|
on Monetary Economics |
| By: | Rajeswari Sengupta (Indira Gandhi Institute of Development Research; Institute of Economic Growth) |
| Abstract: | This paper traces the evolution of monetary policy in India and the institutional, intellectual, and macroeconomic forces that culminated in the adoption of flexible inflation targeting (FIT) in 2015. It documents the transition from a regime of fiscal dominance and quantitative controls to a market-based, interest rate-driven framework, highlighting key reforms in financial markets, liquidity management, and central bank autonomy. The paper shows how persistent inflation in the post-Global Financial Crisis period exposed the limitations of the Multiple Indicator Approach and created the conditions for a shift toward a rule-based framework with a clear nominal anchor. It also evaluates the post-FIT experience, noting improvements in inflation outcomes, expectations anchoring, and policy transparency, while emphasizing continuing constraints from fiscal dominance, and exchange rate management. |
| Keywords: | Inflation targeting, Monetary policy framework, Central Bank credibility, Inflation expectations, Emerging economies |
| JEL: | E52 E58 E31 E42 E61 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2026-005 |
| By: | Domenech Palacios, Mar; Ehrmann, Michael; Ferrari Minesso, Massimo; Mehl, Arnaud; Comazzi, Fabio |
| Abstract: | We revisit the debate on the effectiveness of central bank communication on exchange rates, contrasting a skeptical view, which holds that communication neither moves exchange rates nor influences them in the desired direction, with an optimistic view that it does. Using nearly 100 official ECB statements on exchange rates made during its monetary policy press conferences since 2002, we show that the ECB tends to mention the exchange rate when the real effective exchange rate deviates from its equilibrium value, whereas journalists’ questions are mainly responsive to the nominal exchange rate. Studying the effects of these mentions, our findings by and large support the skeptical view: after controlling for monetary policy shocks, exchange rate communication has limited immediate effects on the euro exchange rate, which fade quickly. Effectiveness is particularly limited when interest rates are at their effective lower bound. JEL Classification: E52, E58, F31, O24 |
| Keywords: | central bank communication, exchange rates, high frequency identification, natural language processing |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263229 |
| By: | J. Scott Davis; Pon Sagnanert |
| Abstract: | The purchasing power parity theory of exchange rates is easily understood: A basket of goods should have the same price in different markets when that price is expressed in a common currency. However, the relationship between market-determined exchange rates and inflation shocks is not always straightforward. In the short run, central bank transparency can become an important determinant. |
| Keywords: | exchange rates; international economics; inflation; monetary policy |
| Date: | 2024–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:98757 |
| By: | Sam Schulhofer-Wohl |
| Abstract: | The Federal Open Market Committee adjusts the stance of monetary policy primarily by changing its target range for the federal funds rate. A new measure examines rate transmission efficacy across interest rates in a variety of money markets. |
| Keywords: | monetary policy transmission; money markets |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:102282 |
| By: | Vaishali Garga (Federal Reserve Bank of Boston); Benjamin Gryzb (Federal Reserve Bank of Boston); Rajeswari Sengupata (Indira Gandhi Institute of Development Research) |
| Abstract: | We examine whether India's adoption of inflation targeting in 2015 aligned central bank communication with policy actions---a key determinant of credibility in emerging markets. Text analysis reveals the Reserve Bank of India's (RBI) communication shifted toward emphasizing inflation stabilization. Yet standard Taylor rules show no increase in responsiveness to realized inflation. This misalignment disappears when we estimate forward-looking reaction functions using the RBI's internal forecasts. The post-2015 response to expected inflation is strong and significant. Our findings show that conventional backward-looking rules can mischaracterize monetary policy conduct in emerging markets where policy responds to forecasts rather than realized outcomes. |
| Keywords: | Commitment, Communication, Credibility, Emerging markets, Forecasts, Forward-looking, Inflation targeting, Monetary policy, Reserve Bank of India, Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2026-003 |
| By: | Shutao Cao (Department of Economics, Trent University); Yahong Zhang (Department of Economics, University of Windsor) |
| Abstract: | We build a two-agent New Keynesian (TANK) model, augmented with the central bank balance sheet and government budget constraint, to quantify macroeconomic effects of the fiscal and monetary stimulus measures in Canada during the COVID-19 pandemic. The model is calibrated to the Canadian economy, and shock processes are estimated. The model closely replicates the observed dynamics of the economy over the pandemic period. Counterfactual experiments reveal that transfer payments played a key role in cushioning the initial contraction by supporting the consumption of hand-to-mouth (HtM) households, while forward guidance and quantitative easing strengthen these effects through the investment channel and by forestalling a severe deflationary episode. At the same time, the prolonged maintenance of low policy interest rate, in conjunction with large-scale fiscal transfers, contributed substantially to the post-pandemic surge in inflation. We show that an earlier normalization of monetary policy would have significantly reduced post-pandemic inflation at only modest cost to output, suggesting that a more gradual tightening path could have reduced the need for the aggressive interest rate increases that followed. |
| Keywords: | fiscal policy, monetary policy, inflation, pandemic |
| JEL: | E31 E52 E58 E62 E63 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2602 |
| By: | Lutz Kilian |
| Abstract: | Interest has recently increased in the question of whether the destabilization of inflation during the 1970s might repeat itself in the 2020s. |
| Keywords: | inflation; monetary policy; oil |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:102856 |
| By: | Philippe Bacchetta; J. Scott Davis; Eric Van Wincoop |
| Abstract: | Starting in late 2007, the Federal Reserve, in partnership with a few major foreign central banks, began offering central bank dollar liquidity swap lines as an important liquidity backstop. |
| Keywords: | central banks; dollar; swap lines |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:101899 |
| By: | Jonathan Benchimol; Sathya Mellina |
| Abstract: | We examine how inflation language in FOMC statements and Chair press conferences maps into the breakeven inflation (BEI) term structure from two to ten years. Five indices capture stance, broad and current inflation language, and the Delphic/Odyssean decomposition. Conditional on the high-frequency rate surprise, statement language is associated with lower BEI at short-to-intermediate maturities, consistent with markets reading committee-vetted text through the policy reaction function. Press conferences differ: Delphic language loads positively on long-horizon forwards; Odyssean language compresses the short-to-intermediate segment. Intraday BEI moves positively with every press-conference index; no analogous statement-window effect survives partialling out the rate surprise. |
| Keywords: | central bank communication, breakeven inflation, high-frequency identification, event-study methods, Delphic and Odyssean forward guidance, natural language processing |
| JEL: | C45 E43 E52 E58 G12 G14 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-29 |
| By: | Steininger, L. E. |
| Abstract: | In this essay, I study a hitherto neglected yet central complicity between the reigning logics of monetary governance and heteronormativity. In so doing, my analysis exposes hegemonic assumptions in IPE that often remain unchallenged. Drawing on queer-feminist scholarship, I first argue that heteronormativity is premised on the ideologically conservative claim that gender identity and associated language (abstraction) must be grounded in, and ontologically preceded by, a material biological sex (‘essence’). I then demonstrate that a strikingly similar structure underpins the Monetarist inflation form – defined as an imbalance between the quantity of money (abstraction) and the quantity of goods or services (‘essence’). Employing this homology makes visible how central bank inflation-targeting regimes enact gendered norms that devalue femininely coded domains and cast gender equality as both politically destabilizing and economically unfeasible. This essay seeks to queer monetary policy by highlighting the intersections between gendered ontology and IPE, contributing to the literature on anti-essentialism and demand management. Finally, I propose a non-essentialist approach to price stability, which I intend to develop further in future work. |
| Keywords: | anti-essentialism; gender; heteronormativity; inflation; monetarism; price stability |
| JEL: | A14 B54 E31 E58 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137946 |
| By: | Aariya Sen (Assistant Professor (Economics), Faculty-in- Charge, Placement and Internship Cell, School of Business, Indian Institute of Technology Guwahati, Guwahati, Assam, India- 781039) |
| Abstract: | The effectiveness of monetary policy transmission to the macroeconomy is contingent on numerous factors. Policy uncertainty is often considered a major deterrent to smooth monetary policy transmission, which inflicts the pain of frequent changes in expectations by the market players. In this study, I analyze the impact of a perceived monetary policy uncertainty (MPU) index for India, constructed based on news-paper data, on financial markets as well as on monetary policy transmission. The computed MPU index exhibits a negative correlation with the sentiment in Monetary Policy Committee minutes, where higher positive sentiment on the minutes moves along with a lower MPU. The empirical examination using wavelet transformation and spillovers showed that MPU has had significant spillovers in Indian financial markets and is widely correlated to business cycle movements. Finally, the analysis documenting the transmission to the real economy shows that a state of high uncertainty dampens monetary policy transmission and adversely affects consumer confidence, sovereign risk, investment inflows and balance of trade. The results underscore the need for effective communication from the Central Bank and the need to manage expectations in the financial markets through forward guidance, transparency, and accountability. |
| Keywords: | Monetary Policy Uncertainty, Monetary Policy Transmission, Financial Markets, Central Bank Communication, Sentiment Analysis, Asymmetry, Wavelet Analysis |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:mad:wpaper:2026-297 |
| By: | Giancarlo Corsetti; Keith Kuester; Gernot J. Müller; Sebastian Schmidt; Ben Schumann |
| Abstract: | We confront the notion that flexible exchange rates insulate countries from external disturbances with new evidence for the euro area (EA) and 20 of its neighbors. Using high-frequency data, we first establish that countries with flexible exchange rates (“floats”) let their currencies depreciate in response to EA monetary policy shocks, while“pegs” raise interest rates. Yet at business cycle frequency, these depreciations do not translate into insulation: floats contract just as much as pegs—not only in response to monetary policy shocks but also to other shocks originating in the EA. This result appears puzzling in light of received wisdom, but we show that it can be rationalized within a state-of-the-art HANK model and flesh out the underlying transmission channels. |
| Keywords: | Exchange-rate regime, Insulation, External shock, Exchange-rate disconnect, Monetary Policy |
| JEL: | F41 F42 E31 |
| Date: | 2026–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0096 |
| By: | Rosie Levy |
| Abstract: | Efficient allocation of bank reserves improves central bank balance sheet efficiency. Frictions in such redistribution can affect monetary policy implementation. |
| Keywords: | liquidity; payments; payment systems |
| Date: | 2025–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:101900 |
| By: | Ryan Niladri Banerjee; Lena Boneva; Gabor Pinter; Vladyslav Sushko |
| Abstract: | Carry trade activity can shape the exchange rate response to monetary policy. Significant short positions of carry traders in funding currencies amplify the impact of policy tightening. This amplification arises from the unwinding of leveraged carry trade positions accumulated prior to the policy announcement, creating a state-dependent monetary policy transmission to the exchange rate. The currency trading strategies of hedge funds and other leveraged investors can play a key role in shaping the exchange rate response to monetary policy and therefore warrant careful monitoring. |
| Date: | 2026–05–06 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:124 |
| By: | Luca Gagliardone; Mark Gertler; Simone Lenzu; Joris Tielens |
| Abstract: | We develop a unified approach to studying cost-price dynamics in the cross-section of firms in order to jointly explain the time series of aggregate inflation and the frequency of price changes, both during normal times and inflation surges. A key novelty is the use of microdata on firms’ prices and production costs to construct an empirical measure of price gaps—the deviation between a firm’s listed and optimal price. Conditional on the path of aggregate cost shocks extracted from the data, a state-dependent pricing model with strategic complementarities accounts well for both the linear cost-price dynamics of the pre-pandemic period and the nonlinear increase in inflation and frequency of price adjustment that followed. |
| Keywords: | inflation dynamics; Phillips curve; nominal rigidities; firm-level microdata |
| JEL: | E30 E31 E32 D22 |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103257 |
| By: | Corinne Salter; Daniel Villar Vallenas |
| Abstract: | Inflation expectations are understood to play a crucial role in inflation dynamics and in the conduct of monetary policy. Recently, there has also been a renewed interest in the relationship between inflation expectations and wages. |
| Date: | 2026–04–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103191 |
| By: | José E. Gutiérrez (BANCO DE ESPAÑA); Enric Martorell (BANCO DE ESPAÑA); Mariya Melnychuk (BANCO DE ESPAÑA) |
| Abstract: | This paper examines the deposit channel of monetary policy during the fastest and most intense tightening cycle of the euro era. Using the Banco de España’s Central Credit Register and regional variation in deposit market concentration, we show that the limited pass-through of policy rates to deposit rates produces heterogeneous effects on bank credit supply and risk-taking. Following the tightening cycle, banks operating in more concentrated deposit markets reduced credit more sharply to riskier firms. For newly originated loans, this contraction was accompanied by higher interest rates and improved realized returns. We document a novel dimension of the deposit channel: it compels banks to actively optimize their risk-return trade-off. Our results show that preserving deposit franchise value leads banks to prioritize prudence, reversing the “search-for-yield” dynamic observed during the zero-lower-bound era. |
| Keywords: | monetary policy, deposit channel, bank risk-taking, market concentration |
| JEL: | E52 E58 G21 G28 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2615 |
| By: | Bernhard Reinsberg |
| Abstract: | Since the Global Financial Crisis, money has been undergoing transformational changes. Cryptocurrencies like Bitcoin and the lesser-known stablecoins, powered by blockchain technology, have grown rapidly, allowing people to undertake financial transactions globally without central intermediaries. In addition, many countries have explored central bank digital currencies, which are digital representations of fiat monies controlled by national central banks. While descriptive studies on these money innovations abound, systematic analysis of their drivers is lacking. This paper offers the first systematic analysis of the conditions under which societies adopt these money innovations. Based on an original cross-country dataset capturing the extent to which money innovations have been deployed, regression analysis shows limited overlap in the significant drivers of these money innovations, aside from fundamental country characteristics including level of development, population size, and (to a lesser extent) regime type. Cryptocurrency use appears to be driven by macro-financial instability and lack of access to bank finance. In contrast, CBDC adoption by states appears to be driven by exposure to sanctions and previous experimentation with CBDC projects. While confirming the role of financial inclusion for cryptocurrency adoption, the findings partly challenge the official discourse of financial inclusion as a key motivation for CBDC adoption. |
| Keywords: | Digital money, cryptocurrency, central bank digital currency (CBDC), money innovations, cross-country analysis |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cbr:cbrwps:wpt202601 |
| By: | Tyler Atkinson; Jim Dolmas |
| Abstract: | How much is current "excess" inflation? We take a new approach to this question, focusing on movements in relative prices. |
| Keywords: | consumer goods; inflation; prices |
| Date: | 2025–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:101894 |
| By: | Christopher Otrok; Braden Strackman |
| Abstract: | The recent co-movement of inflation across countries, including the U.S., can be explained in part by global and regional factors. Policymakers, who have tended to more closely look closer to home may want to more broadly consider global events and pressures when addressing changing inflation pressures. |
| Keywords: | inflation; COVID-19; international economics; monetary policy |
| Date: | 2024–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:99021 |
| By: | Benjamin Knox; Annette Vissing-Jorgensen |
| Abstract: | We survey and extend work on the Federal Reserve’s effect on the stock market, focusing on three empirical findings: The effect of monetary policy surprises in a narrow window around announcements from the Federal Open Market Committee (FOMC), the pre-FOMC announcement drift, and the FOMC cycle in stock returns. We discuss the magnitude of the Fed’s impact (directional effects or effects on average stock returns), the types of shocks coming from the Fed (pure monetary policy shocks, reaction function news, or information about the Fed’s view of the economy), and the asset pricing channels through which effects emerge (an equity premia for news from the Fed, or changes to yields, equity premia, or expected dividends). We also consider the information transmission (communication) channels. The Fed’s effect on the stock market is large, even for average stock returns earned over periods of several decades. Fed-induced changes to both yields and equity premia play substantial roles, with less direct evidence available regarding cash flows. For stocks, reaction function news appears to be more important than Fed information effects. Communication flows outside announcements windows are important. |
| Keywords: | asset pricing; monetary policy transmission; Federal Open Market Committee (FOMC); monetary policy communication; risk premiums |
| JEL: | E52 G10 G12 |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103197 |
| By: | Matthew McCormick; Srini Ramaswamy |
| Abstract: | Mortgage rates are an important channel for monetary policy pass-through. However, this channel is complex. |
| Keywords: | mortgage; rates; monetary policy; spreads; Treasury yields |
| Date: | 2026–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103186 |
| By: | Klaus Adam; Andrey Alexandrov; Henning Weber |
| Abstract: | The misallocation costs associated with different aggregate inflation rates can be estimated from micro price data via a set of sufficient statistics. We show that this works for a broad class of price-setting models and in the presence of unobserved product-level heterogeneity in pricing frictions and flexible prices. Applying the suf ficient statistics approach to the micro price data underlying the U.K. consumer price index, we find large misallocation costs: aggregate productivity falls by about 1% if aggregate inflation is 8 percentage points above or below its optimal rate of 1.8%. Our findings provide important lessons for the calibration of sticky-price models: standard calibration targets can be uninformative about the sufficient statistics characterizing misallocation costs. To correctly capture these costs, models should be directly calibrated to the sufficient statistics that we uncover. |
| Keywords: | inflation, misallocation, sufficient statistics |
| JEL: | E31 E58 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_743 |
| By: | Zeqin Liu (School of Statistics, Shanxi University of Finance and Economics, Taiyuan, Shanxi 030006, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Ying Fang (The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China and Department of Statistics & Data Science, School of Economics, Xiamen University, Xiamen, Fujian 361005, China) |
| Abstract: | Expectation management is a critical yet challenging task for central banks, particularly within the Chinese context of dual-track regulation and multi-objective constraints. This paper investigates the transmission efficacy of the People's Bank of China's (PBoC) forward guidance by proposing an LLM-powered analytical framework. First, we employ adaptive semantic segmentation to partition communication texts based on genuine meaning shifts. Second, we apply tense-by-topic tagging to precisely separate forward-looking signals from retrospective ones and isolate monetary policy stances from macroeconomic assessments and other auxiliary themes. Third, we further decompose these forward-looking policy stance units into granular signals regarding overall tone, quantity tools, price tools, and targeted objectives, and subsequently classify these signals as accommodative, neutral, or tight. Based on this granular data, we construct three specialized indices: forward-looking net policy intention (NPSf), quantity-price signal divergence (QPSD), and multi-objective communication dispersion (MDI). Controlling for actual policy operations and macroeconomic variables, we employ local projections to identify the dynamic effects and friction mechanisms of expectation management. Empirical results reveal that forward-looking monetary policy communication is the cornerstone of expectation management, whereas retrospective statements have been fully priced in by the market. Specifically, the credit channel functions effectively; forward-looking intentions drive substantive adjustments in credit growth, real financing costs, and risk premiums. Conversely, transmission through interest rate expectations and asset price channels remains limited. Further analysis demonstrates that price-quantity signal divergence systematically weakens transmission across all channels. Moreover, multi-objective communication triggers an overshooting response in both short-term money market benchmarks and credit risk premiums, while objectively dampening the pricing sensitivity of equity assets. We suggest that central bank expectation management should prioritize strengthening forward-looking path guidance, supported by highly coordinated price-quantity signals and clearly defined dominant objectives, to enhance policy efficacy. |
| Keywords: | Expectation Management; Large Language Models; Forward Guidance; Dual-Track Monetary Policy; Multiple Policy Objectives; Local Projections |
| JEL: | E52 G12 C55 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:kan:wpaper:202613 |
| By: | Merendino, Alfonso; Monacelli, Tommaso |
| Abstract: | Using U.S. and Euro area data, we document that (i) the pass-through of energy prices to inflation is state-dependent - stronger when supply chain uncertainty is elevated – and (ii) in such states, energy prices become more informative about logistical conditions. We develop a model in which firms combine energy and a specialized input transported through a capacity-constrained transportation network. When congestion binds, energy remains available in local markets at a premium, whereas the specialized input is subject to delivery delays. Because energy prices reflect both raw energy shocks and transportation conditions, firms treat them as noisy signals of supply disruptions and update beliefs through Bayesian learning. This signal-extraction channel increases perceived marginal costs, generating an uncertainty wedge that amplifies and propagates energy shocks. Within a general-equilibrium New Keynesian model, the mechanism raises the impact elasticity and the persistence of inflation in response to transitory energy shocks. This challenges the conventional monetary policy prescription to “look through” supply disturbances. JEL Classification: E31, D83 |
| Keywords: | energy price shocks, incomplete information, inflation, pass-through, supply chain uncertainty, transportation shocks |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263230 |
| By: | Adolfsen, Jakob Feveile; Lappe, Marie-Sophie; Manu, Ana-Simona; Rößler, Denise; Schupp, Fabian; Stalla-Bourdillon, Arthur |
| Abstract: | This paper examines the impact of natural gas market shocks on gas market dynamics, inflation expectations and realized inflation in the Euro Area using a BVAR model. Our contribution lies in a novel identification strategy that distinguishes between various types of shocks of unprecedented detail, leverages weekly rather than monthly data, and extends the analysis to both market-based headline and core inflation expectations. We find that, although conceptually distinct, pipeline and liquefied natural gas (LNG) supply shocks have comparable effects on realized variables such as gas prices and actual inflation. By contrast, LNG supply shocks play a more limited role in shaping inflation expectations. Precautionary demand and industrial demand shocks also emerge as important drivers of inflation dynamics. This reflects both the forward-looking nature of precautionary shocks, which capture changes in investor sentiment, and the broader macroeconomic relevance of industrial demand shocks, whose effects extend beyond the gas market. JEL Classification: C50, C54, E44, Q43 |
| Keywords: | demand shocks, gas price, inflation-linked swaps, local projections, supply shocks |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263227 |
| By: | Martin Bruns; Helmut Luetkepohl; James McNeil (University of East Anglia, School of Economics; DIW Berlin and Freie Universitat Berlin; Department of Economics, Dalhousie University) |
| Abstract: | Several recent studies consider a set of proxies to identify different monetary policy shocks for different regions in the world. We show that the way the proxies are used to identify the monetary policy shocks may lead to correlated shocks and dubious structural analysis and we demonstrate how to overcome the problem of correlated shocks. We illustrate that, if correlated shocks are used in applied studies, key statistics of interest such as impulse responses and forecast error variance decompositions can be severely distorted and we consider bench- mark studies on monetary policy in the euro area (EA), the US and the UK to demonstrate the problems. |
| Keywords: | Structural vector autoregression; proxy VAR; GMM; correlated structural shocks |
| Date: | 2026–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:dal:wpaper:daleconwp2026-01 |
| By: | Lutz Kilian; Michael D. Plante; Alexander W. Richter; Xiaoqing Zhou |
| Abstract: | Recent research quantifies the impact of 2026 Iran war on U.S. inflation and household inflation expectations under a range of scenarios. Under a plausible scenario, 2026 fourth-quarter-over-fourth quarter headline personal consumption expenditures inflation would increase by 0.6 percentage points. |
| Keywords: | gasoline; inflation; oil; prices |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103086 |
| By: | Anthony Murphy; Isha Parmar |
| Abstract: | Despite consumer price inflation falling considerably since peaking in 2022, household inflation-related stress and concern remain elevated, having dropped only slightly. |
| Keywords: | inflation; consumer finance; Texas; labor |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:99407 |
| By: | Anton Cheremukhin; Sewon Hur; Ronald R. Mau; Karel Mertens; Alexander W. Richter; Xiaoqing Zhou |
| Abstract: | The U.S. experienced an extraordinary surge in immigration from 2021 to 2024, which triggered widespread discussions about its macroeconomic impact, particularly on inflation. To determine the impact of the immigration surge, we first document the salient features of these new immigrants: they are primarily low-skilled relative to the existing workforce and more likely to be hand-to-mouth consumers. We then incorporate these features into a heterogeneous agent model with capital-skill complementarity. We find that the supply- and demand-side effects of the immigration surge roughly cancel out, causing a negligible response of inflation. |
| JEL: | E21 E22 E31 F22 J11 J15 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35168 |
| By: | Hung Q. Tran |
| Abstract: | The passage of the US Genius Act in July 2025 has spurred the growth of stablecoins, mostly dollar-based, helping to modernize and improve payment transactions. The market capitalization of stablecoins increased rapidly to $317 billion in April 2026 and is expected to grow to $3-4 trillion by 2030. While still modest in scale, stablecoins—if fully developed, especially in the face of potentially strong competition from tokenized bank deposits—could have multifaceted effects on the economy and monetary system, both positive and negative, though these remain not yet well understood. Policymakers and market participants should be aware of these potential effects in order to realize the benefits while guarding against the risks of stablecoins. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb26_26 |
| By: | Tyler Atkinson; Ron Mau |
| Abstract: | January inflation data were stronger in 2023 and 2024 than forecasters expected, even after more encouraging results had been reported for the ends of 2022 and 2023. Rather than reflecting seasonal adjustment difficulties, this pattern may be caused by a large share of firms changing prices at the start of a new year. |
| Keywords: | forecasting; inflation; monetary policy |
| Date: | 2025–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:99565 |
| By: | Samuel J. Hempel; JP Perez-Sangimino; Jessie Jiaxu Wang |
| Abstract: | The expansion of stablecoins has moved digital payment tokens from the periphery of financial markets to the center of policy discussions. With a global market capitalization in the mid-hundreds of billions of dollars and annual settlement volumes in the trillions as of 2025, stablecoins are increasingly viewed not merely as crypto‐market infrastructure but as potential competitors to traditional transaction accounts, particularly in payment processing, settlement functionality, and as short-term stores of value for transaction balances. |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103193 |
| By: | Tyler Atkinson; Jim Dolmas; Rebecca Zarutskie |
| Abstract: | Divergence of core and trimmed mean inflation readings prompt reassessment of which one is the best indicator of medium-term trend. |
| Keywords: | core inflation; headline inflation; skewness; trimmed mean |
| Date: | 2026–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103085 |
| By: | Perazzi, Elena |
| Abstract: | The forward-guidance puzzle refers to the implausibly large effects of anticipated future interest rate changes on current output and inflation, as predicted by standard New Keynesian models. In this paper, we analyze both theoretically and numerically the nonlinear model that underlies the canonical linearized framework, explicitly tracking the full distribution of prices across firms. We show that large output expansions arise only under extreme and economically implausible circumstances: firms that are unable to reset prices are forced to sell below marginal cost while satisfying unbounded demand, thereby accumulating arbitrarily large losses. When we modify the model so that non-reoptimizing firms can at least set prices equal to marginal cost, output and inflation remain bounded and moderate. However, under this modification not all forward-guidance announcements are feasible in equilibrium. Our results identify a neglected microeconomic assumption as the root cause of the forward-guidance puzzle and clarify the limits of New Keynesian models in the analysis of large or persistent monetary shocks. |
| Keywords: | Forward Guidance; Nonlinear New Keynesian model; Equilibrium Feasibility |
| JEL: | E4 E5 E6 |
| Date: | 2026–02–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128045 |
| By: | Mariam Camarero (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón, Spain.); Antonia López-Villavicencio (Department of Applied Economics, Building B, Office: B3-052, Universitat Autònoma de Barcelona, 08193 Bellaterra, Barcelona, Spain.); Cecilio Tamarit (niversity of València and INTECO, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building, E-46022 Valencia, Spain.) |
| Abstract: | This paper examines how participation in global value chains (GVCs) shapes in- flation in the European Union over 1995–2023. Using local projections, we trace the dynamic response of inflation to total, backward and forward GVC shocks, at the aggregate level and across core, peripheral and CEEC economies. GVC integra- tion is, on average, disinflationary, supporting the discipline-on-prices hypothesis. The aggregate result, however, masks substantial heterogeneity: backward sourcing dampens prices in core and CEEC countries, forward linkages generate demand-pull in core suppliers and competitive discipline in CEECs, while peripheral economies behave as price-takers. Results are robust to first-differencing. |
| Keywords: | Global value chains; inflation; Phillips curve; local projections; European Union. |
| JEL: | E31 F14 F41 F62 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2609 |
| By: | Lorie Logan; Sam Schulhofer-Wohl |
| Abstract: | The Federal Open Market Committee primarily adjusts the stance of monetary policy through its target range for the federal funds rate. We discuss whether the fed funds rate remains the right operating target for short-term interest rates. |
| Keywords: | FOMC; federal funds rate; interest rates |
| Date: | 2025–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:101893 |
| By: | Christian Moser; Farzad Saidi; Benjamin Wirth; Stefanie Wolter |
| Abstract: | We study the distributional consequences of monetary policy-induced credit supply in the German labor market. Firms in relationships with banks that are more exposed to the introduction of negative interest rates in 2014 experience a relative contraction in credit supply, associated with lower average wages. Within firms, initially lower-paid workers are more likely to leave employment, while initially higher-paid workers see a relative decline in wages. Between firms, wages fall by more at initially higher-paying employers. Our results suggest that credit affects the distribution of wages and employment both within and between firms. |
| Keywords: | wages, employment, distribution, credit supply, monetary policy, downward wage rigidity |
| JEL: | J31 E24 J23 E51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12656 |
| By: | Sam Schulhofer-Wohl |
| Abstract: | This essay examines the trade-offs between different monetary policy implementation methods through the lens of the consolidated government balance sheet and income statement. |
| Keywords: | banking; finance; monetary policy; public finance |
| Date: | 2025–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:99847 |
| By: | Owen Kay; Lutz Kilian; Reid Taylor |
| Abstract: | Even a modest data center boom could put upward pressure on retail electricity prices, impacting PCE inflation. |
| Keywords: | data centers; electricity; inflation |
| Date: | 2026–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:102868 |
| By: | Hugo De Vere; Srini Ramaswamy; Sam Schulhofer-Wohl |
| Abstract: | The Fed has floating-rate liabilities as well as long-lived, zero-interest liabilities. A barbell of floating-rate and long-duration assets would best offset the interest rate risk from these liabilities. Investing in a more diversified mix of durations, while matching the average duration of assets, could be more practical than the barbell approach but would leave a substantial portion of interest rate risk unhedged. |
| Keywords: | assets; banking and finance; Federal Reserve; monetary policy |
| Date: | 2025–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:101409 |
| By: | Rachel A. Jones; Reid Taylor; Nitzan Tzur-Ilan |
| Abstract: | Overall, homeowners insurance is becoming less affordable, yet this deterioration in affordability is not well captured by either of the most widely used inflation measures—CPI or PCE—both designed to track price levels rather than affordability or household financial strain. |
| Keywords: | inflation; homeowners insurance |
| Date: | 2026–04–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103080 |
| By: | Ron Mau; Tucker Smith |
| Abstract: | We compare how price growth evolved in 2025 in core personal consumption expenditures (PCE) categories facing realized tariff rate changes. |
| Keywords: | tariffs; inflation; PCE; personal consumption |
| Date: | 2026–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103184 |
| By: | Uraku Yoshimoto (Faculty of International Social Sciences, Yokohama National University, Japan); Kiyotaka Sato (Faculty of International Social Sciences, Yokohama National University, Japan); Taiyo Yoshimi (Faculty of Economics, Chuo University, Japan); Takatoshi Ito (School of International Relations and Public Policy, Columbia); Junko Shimizu (Faculty of Economics, Gakushuin University, Japan); Yushi Yoshida (Faculty of Economics, Shiga University, Japan) |
| Abstract: | This study examines the determinants of invoice currency choice in Japanese export transactions to Thailand, utilizing granular data from Japan Customs. A key contribution of this study is its examination of how the ownership ratio (OSR) of Thai importers influences invoice currency choice in exports by Japanese complete car manufacturers and their subsidiaries. The empirical analysis reveals that a higher OSR of Thai importers is associated with a decreased likelihood of yen-denominated transactions. Furthermore, this study explores how invoice currency preferences diverge across different trade channels, including intra-firm trade. The findings reveal distinct patterns: parent companies predominantly prefer U.S. dollar-invoiced exports, whereas domestic subsidiaries—constrained by their limited capacity to manage exchange rate risks—exhibit a strong preference for yen-invoiced exports. These results underscore the significant differences in invoice currency strategies across trade channels. Notably, the analysis suggests that parent companies strategically select invoice currencies—whether yen or foreign currencies—as part of a broader effort to protect their foreign subsidiaries from exchange rate volatility, reflecting a deliberate approach to centralized risk management. |
| Keywords: | Ownership ratio, Invoice currency, Intra-firm trade, Overseas subsidiaries, Japan Customs transaction data |
| JEL: | F14 F23 F31 |
| URL: | https://d.repec.org/n?u=RePEc:mof:wpaper:ron385 |