and exports, while leaving domestic financial conditions largely unaffected. By contrast, Fed shocks tighten Canadian financial conditions significantly, with more limited effects on trade flows. These findings show that Canada is exposed to foreign monetary policy both directly and indirectly, through its integration in global financial and trade markets. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.13578 |
| By: | Eric Tymoigne |
| Abstract: | Drumetz and Pfister make several claims about the inadequacy and fallacies of Modern Money Theory (MMT) and conclude that MMT is nothing more than a political manifesto; there are no theoretical and empirical foundations behind it. This paper addresses this last point by focusing on the fiscal and monetary policy aspects of their criticisms. Contrary to what they claim, MMT is backed by a large body of empirical evidence, a rich institutional analysis, and a well-developed theoretical framework (including mathematical models). MMT provides a detailed analysis of the coordination between the fiscal and monetary branches of government, emphasizes that fiscal deficits are a stylized fact, and uses theoretical tools grounded in institutional realities to explain this stylized fact. In line with a large body of work, MMT concludes that fiscal policy, the provision of an elastic currency, and financial regulations have contributed to economic stability and growth; however government involvement can be improved by changing the policymaking praxis. MMT also concludes that fine-tuning of the economy via monetary policy is not effective and does not attribute the "great moderation" to better monetary management. Originally issued as EDI Working Paper No. 04, 2022. |
| Keywords: | Modern Money Theory; Monetary Policy; Fiscal Policy; Policy Coordination; Public Debt Sustainability |
| JEL: | E12 E58 E61 H62 H63 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1061 |
| By: | Vasco Curdia |
| Abstract: | The natural rate of interest is an elusive concept in theory and practice. However, it is essential for central banks’ calibration of the policy rate. Model consistent measures are often too extreme to be used in practice. On the other hand, empirical measures lack the full backing of theory to make them proper benchmarks. This paper proposes a medium-run measure of the natural rate that averages out some excessive fluctuations, while retaining enough connection to economic theory to make it optimal under certain circumstances. The discussion also provides a framework on how to evaluate and meaningfully address concerns by policymakers regarding the natural rate. The results suggest that a medium-run measure that concentrates on natural rate fluctuations in the range of two to five years ahead can be reasonable empirically and theoretically. |
| Keywords: | DSGE models; r-star; neutral rate; interest; central banks |
| JEL: | C32 E43 E52 E58 |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:101956 |
| By: | Eiblmeier, Sebastian |
| Abstract: | This paper uses German microdata to test whether the ECB’s quantitative easing (QE) spurred bank lending to non-financial firms. Bank-firm loan data allow me to control for loan demand at firm level. The share of bonds in banks’ total assets before QE serves as treatment proxy. While the effects are positive and statistically significant, they are small: Increasing the bond/asset share in a firm’s lender bank by one standard deviation increases the de-trended outstanding bilateral loan volume by 3-5% of its within-sample mean. At firm level, no unambiguous effect can be observed. |
| Keywords: | Unconventional monetary policy, Germany, bank lending, portfolio rebalancing, panel regression. |
| JEL: | C23 E51 E52 G11 G21 |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126431 |
| By: | L. Randall Wray |
| Abstract: | This paper examines heterodox theories of the determinants of the value of money. Orthodox approaches that tie money's value to relative scarcity of money or to the price level are rejected as inconsistent with the monetary theory of production embraced by heterodox traditions linked to Marx, Veblen, and Keynes. This paper examines and integrates (1) recent contributions by David Graeber and Duncan Foley that reinterpret Marx's labor theory of value, (2) the interpretation of Keynes's liquidity preference theory as a theory of asset pricing that began with Sraffa and was further developed by Minsky and Kregel, and (3) Modern Money Theory's approach to sovereign currency. As Heilbroner argued, money is central to the internal logic of the capitalist system, and is what makes capitalism truly different from other social organizations. Our theory of value informs our beliefs about how the deep structure of the economic system generates a system of prices denominated in the money of account. |
| Keywords: | Labor theory of value; Modern Money Theory; Liquidity Preference; Monetary Theory of Production; Marx; Keynes; Minsky; Graeber; Foley; Sraffa; Heilbroner |
| JEL: | B14 B24 B25 B51 B52 E11 E12 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1062 |
| 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; Robust monetary policy strategies; risk management; scenario analysis; monetary policy communication |
| JEL: | E31 E32 E52 E58 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:101949 |
| By: | Tanweer Akram; Khawaja Mamun |
| Abstract: | This paper examines the dynamics of euro-denominated (EUR) long-term interest rate swap yields. It shows that the short-term interest rate has an economically and statistically significant effect on EUR swap yields of different maturity tenors, after controlling for various key macroeconomic variables. It presents several autoregressive distributive lag (ARDL) models of the dynamics of EUR swap yields. The estimated econometric models of EUR swap yields of different maturity tenors imply that the European Central Bank (ECB) exerts substantial influence on interest rate swap yields, primarily through the effect of its actions on the current short-term interest rate. Examining the case of EUR interest rate swaps, the findings of the paper lend additional credence to John Maynard Keynes's hypothesis concerning the ability of a central bank to influence long-term market interest rates. |
| Keywords: | Euro Swaps; Interest Rate Swaps; Short-Term Interest Rate; Monetary Policy; European Central Bank (ECB); Autoregressive Distributed Lag (ARDL) |
| JEL: | E43 E50 E60 G10 G12 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1051 |
| By: | Sunday Heagbetus (University of Liberia) |
| Abstract: | This study investigates the empirical relevance of the Phillips curve in Liberia from 2001 to 2023, addressing a critical research gap in fragile, low-income economies. Despite extensive global literature, Liberia’s inflation–unemployment dynamics remain understudied amid persistent macroeconomic volatility and structural labor market weaknesses. This study employs a multimethod econometric framework, including OLS, robust and quantile regressions, and vector autoregressive (VAR) models, to evaluate the interplay between inflation, unemployment, money supply, and exchange rate. Granger causality, impulse–response, and variance decomposition techniques reinforce the analysis, revealing strong, bidirectional feedback between exchange rate movements and inflation. Findings show a weak but negative short-run relationship between inflation and unemployment, broadly validating the Phillips curve hypothesis. Exchange rate depreciation consistently emerges as the primary driver of inflation, while money supply exhibits an unexpected but statistically significant deflationary effect. Interaction terms suggest the inflation–unemployment relationship is conditioned by macroeconomic context. The study concludes that inflation control in Liberia requires exchange rate stabilization, targeted structural reforms, and employment-sensitive policies. These findings challenge monetarist orthodoxy and highlight the need for integrated, context-specific macroeconomic strategies in postconflict settings. |
| Date: | 2025–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:boc:cand25:10 |
| By: | Dirk Ehnts; Jussi Ora |
| Abstract: | In this paper, we discuss the balance sheet mechanics of the Swedish government. We examine spending, government bond purchases, and tax payments. As long as the Swedish central bank, which is created through Swedish laws, supports the Swedish central government, it cannot run out of money. The Swedish government therefore plays a large role in the Swedish economy. It can and should target full employment and price stability, bringing to bear its fiscal power. |
| Keywords: | Riksbank; Swedish crowns; public finance; money creation |
| JEL: | E62 B52 E12 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1035 |
| By: | Eric Tymoigne |
| Abstract: | A monetary approach that combines Chartalism, Nominalism, and Command origins of monetary systems is often deemed to have emerged only recently, while the Aristotelian approach (Commodity, Metallism, and Market origins of monetary systems) is the only one that existed until the end of the eighteenth/early-nineteenth century. In the major studies of the history of monetary thought, the Chartalism-Nominalism-Command approach is mostly left unmentioned, or at best reduced to an incoherent banality. The paper shows that this approach has a long and rich intellectual history among European monetary thinkers. In Europe, Plato was its first exponent, albeit in a very rudimentary way, and so one may call it the "Platonic approach." It is developed by Roman legists (such as Javolenus, Paulus, and Ulpian) and Medieval legists (such as Du Moulin, Hotman, and Butigella) who note that coins are similar to securities and that debts are serviced when nominal sums are paid rather than specific coins tendered. During the Renaissance and early modern period, a series of scholars and financial practitioners (such as Law, Dutot, Thomas Smith, and James Taylor) emphasize the financial logic behind monetary mechanics and the similarity of coins and notes. In the twentieth century, authors such as Innes, Knapp, Keynes, and Commons build onto the groundwork provided by these past scholars. In China, the Chartalism-Nominalism-Command approach develops independently and dominates from the beginning under Confucian and Legist thoughts. They emphasize the statecraft origins of monetary systems, the role of tax redemption, and the irrelevance of the material used to make monetary instruments. Clay, lead, paper, iron, copper, and tin are normal and convenient means to make monetary instruments, they are not special/emergency materials. The essence of a monetary instrument is not defined by its materiality but rather by its chartality, that is, by the promise it embeds. The Platonic approach rejects the categories and conceptualizations used by the Aristotelian approach and develops new ones, which leads to a different set of inquiries and understanding of monetary phenomena, problems, and history. |
| Keywords: | History of monetary thoughts; monetary theory; Chartalism; Nominalism; asset pricing; redemption |
| JEL: | B10 B11 B20 B26 E42 E62 G12 H30 K15 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1058 |
| By: | Saba, Danladi Ndayezhin |
| Abstract: | This paper constructs a GVAR model that allows us to compare the propagation of interest rate shocks from AEs on the one hand and EMEs on the other to Small Open Economies (SOEs) of Mexico, Indonesia, Nigeria, and Turkey (MINT). We also explore the relative effect of these shocks on MINT compared to BRICS. We find that MINT countries generally responded to both AEs and EMEs' interest rate shocks, with EMEs exerting a stronger effect. Considering the MINT countries individually, we observed considerable differences in their response patterns, pointing towards heterogeneity. Finally, we also documented that while a shock to AEs and EMEs' interest rates boosts real GDP for MINT countries, the effect on BRICS is beggar-thy-neighbor. |
| Keywords: | International monetary policy; Spillovers; Advanced economies; Small open economies; MINT countries; Global VAR model |
| JEL: | E0 E5 E52 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126271 |
| By: | Patrick C. Higgins |
| Abstract: | Although there have been a range of studies investigating the role and importance of global supply and demand shocks in US inflation developments during and since the pandemic, this study uses a heretofore unused dataset for this purpose: a quarterly panel of professional forecasts from Consensus Economics. We use real-time data with daily vintage snapshots since 2005 from the Federal Reserve Board of Governors FAME database to disentangle forecast errors from revisions and to exploit the monthly frequency and partial availability of CPI inflation and industrial production. Our measures of global demand and supply shocks account for nearly 60 percent, and 20 percent, respectively, of the total variability of the five global factors we identify. The global demand shock accounts for a greater share of unanticipated US economic activity growth and inflation than the global supply shock both prior to the pandemic and during and after 2020. Since 2020, however, global demand and global supply shocks have accounted for similar shares of the nowcast errors for US inflation. |
| Keywords: | global shocks; professional forecasts; inflation |
| JEL: | C32 E31 E37 F47 |
| Date: | 2025–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:101965 |
| By: | Maximiliano Dvorkin; Fernando Leibovici; Ana Maria Santacreu |
| Abstract: | A model suggests that although tariffs have been only partially passed through to consumers, they already have exerted measurable pressure on prices. |
| Keywords: | tariffs; inflation; price pressures; pass-through |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:101953 |
| By: | Romain Baeriswyl; Pierrick Clerc; Camille Cornand |
| Abstract: | Modelling business cycle fluctuations and the nonneutrality of money is an ongoing challenge for macroeconomists. While the imperfect-information hypothesis developed by Phelps and Lucas in the 1970s had been abandoned in favour of the sticky-price hypothesis, a recent trend in the literature has put the imperfect-information hypothesis back on the agenda to explain business fluctuations and monetary nonneutrality. The success of this revival lies in the introduction of strategic uncertainty into a framework of heterogeneous information. The present paper presents this macroeconomic framework and provides a brief overview of recent advances in the literature. |
| Keywords: | Heterogeneous information, Strategic complementarities, Higher-order beliefs, Coordination, Beauty-contest, Monetary nonneutrality, Business cycle, Communication policy, Monetary policy |
| JEL: | C72 D83 E12 E32 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-16 |
| By: | Filip Zahradka (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Adam Gersl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper investigates the effectiveness of macroprudential policy across different phases of macro-financial cycles. Utilizing a panel threshold vector autoregression (PT-VAR) model, the study evaluates the asymmetric impacts of capital-based and borrower-based regulatory tools under varying conditions. The empirical analysis covers 43 countries from 2004 to 2023 and incorporates key macro-financial indicators such as real GDP, policy interest rates, credit-to-GDP ratio, house prices, inflation, and exchange rates. The results can be summarized in three key findings. First, the effects of macroprudential tightening differ substantially between below- and above-threshold regimes, underscoring the importance of the phase of the macro-financial cycles. Second, capital-based measures are particularly effective during below-threshold phases, curbing credit growth, house prices, and inflation, though they are associated with a relatively significant decline in real GDP growth. Third, borrower-based measures are most effective during above-threshold phases of the business cycle, where they help to contain house prices and inflation pressures, while having only muted effects on real GDP growth. These findings emphasize the critical role of timing and instrument choice in macroprudential policy design and contribute to the growing literature by providing robust evidence on the cyclical nature of policy effectiveness, offering important insights for regulatory strategy. |
| Keywords: | Macroprudential policy, Macro-financial cycles, Panel threshold VAR, Systemic risk |
| JEL: | C33 E32 E44 E58 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_20 |
| By: | Francesco Zezza |
| Abstract: | Following the Great Financial Crisis of 2008-9, there has been a shift in mainstream economic policy modeling toward "realism, " with dynamic stochastic general equilibrium (DSGE) models partly diverging from the representative agent framework, and large-scale, New-Keynesian structural models addressing real-financial interactions in greater detail. Still, the need for tractability of the former, and the lack of theoretical structure of the latter prevented the complete introduction of a modern--and complex--multi-sector/multi-asset financial system in policy models in use at central banks and treasuries. However, empirical models adopting the Stock-Flow Consistent (SFC) approach resolved most of these complications with a surge in the number of country models over the last few years. The present work lays out the main out-of-sample features of a quarterly SFC model of the Italian economy (MITA). |
| Keywords: | Empirical Stock-Flow Consistent Models; Monetary Policy; Fiscal Policy; Italy |
| JEL: | C54 E12 E17 E44 E58 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1063 |
| By: | Salomé Baslandze; Simon Fuchs |
| Abstract: | We study the role of supply chain disruptions in shaping consumer prices, focusing on both firms' own import shocks and strategic responses to competitors' disruptions. Using a newly constructed microlevel dataset that links transaction-level US import data from bills of lading with high-frequency consumer prices and sales from a consumer panel, we develop a novel approach to estimate the price effects of cost shocks and product availability. Motivated by a model of delivery delays, cost shocks, and firm pricing, we implement a shift-share identification strategy based on delivery shortfalls, port congestion, and freight and import costs. We find sizable pass-through elasticities: firms raise prices in response to higher import costs and delivery delays, especially when disruptions persist. We also identify strategic pricing: firms—including non-importers—increase prices in response to competitors' supply chain disruptions. Using our estimates and back-of-the-envelope calculations from the model, we show that strategic interactions significantly amplified the direct effects of supply chain shocks on consumer prices during the pandemic. |
| Keywords: | supply chains; inflation; delivery delays; strategic interactions; pass-through; inventory |
| JEL: | E31 F14 |
| Date: | 2025–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:101962 |
| By: | Karina Lima |
| Abstract: | This paper challenges the prevailing view in the sovereign debt literature by arguing that sovereign debt markets, in many respects, behave similarly to other credit markets. These markets are hierarchical rather than flat, inherently hybrid in nature, blending elements of public order and private markets, and regularly suffer from liquidity stress. Therefore, sovereigns, similarly to private actors in the market, are subject to liquidity stress and insolvency crises in a way that is integral to the global financial architecture. Critically, the legal and institutional design of the international monetary system exacerbates this stress. Structural asymmetries, notably the uneven distribution of monetary power, lead to liquidity stress being more pronounced in the periphery than at the apex or core of the system, rendering the former inherently more vulnerable to sovereign debt crises. The paper argues that such considerations should assume a central role in global policy discussions concerning the most appropriate mechanisms for addressing sovereign debt crises. It advocates for a reformed global financial architecture, emphasizing the necessity of a legally binding framework for sovereign debt restructuring that draws upon principles of corporate restructuring law, with the UK Companies Act 2006 (CA 2006) providing relevant analogies. This approach aims to ensure timely, equitable, and efficient restructuring processes, thereby confronting the challenges posed by the current ad hoc and often inequitable sovereign debt restructuring processes. Originally issued as EDI Working Paper No. 17, March 2024. |
| Keywords: | Sovereign Debt; Monetary Sovereignty; Monetary Power; Currency Hierarchy; Sovereign Debt Restructuring; International Monetary System; International Financial Architecture; Debt Service Suspension Initiative; Common Framework; Paris Club; China; Insolvency; Standstill; Cramdown; Moratorium |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1068 |
| By: | Stefan Jacewitz |
| Abstract: | With the passage of the GENIUS Act of 2025, stablecoins are poised to play a greater role in the U.S. financial system. Although very similar to bank deposits, stablecoins lack the government guarantees offered for bank deposits in the form of deposit insurance. This paper is the first to analytically derive the price of hypothetical “deposit” insurance for stablecoins. The price of this insurance is shown to be a function of the volatility of the stablecoin’s price (the price of debt), reflecting Merton’s (1977) deposit insurance pricing model. Empirical estimates of the price of stablecoin insurance are developed in a novel way: using the high frequency data on the spot-price of issuer debt that is available for stablecoins, but not for bank deposits. |
| Keywords: | stablecoins; deposit insurance; bank deposits |
| JEL: | G21 G23 G28 G29 |
| Date: | 2025–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:101961 |
| By: | Joaquín Waldman (CONICET–Centro de Estudios de Estado y Sociedad (CEDES); CONICET–Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política (IIEP); Universidad de Alcalá. Instituto Universitario de Investigación en Estudios Latinoamericanos (IELAT).) |
| Abstract: | Using Palazzo et al. (2023)’s episodic database of stabilization attempts, the paper estimates ordered probit models to identify initial conditions that increase the probability of lasting disinflations in Latin America. |
| Keywords: | Inflation; Stabilization programs; Latin America |
| JEL: | E31 E63 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ake:iiepdt:2024-94 |