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on Monetary Economics |
| By: | Bernd Hayo; Matthias Neuenkirch; Manuel Walz |
| Abstract: | This paper analyses the extensive and intensive margins of demand for a retail digital euro. We conducted a representative survey in France, Germany and Italy in November–December 2023. We find that 52–62% of respondents are willing to hold a digital euro, depending on the interest rate spread, with a higher share in Italy than in France or Germany. Design features (cash-like vs deposit-like) appear to play only a very limited role. Average demand depends on the hypothetical interest rate spread relative to current accounts and ranges from EUR 700 to EUR 1, 100, implying an aggregate demand of 1.5–2.5% of GDP. Willingness to hold a digital euro is associated with socio-demographic factors, trust in the ECB and the EU, digitalisation and payment behaviour. Negative interest rate spreads relative to current accounts reduce willingness to hold the digital euro more strongly than positive spreads increase it. Behavioural characteristics tend to be correlated with the likelihood of adoption, whereas economic factors, particularly income and interest rates, are mainly related to the level of demand. This distinction becomes more pronounced when conditioning on positive demand, suggesting that socio-demographic factors primarily influence participation decisions rather than quantities demanded. |
| Keywords: | CBDC demand, digital euro, ECB, household survey, monetary policy |
| JEL: | E41 E42 E51 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12706 |
| By: | Lamont, Dougald |
| Abstract: | Given that money is so ubiquitous, it is surprising that neoclassical macroeconomic theories, among other monetarist schools, do not model money: it is assumed. As a consequence, their theories often analyze the economy by a kind of mathematical analogy, This manuscript starts with understanding money by describing the public and private legal processes by which it is created. This reveals that all money is created as specific kind of legal agreement: a forward contract. This concept of money is fundamentally different than the monetarist theories. It is not a commodity based on past work, but an agreement from fulfilling future promises. Archaeological evidence from Mesopotamia that pre-date the alphabet suggests this is what money has always been. Such contracts were the first examples of writing. To help understand mechanisms at work in generating value based on uncertainty and partial information, I provide a philosophy of money that draws the links between Keynes’ concept of probability, a/h, and Claude Shannon and Norbert Weiners’ formulas and concepts of information as entropy. I’ll then examine some of the implications and consequences for monetarist macroeconomics, including on what could be done differently to assess and address the many crises besetting the world. |
| Keywords: | Monetary Sovereignty; Private Credit Creation; Forward Contracts; Chartalism (State Theory of Money); Debt Deflation; Monetarist Critique; FIRE Sector; Information Theory; Entropy (Economic); a/h Probability; Cybernetics; 80/20 Power Law (Pareto Principle); Fractal Distribution; Legal Bond; Cuneiform/Mesopotamian Accounting; Double-Entry Bookkeeping; PolyCrisis; Rule of Law; Greek Economic Crisis; Hyperinflation (Germany/Venezuela); The Great Depression (Canada) |
| JEL: | A1 B52 C60 D31 D80 E12 E51 E52 E58 G01 H6 H60 H63 K0 |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128767 |
| By: | Martin Wolf; Luca Fornaro |
| Abstract: | We provide a macroeconomic framework to study monetary and fiscal policies for AI. Advances in AI expand firms' ability to automate production. While higher automation boosts productivity and potential output, it also reduces workers' share of income. Since workers have a high propensity to consume, advances in AI may depress aggregate demand and lead to a slump. Expansionary monetary policy can convert an AI slump into an AI boom, but in doing so it faces two challenges. In the short run, AI worsens the inflation-employment trade off faced by the central bank. In the medium run, monetary policy may be constrained by the zero lower bound, since weak demand lowers the natural rate. Employment subsidies and cuts in labor taxes can usefully complement monetary policy, by reducing firms' cost of labor and inflation, as well as supporting workers' income and aggregate demand. |
| Keywords: | AI, artificial intelligence, automation, endogenous productivity, inflation, liquidity traps, monetary policy, wages |
| JEL: | E32 E43 E52 O31 O42 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1576 |
| By: | Sam Large; Joe Trim; Ella Barker; Louis Zanden; Phill O’Neill; Chris Sampson |
| Abstract: | Inflation reshapes the economic landscape in which new treatments are evaluated. Yet cost-effectiveness thresholds tend to remain fixed over time. This report examines how inflation in NHS healthcare costs associated with resource use affects the estimation of incremental costs in health technology assessment (HTA), and what this means for the cost‑effectiveness and commercial viability of new technologies when decision thresholds do not adjust accordingly. Throughout this paper, we distinguish between intervention costs (e.g. the price of treatments) and background NHS costs (i.e. healthcare resource use associated with delivering care related or unrelated to an intervention). Annual publications of NHS unit… |
| JEL: | I1 |
| Date: | 2026–06–04 |
| URL: | https://d.repec.org/n?u=RePEc:ohe:conres:002533 |
| By: | Luca Benati; Juan Pablo Nicolini |
| Abstract: | Modern analysis of the welfare effects of monetary policy is based on moneyless models and therefore ignores the effect of inflation on the efficiency of transactions. A justification for this strategy is that these welfare effects are quantitatively very small, as argued by Ireland (2009). We revisit Ireland’s result using recent data for the United States and several other developed countries. Our computations are influenced by the experience of very low short-term rates observed since Ireland’s work in the countries we study. We estimate the welfare cost of a steady state nominal interest rate of 5% to be at least one order of magnitude higher than in Ireland (2009), which questions the validity of performing monetary policy evaluation in cashless models. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpecon:2025_10 |
| By: | Patrick A. Imam; Mr. Tigran Poghosyan |
| Abstract: | This paper investigates why the post-COVID inflation surge, though globally synchronized, led to widely divergent outcomes across countries. Using cross-country regressions for 130 economies and local projections methods for 70 advanced and emerging markets, we analyze the structural, institutional, and policy determinants of post-pandemic inflation dynamics. The results indicate that historical inflation and the scale of domestic energy price shocks account for most of the cross-country variation in cumulative post-COVID inflation. In contrast, many frequently cited country-specific, macroeconomic fundamentals and institutional features exhibit limited power to explain cross-country variation. The association between post-COVID inflation and domestic policy responses is also weak, although endogeneity complicates a clear causal interpretation. The analysis further reveals that pass-through from energy prices to headline inflation intensified markedly in the post-COVID period, particularly in emerging markets, in non-inflation-targeting regimes, and in countries that did not expand fossil fuel subsidies. These findings highlight the asymmetric transmission of supply shocks and underscore the importance of credibility, historical inflation experience, and energy policy design in shaping inflation persistence. Strengthening central bank credibility and anchoring expectations may be essential to bolster resilience against future global supply disruptions. |
| Keywords: | Inflation Targeting; Central Bank Credibility; Supply Shocks |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/103 |
| By: | Takuji Kondo (Bank of Japan); Yuki Takahashi (Bank of Japan); Kosuke Takatomi (Bank of Japan) |
| Abstract: | This paper quantitatively investigates how closely Japanese households' wage growth expectations are linked with their price inflation expectations, using microdata from Japanese household surveys. The estimation results reveal that the linkage between wage growth expectations and price inflation expectations has strengthened in recent years. We further find that heterogeneity in the degree of linkage across households is statistically significantly related to the labor market conditions of individual households - such as labor market tightness and labor mobility - as well as their income levels and labor union membership status. Japan's labor market has been experiencing a gradual shrinking of the room for additional labor supply partly due to population aging. Such structural factors may have contributed to the recent strengthening of the linkage. This paper also examines how the strengthening of the linkage affects households' spending attitudes. We find that households with a stronger link tend to maintain relatively stronger spending attitudes even during periods of rising prices, as their expected real income declines are more limited. These findings suggest the importance of wage growth expectations being appropriately linked to price inflation expectations for sustaining consumption and achieving sustainable economic growth. |
| Keywords: | Price Inflation Expectations; Wage Growth Expectations; Wage Bargaining Power; Household Spending Attitude; Survey Data |
| JEL: | D12 D84 E21 E24 E31 |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp26e09 |
| By: | Johanna Tiedemann; Olivier Bizimana; Kiswendsida Tougouma |
| Abstract: | This paper empirically reassesses monetary policy transmission in emerging and frontier market economies in Sub-Saharan Africa (SSA EFMs). Using the identification approach of Romer and Romer (2004), we construct measures of monetary policy shocks and provide evidence on transmission mechanisms in the region. We show that monetary policy shocks pass through quickly to short-term market interest rates and lead to persistent increases in bank deposit and lending rates in most economies, indicating an operative bank-based interest rate channel. By contrast, exchange rates generally do not appreciate and, in many cases, depreciate following monetary tightening, consistent with the exchange rate puzzle—suggesting that interest rate hikes alone may be insufficient to systematically influence exchange rate movements. We also find that contractionary monetary policy reduces both output and inflation, with effects that are modest and notably weaker than in more developed economies. In addition, we find that transmission is stronger in economies that have adopted, or are transitioning toward, inflation-targeting regimes. Finally, we show that cross-country heterogeneity in transmission largely reflects differences in monetary policy transparency, financial development, and, to a lesser extent, fiscal dominance. |
| Keywords: | Monetary policy transmission; inflation; Financial markets; Sub-Saharan Africa |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/102 |
| By: | Tanisa Tawichsri; Suppawong Tuarob; Nuwat Nookhwun; Chinjuta Sangasaeng |
| Abstract: | We develop a news-based inflation expectations index for Thailand using a scalable workflow that integrates topic modeling, LLM-assisted labeling, and fine-tuned BERT classification. Based on 1.1 million Thai-language news articles from 2015–2024, the index leads both headline inflation and firm inflation expectations. Given that inflation narratives in news are inherently subjective and often ambiguous, we show that prompt design can materially affect downstream economic inference. In out-ofsample forecasting, augmenting autoregressive benchmarks with the news index reduces RMSE by up to 32% for headline inflation and 30% for firm inflation expectations, with gains increasing at longer horizons. SHAP-based decomposition reveals a horizon-dependent information structure: price-specific topics drive short-term forecasts, while macroeconomic narratives dominate at longer horizons. Our findings demonstrate that LLM-assisted text analysis can generate economically meaningful inflation indicators in non-English, emerging-economy settings. The index also performs particularly strong during periods of elevated inflation uncertainty. |
| Keywords: | Inflation expectations; Text-based indicators; Online news data; Large language models (LLMs); Machine learning; Sentiment analysis; Nowcasting and forecasting; Emerging economies |
| JEL: | E31 E37 D84 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:252 |
| By: | Paul Beaudry; Thomas J Carter; Amartya Lahiri |
| Abstract: | When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and explore optimal policy under various assumptions on how agents form their expectations and the sophistication with which those expectations account for the central bank’s announced policies. While our analysis covers a wide range of potential specifications, our baseline results focus on level-k thinking (LKT) – a form of bounded rationality that enjoys significant support in the experimental literature and encompasses both adaptive expectations (AE) and rational expectations (RE) as special cases. Nonetheless, we show that the optimal policy under LKT is qualitatively very different from its analogues under AE and RE, exhibiting abrupt pivots in the policy stance. In particular, it is optimal for the central bank to initially look through supply shocks until a threshold is reached, then pivot discontinuously to a more hawkish anti-inflationary stance. We find that such pivots can, if optimally executed, be compatible with soft landings in the sense that most (or even all) of the reduction in inflation occurs through re-anchoring of expectations rather than economic slack. We also discuss risks and why policy errors in terms of tightening too late or too slowly can be especially costly in such an environment. |
| Keywords: | Inflation expectations; supply shocks; monetary policy |
| Date: | 2026–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/097 |
| By: | Lucyna Gornicka; Sumaiyah R Mirza; Vina Nguyen; Mr. Jerome Vandenbussche |
| Abstract: | We document the state-dependence of monetary policy transmission to output and core consumer prices in a sample of eleven large inflation-targeting emerging markets along three cyclical dimensions: the business cycle position, the monetary policy stance, and the level of trend inflation. We show that monetary policy has strong effects on output during recessions and after a period of loose monetary policy, but little to no impact during expansions or when monetary policy has been tight. In contrast, the response of prices is muted regardless of business cycle position or monetary policy stance. Transmission also depends on trend inflation: when trend inflation is low, monetary policy has a stronger impact on output and a weaker effect on prices, whereas a high-inflation environment dampens the output response and amplifies price adjustments. These findings are broadly consistent with the presence of financial frictions in the form of occasionally binding borrowing constraints, endogenous frequency of price adjustments, loss aversion preferences, and a convex Phillips Curve. |
| Keywords: | Monetary policy transmission; state-dependence; emerging markets |
| Date: | 2026–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/096 |
| By: | Raza, Hassan; Siddiqui, Danish Ahmed |
| Abstract: | While the growing, informal adoption of cryptocurrencies exacerbated by Pakistan's inconsistent regulatory stance regarding cryptocurrency adoption and regulation, presents a speculative and volatile threat to the nation's financial stability, a well-designed Central Bank Digital Currency (CBDC) offers a controlled, secure, and regulated path toward financial inclusion, economic formalization, and enhanced monetary policy control. The objective of this analytical review to search the grey literature and Scientific writings to analyze the mix approach of Pakistan toward Digital Finance especially Cryptocurrency and CBDC. This review article examines this ideological struggle, tracing the history of the State Bank of Pakistan's (SBP) and Securities and Exchange Commission of Pakistan's (SECP) cautionary stance on decentralized cryptocurrencies, driven by concerns over financial integrity, money laundering, and consumer protection. It then contrasts this with the government's recent pivot toward a pro-innovation approach, spearheaded by the establishment of the Pakistan Crypto Council (PCC) and the appointment of key advisors. This pivot is a direct response to a burgeoning, informal digital asset market, with millions of Pakistanis already actively using virtual currencies to hedge against inflation and overcome financial access barriers. The article analyzes two parallel policy pathways emerging from this tension: the development of a state-controlled Central Bank Digital Currency (CBDC) and the formalization of the decentralized virtual assets market through the new Virtual Assets Act (VAA) 2025. The research offers a comprehensive understanding of the strategic trade-offs a developing country faces when navigating the complex relationship between financial stability, technological innovation, and economic inclusion, providing a crucial case study for international policymakers. |
| Keywords: | CBDC, Cryptocurrency, Digital Pakistani Rupee, Pakistan Crypto Council (PCC), Distributed Ledger Technology |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341060 |
| By: | Alexander Chudik; Enrique Martínez García |
| Abstract: | We compare Federal Reserve Board staff forecasts with professional forecasts from Blue Chip Economic Indicators for headline Consumer Price Index inflation. The relevant question then is not whether inflation forecasts matter, but rather what their content reveals. |
| Keywords: | Federal Reserve; Consumer Price Index (CPI); Blue Chip; inflation; forecast |
| Date: | 2026–05–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103298 |
| By: | Asker Lau Andersen (Department of Economics, University of Copenhagen); Andreas Jakobsen (Danske Bank, Copenhagen Business School); Mads Rahbek Joergensen (Danske Bank, Department of Economics, University of Copenhagen); Niels Johannesen (Oxford University Centre for Business Taxation, University of Copenhagen) |
| Abstract: | We study the transmission of rising interest rates to consumption using granular customerdata from a major bank in Denmark. We show that households with adjustable-ratemortgages gradually reduced spending and increased deposits as market rates soared in 2022 but made no further spending cuts when their mortgage rates eventually reset to a higher level in 2023-2024. These patterns are consistent with forward-looking households who respond to new information about future mortgage costs and use liquid buffers to smooth consumption. The cash-flow channel of monetary policy may therefore operate almost instantaneously even when mortgage rates reset with a significant lag. |
| Keywords: | Consumption, Saving, Cash-flow effect, Monetary policy, Mortgage |
| JEL: | D12 D14 E21 E43 E52 |
| Date: | 2026–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2604 |
| By: | Mikael Juselius; Wenzhe Li |
| Abstract: | We systematically investigate the relationship between China's inflation, eco nomic slack, and expectations through the lens of New Keynesian Phillips Curves (NKPC). Extending existing research, we employ inflation expectations from Con sensus Economics over recent samples and assess the stability of the estimates. Despite China's unique and evolving institutions, NKPC estimates are stable and show significant roles for both the output gap and inflation expectations in contrast to previous findings. Incorporating open-economy variables marginally enhances the models performance. Our results suggest that the New Keynesian framework can be adopted to China without adjustments for specific institutional features. |
| Keywords: | China, inflation, New Keynesian Phillips Curve, emerging markets |
| JEL: | E31 E37 E58 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1353 |
| By: | Mark A. Carlson; Daben Chen; Benjamin K. Johannsen |
| Abstract: | This article examines press releases from the Board of Governors of the Federal Reserve System (Board) in the 1960s and 1970s related to changes in the discount rate through the lens of monetary policy communications. As argued by Yellen (2013), we start from the premise that communications have a "distinct and special role in monetary policymaking." |
| Date: | 2026–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103334 |
| By: | Labastidas, Esteban |
| Abstract: | We develop and evaluate a hybrid early-warning system for year-over-year (YoY) inflation in Colombia that combines four econometric models (ARIMA, LASSO, ElasticNet, and a weighted ensemble), a reduced-form VAR, an agent-based model with heterogeneous expectations and tradable/non-tradable pass-through (ABM v2), a large language model (LLM) forecaster, and a multi-output agent architecture, integrated through Dynamic Model Averaging (DMA). We evaluate the system on a rolling out-of-sample backtest from February 2010 to March 2026 (n ≈ 194 months) spanning the 2021–2023 inflation surge and its ongoing disinflation. Five contributions emerge. First, an identity-based monthly-to-YoY decomposition applied uniformly across reduced-form models reduces MAE by 15–20% relative to direct YoY forecasting without adding variables. Second, regime-conditional analysis shows that MAE is 2.0–3.0 times larger in surge regimes than in stable regimes across all models. Third, an ABM with regime-dependent heterogeneous expectations reduces full-sample MAE from 0.337 pp (v1) to 0.268 pp (v2, −20.4%) and surge-regime MAE from 0.585 pp to 0.404 pp (−31.0%), with Diebold-Mariano statistic 6.21 (p |
| Keywords: | Inflation forecasting, Emerging markets, Agent-based models, Heterogeneous expectations, Large language models, Dynamic model averaging, Diebold-Mariano test, Colombia |
| JEL: | C45 C53 E31 E37 |
| Date: | 2026–04–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128779 |
| By: | Matthew Fink (Reserve Bank of Australia); Jonathan Hambur (Reserve Bank of Australia) |
| Abstract: | The sharp rise in inflation following the COVID-19 pandemic has renewed interest in how firms adjust prices after large economic shocks and the implications for modelling inflation and setting monetary policy. Using a large dataset of web-scraped Australian retail prices, we document an increase in the frequency of price changes in 2022 and 2023, alongside strong goods price inflation. We incorporate these microdata-based estimates of price-setting frequency into the Reserve Bank of Australia's dynamic stochastic general equilibrium model to assess their macroeconomic implications. We find that failing to account for higher rates of price adjustment during the high-inflation period leads to inflation forecasts that are up to 1.2 percentage points too low, even when the underlying shocks are known. The increase in the frequency of price resets also steepens the Phillips curve, reducing the policy trade-off between inflation and output. Given knowledge of this change in price-setting behaviour, a hypothetical central bank with unchanged preferences would tend to raise interest rates more aggressively than in a scenario where price rigidity was stable. Our findings highlight the importance of accounting for shifts in price-setting behaviour when interpreting inflation and setting monetary policy. |
| Keywords: | inflation; price setting; monetary policy |
| JEL: | E31 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2026-02 |
| By: | Quaicoe, Nana |
| Abstract: | In economies where a portion of the population transacts through mobile money and the other portion strictly uses only cash, can any single interest rate rule serve both groups well? I develop a two-agent New Keynesian model calibrated to Ghana in which included households manage liquidity through mobile money under Baumol– Tobin demand, while excluded households depend on government transfers under fiscal dominance. I find a critical threshold at approximately 70 percent financial exclusion.Below it, aggressive inflation targeting is optimal for both household types. Above it, the welfare surface for included households develops an interior optimum, the optimal Taylor rule diverges across groups, and no single rule resolves the conflict. The distributional cost of monetary policy is convex in exclusion: the welfare variance ratio between household types rises from 7.6:1 at 50 percent exclusion to 98:1 at 80 per- cent, the range observed across Sub-Saharan Africa. Aggregate welfare statistics mask this entirely. The trade-off is reducible only through financial inclusion, not through monetary policy design. |
| Keywords: | monetary policy, financial inclusion, mobile money, TANK model, fiscal dominance, Taylor rule, distributional effects, Sub-Saharan Africa |
| JEL: | E52 E58 G23 O16 |
| Date: | 2026–04–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128793 |
| By: | Francesco Zanetti; Xiwen Bai; Jesús Fernández-Villaverde; Yiliang Li |
| Abstract: | We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-007e |
| By: | Raza, Hassan; Siddiqui, Danish Ahmed |
| Abstract: | he primary objective of this study is to develop an optimal framework for a Retail Central Bank Digital Currency (CBDC) by determining how its design features should be structured to achieve financial inclusion and monetary policy enhancement in a developing economy like Pakistan, while explicitly mitigating risks to financial stability and public adoption. This research employed a Systematic Literature Review (SLR) following the PRISMA 2020 Guidelines. A total of 224 academic papers were assessed to synthesize global findings and identify critical consensus and conflicts regarding CBDC design, particularly in contexts relevant to developing nations. The analysis reveals a strong consensus supporting a two-tiered, accessible, and interoperable model as the most pragmatic design. Literature frequently points to the use of Distributed Ledger Technology (DLT) for smart contract functionality and enhanced security, regardless of whether the system is account- or token-based. The review establishes two central tensions in design. The first highlighted is the core conflict between mitigating systemic risk and expanding access. The Second seem to arise from the perspective of Privacy vs. AML/CFT concerns. The viable path for this trade-off is indicated as a tiered system offering high privacy for low-value transactions while mandating stringent AML/CFT checks for large transfers. These findings provide a robust, evidence-based design blueprint for the State Bank of Pakistan and other developing countries considering the issuance of a retail CBDC. By explicitly defining the necessary trade-offs (stability vs. inclusion; privacy vs. compliance), this framework allows policymakers to prioritize design features that maximize public trust and regulatory compliance, thereby significantly accelerating the successful adoption and effective use of a CBDC as a tool for economic modernization and financial deepening. |
| Keywords: | Central Bank Digital Currency, Distributed Ledger Technology, PRISMA2020 Guidelines, Digital Pakistani Rupees, Retail CBDC, Financial Inclusion, Financial Stablitiy |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341059 |
| By: | Juan Camilo Medellín-Martínez; Sergio Restrepo-Ángel |
| Abstract: | We empirically disentangle the short vs medium-run effects of exchange rate movements, on the investment of non-financial firms in Colombia from 2005 to 2019. We find that a structural depreciation of the peso weights on investment through a balance-sheet effect for firms with Foreign Currency (FC) debt. Exports provide a natural hedge against exchange rate fluctuations but only in the short-run. FC forwards protect firms against surprise currency depreciations; nevertheless, they present a cost of opportunity in terms of real investment. We also find that in periods of a depreciated exchange rate, big firms financially hedge while export-oriented and foreign firms use natural hedging and their relationship with headquarters to protect themselves against exchange rate movements. We rationalize our findings with the international macro and micro-finance literature. ***ABSTRACT: Desentrañamos empíricamente los efectos de corto y mediano plazo de los movimientos del tipo de cambio sobre la inversión de las empresas no financieras en Colombia entre 2005 y 2019. Encontramos que una depreciación estructural del peso afecta negativamente la inversión a través de un efecto en el balance para las empresas con deuda en moneda extranjera (ME). Las exportaciones ofrecen una cobertura natural contra las fluctuaciones del tipo de cambio, pero solo en el corto plazo. Los contratos forward en ME protegen a las empresas frente a depreciaciones sorpresivas de la moneda; sin embargo, implican un costo de oportunidad en términos de inversión real. También encontramos que, en períodos de depreciación del peso frente al dólar americano, las grandes empresas realizan coberturas financieras. Asimismo, las empresas orientadas a las exportaciones y las que tienen un componente extranjero accionario importante, utilizan coberturas naturales y con las casas matrices para protegerse de los movimientos cambiarios. Racionalizamos nuestros hallazgos con la literatura de macroeconomía internacional y microfinanzas. |
| Keywords: | Foreign currency debt, Exchange Rate, hedging, Currency mismatch, Investment, Deuda en ME, Tasa de cambio, cobertura, Descalce cambiario, Inversión |
| JEL: | F31 F41 G11 G32 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1354 |
| By: | Mintrapan Chaeng-lum; Nuwat Nookhwun; Jettawat Pattararangrong |
| Abstract: | This paper examines factors behind the persistence of dominant currency pricing and the effectiveness of de-dollarization policies in the context of emerging market economies. Using a transaction-level customs dataset of Thailand spanning 2007–2024, we document the dominance of dollar invoicing in Thai export transactions, despite a gradual rise in baht invoicing. Such dollar dominance is largely explained by firm and industry characteristics, including imported input exposure, strategic complementarities and inertia in invoicing currency choice. Meanwhile, the introduction of the Local Currency Settlement Framework (LCSF) between Thailand and partner countries including Malaysia and Indonesia moderately reduces dollar reliance, with effects being heterogeneous across firms and industries. Notably, we find that dollar-denominated liabilities do not influence invoicing choice, suggesting some disconnection between operational and financial hedging. |
| Keywords: | Invoicing currency choice; Dollar dominance; Dollar-denominated debt; Local currency settlement framework; Firm-level trade; Thai exports |
| JEL: | F14 F3 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:250 |
| By: | Bijnens, Gert; Hutchinson, John; Saint Guilhem, Arthur |
| Abstract: | Monetary policy asymmetrically affects the response of firms’ employment to an output shock and plays a role in cushioning employment adjustment over the business cycle. Combining annual firm-level data until 2020 with quarterly firm-level data until 2023 and high-frequency monetary policy surprises, we show that for a given change in output, monetary policy influences the extent to which firms hold on to labour, or “labour hoard”. Furthermore, this effect is asymmetric: a restrictive monetary policy reduces labour hoarding behaviour by 2 to 3 times more than an accommodative policy increases it. Finally, we look at the role of financing conditions and firm demographics. JEL Classification: E52, J23, E32 |
| Keywords: | employment adjustment, financial constraints, firm-level heterogeneity, labour hoarding, monetary policy transmission |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263240 |
| By: | Alessandro Barbarino; Anthony M. Diercks; Stephen I. Miran |
| Abstract: | From November 2025 to March 2026, the "Computer Software and Accessories" category of the Personal Consumption Expenditures (PCE) price index made an unprecedented contribution to the rise in core and core goods inflation. Figure 1 shows the historical average since 2000 for core and core goods inflation while excluding software (blue bars) along with the contribution of software (gray bars). |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103335 |
| By: | Venslauskas, Kazimieras |
| Abstract: | This paper examines the fiscal and institutional implications of post-pandemic public debt dynamics, with particular focus on the treatment of sovereign debt instruments held by central banks. It develops a normative framework for assessing the macroeconomic and institutional dimensions of pandemic-era debt expansion and subsequent normalization strategies. The analysis is intended to inform ongoing debates in fiscal and monetary policy coordination, debt sustainability, and institutional design in advanced economies. |
| Keywords: | fiscal policy, monetary policy, public debt, sovereign debt, central bank balance sheet, macroeconomic policy, post pandemic economy |
| JEL: | E6 E62 |
| Date: | 2026–04–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128889 |
| By: | Aykut Sengul; Levent Cinko |
| Abstract: | This paper provides causal estimates of how balance-sheet exposure to floating rate debt transmits monetary tightening into corporate default risk. Leveraging the June 2023 policy shift in Türkiye and a large administrative dataset, we employ a two-part Double Machine Learning framework to disentangle selection from causation, distinguishing between the extensive margin of exposure and the intensive-margin effects. We find that while the average effect is modest, indicating aggregate resilience, treatment effects are markedly heterogeneous and economically significant for a vulnerable subset. Sensitivity is concentrated in firms with weak internal risk ratings, low liquidity, and high exposure shares, whereas exporters and manufacturers are relatively insulated. This relative resilience is consistent with standard transmission mechanisms: exporters and manufacturing firms are more likely to generate foreign-currency revenues and benefit from exchange-rate pass-through, while their working capital cycles and pricing structures allow for partial absorption of higher interest expenses, attenuating the balance-sheet impact of monetary tightening. Moving beyond estimation, we introduce 'explainable heterogeneity' by applying SHAP analysis to causal forest estimates, thereby transparently mapping firm traits to causal sensitivity. |
| Keywords: | Corporate default, Double machine learning, Causal forests, Explainable AI, Treatment effect heterogeneity |
| JEL: | C21 C38 E52 G21 G33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2610 |
| By: | Kenjiro Kataoka (Bank of Japan); Mashu Namiki (Bank of Japan); Masabumi Shimada (Bank of Japan); Yoshihiro Takada (Bank of Japan) |
| Abstract: | In response to the announcement of U.S. reciprocal tariffs in April 2025, the foreign exchange (FX) market experienced rapid fluctuations. This paper aims to analyze the structural characteristics of transactions in Japan's FX market, based on the results of the Triennial Central Bank Survey conducted by the Bank for International Settlements (BIS) in April 2025. The analysis considers various perspectives such as instrument, currency, and counterparty. Additionally, this paper examines the factors driving FX turnover in Japan, comparing it to other FX markets in Asia. |
| Keywords: | Foreign exchange; Turnover; Market structure |
| JEL: | F31 G12 G15 |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojrev:rev26e08 |
| By: | Glenn Abela; Arianna Antezza; Alissa Gorelova; Gianmarco Meta; Roberta Montebello |
| Abstract: | We study sign asymmetry in the effect of conventional monetary policy on key real macroeconomic variables in the euro area, using monthly data ranging from 2002 until 2022. We make use of local projections with state-dependence coming from the sign of the monetary policy shock, employing shocks identified using high-frequency identification. Our baseline findings suggest that there are asymmetries in the response of real variables to contractionary and expansionary monetary policy shocks. Furthermore, we investigate the potential sources of asymmetry by clustering countries that present similarities in proxies of labour, financial and housing markets, respectively. We find results that are consistent with theoretical predictions that downward nominal wage rigidities, sectoral composition of the economy, firm sizes as well as the housing market and housing debt conditions all contribute to the sign asymmetries we uncover in our baseline results. |
| Keywords: | Monetary economics, central banking, high-frequency identification, asymmetries |
| JEL: | E52 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2165 |
| By: | Okan Akarsu; Emrehan Aktug |
| Abstract: | This paper examines how monetary policy committee announcements and inflation surprises affect Turkish firms' inflation expectations and FX management decisions during the 2015–2024 period—a time characterized by both relatively stable and highly volatile inflation. Using survey data, we define monetary policy (inflation) surprises as the unexpected component of interest rate (inflation) forecasts measured within a narrow window around policy announcements. First, we show that firms' aggregate inflation expectations change significantly in response to monetary policy shocks, but their response is highly state-dependent: In relatively stable inflation environments, firms react in line with standard theory, anticipating a decline in prices while becoming pessimistic about the economic outlook. By contrast, in volatile settings, firms adopt a supply-side interpretation, revising their expectations upward amid pessimism. Second, inflation surprises increase inflation expectations and heighten pessimism regardless of the state, providing additional evidence for the supply-side view. Third, a positive inflation surprise induces an increase in FX holdings—reflecting concerns about potential currency depreciation—whereas an unexpected policy rate hike prompts firms to reduce FX positions in anticipation of currency appreciation. Our findings demonstrate that in a high-inflation environment, firms are especially attentive to macroeconomic developments, revising their inflation expectations and adjusting their financial strategies accordingly. These results underscore the importance of monetary policy communication and inflation news in shaping firm-level decisions, particularly when inflation is elevated and volatile. |
| Keywords: | E12; E24; E31; E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2609 |
| By: | Xiwen Bai; Jesus Fernandez-Villaverde; Yiliang Li; Francesco Zanetti |
| Abstract: | We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off. |
| Keywords: | monetary policy, supply chain disruption, state dependence, Convex Supply Curve, inflation |
| JEL: | C32 E31 E32 E52 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-37 |
| By: | Ryan Niladri Banerjee; Hyun Song Shin; Jose María Vidal Pastor |
| Abstract: | The elastic supply of money through overdrafts and credit lines overcomes cash-in-advance con straints, enabling large-value payments without waiting for incoming cash. This elasticity is crucial in long supply chains, where cash-in-advance constraints could otherwise cause gridlock. In essence, money elasticity and the supply of working capital are two sides of the same coin, with undrawn credit lines serving as the operative link. This paper examines how shifts in financial conditions influence money elasticity and, in turn, impact firm activity within produc tion networks. Using granular firm-level data, we demonstrate that production-network-driven working capital needs introduce a cyclical element that dances to the tune of financial conditions. Tighter conditions, such as rising credit spreads or a stronger US dollar, significantly reduce output, with spillovers through production networks amplifying the effects. These findings underscore the importance of money elasticity in supporting economic stability. |
| Keywords: | money elasticity, working capital, credit lines, financial conditions, input-output linkages |
| JEL: | E23 E32 E41 E44 E51 F65 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1350 |
| By: | Kohei Maehashi (Bank of Japan); Daisuke Miyakawa (Waseda University); Takatoshi Sasaki (Bank of Japan) |
| Abstract: | In this paper, we develop a model to predict large currency swings using transaction-level data on foreign exchange options, collected by trade repositories (TRs). These data allow us to capture heterogeneous currency risk perceptions of individual market participants. By applying a quantile regression combined with machine learning for variable selection, we find that market participants' views extracted from trade repository data significantly improve the predictions of large currency swings. |
| Keywords: | Currency swing; Granular data; Trade repository; Foreign exchange option; Quantile regression; Variable selection |
| JEL: | C22 C55 F31 G17 |
| Date: | 2026–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp26e10 |
| By: | Hugh Montag; Randal J. Verbrugge |
| Abstract: | Shelter inflation, driven by continuing-tenant rents, accounts for one-third of the consumer price index (CPI). Yet continuing-tenant rent inflation, notoriously sticky, has attracted almost no theoretical attention. Standard sticky price theories cannot explain the basic facts. We provide a simple theory yielding implicit contracts as an equilibrium. The landlord will wish to renege when costs rise; reputation is unavailable to enforce the contract. A well-established mechanism serves: landlord off-equilibrium-path play might result in renter frustration and endogenous breakup. Our implicit-contracts theory gracefully explains nominal (rather than real) rigidity, and provides a microfounded explanation of key rental market facts. |
| Keywords: | continuing-tenant rent; inflation; frustration; customer anger; costly punishment |
| JEL: | R31 R21 E31 |
| Date: | 2026–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:103313 |
| By: | Iñaki Aldasoro; Sebastian Doerr; Haonan Zhou |
| Abstract: | We establish a causal link between liquidity regulation and a lower cost of bank wholesale funding. For identification, we use pre-determined variation in banks' liquidity coverage ratio (LCR) in a difference-in-differences setup. Granular instrument-level data allow us to carefully control for any observable and unobservable time-varying factors at the creditor, instrument type, and macroeconomic levels. We find that banks with greater LCR exposure see a steeper decline in their wholesale funding costs. Consistent with seminal theoretical papers on bank liquidity risk, we provide novel evidence that wholesale funding costs decline by more for longer-maturity instruments and that banks shift from short to longer maturity liabilities. Our results support the argument that bank regulation can– at least partly– offset its costs to intermediaries through cheaper wholesale funding. |
| Keywords: | liquidity coverage ratio, liquidity risk, Basel III, money market funds, market discipline |
| JEL: | G21 G23 G28 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1352 |
| By: | Li, Z. M.; Linton, O. B.; Zhai, Y.; Zhang, H. |
| Abstract: | We propose a new family of liquidity measures—including order imbalance metrics—based on the dispersion and persistence of transitory gaps between transaction prices and the underlying efficient price. We devise an estimation method that renders these latent gaps observable, allowing plug-in estimates of the new measures from intraday trades alone, along with an inference method that allows us to quantify the sampling uncertainty in our estimates. We apply the approach to the S&P 500 equity portfolio, as well as to individual stocks. We use event study methodology to capture heterogeneous liquidity responses to FOMC announcements, which reveals distinct order-persistence patterns on surprise versus non-surprise days, highlighting how markets anticipate and react to monetary policy via the liquidity channel. |
| Keywords: | Market liquidity, FOMC Announcements, Spot Estimation, Monetary Policy Surprises, Order Imbalance, High-Frequency Identification |
| Date: | 2026–01–18 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2639 |
| By: | Marián Suchánek (Masaryk University, Faculty of Economics and Administration); Ján Krchňavý (Masaryk University, Faculty of Economics and Administration) |
| Abstract: | The nature of money is within the discipline of economics typically analysed merely by way of listing its functions grounded in properties of money things. But the discourse has recently more explicitly turned to addressing this foundational question of “What is money?” from the perspective of social ontology that sees money as a social phenomenon. We argue that any such venture should be able to account for the hierarchical structure of money. This argument integrates three distinct aspects of money i.) that in any community there is usually not one but multiple kinds of money; ii.) that these monies are of different qualities and therefore are structured within a hierarchy, and iii.) that these qualitative differences that distinguish individual kinds of money ultimately pertain to the rights and obligations that define each form of money. Building on recent debates about the hierarchy of money in economics—particularly The Money View and Modern Money Theory—this paper seeks to extend these discussions into the domain of social ontology, using the framework of social positioning developed by the Cambridge Social Ontology Group. |
| Keywords: | money; institutions; hierarchy of money; social ontology; money view; social positioning theory |
| JEL: | E42 B41 Z13 E51 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:mub:wpaper:2026-03 |
| By: | Ruopu Hu (Graduate School of Economics, Kobe University) |
| Abstract: | We construct and estimate a small open economy DSGE model featuring a regime-switching reserve requirement (RR) ratio rule within a banking sector that has access to foreign assets. The model incorporates key financial characteristics of the Chinese economy and examines the implications of changes in the RR-ratio. Estimation results reveal that the RR-ratio follows a feedback rule with a regime-dependent coefficient on net foreign lending during two distinct phases between 2006 and 2017. The state-contingent rule is temporarily suspended during the Global Financial Crisis, but is reactivated in the post-crisis period amid recovered capital inflows. On the one hand, the RR-ratio has almost negligible real effects on output and inflation; but on the other hand, it proves effective as a macroprudential instrument by mitigating financial instability through a reduced risk of self-fulfilling bank runs by about 25%. |
| Keywords: | Reserve Requirement Ratioï¼› Macroprudential Policyï¼› Financial Stabilityï¼› Capitalï¼› Flow, Regime-switching DSGE |
| JEL: | C11 E58 F41 G18 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2609 |
| By: | Richard Audoly; Martín Almuzara; Davide Melcangi |
| Abstract: | Economists often look at nominal wage growth to gauge labor market imbalances, price pressures, and households’ spending ability. But to use wage growth for these purposes, it is important to look through short-run fluctuations and retrieve underlying wage inflation. In this post, we use our own measure of wage growth persistence—called Trend Wage Inflation (TWIn in short)—to summarize what we learned from wage growth behavior in the past years and draw conclusions for what may lie ahead. Since peaking in late 2021, TWIn has been on a steady decline, reaching levels near those of the 2017-19 period. In the past few months, however, this decline seems to have lost momentum. Our analysis shows that most of the decline in TWIn between 2022 and 2025 was common across industries. Recently, however, a few sectors have shown a decoupling of wage growth dynamics. |
| Keywords: | wages; Inflation |
| JEL: | C33 E24 |
| Date: | 2026–05–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103302 |
| By: | Eric Engstrom |
| Abstract: | In January 2012, the Federal Reserve began publishing the Summary of Economic Projections (SEP) "dot plot, " revealing FOMC participants' projections for the federal funds rate. This paper documents a dual role for SEP projections in the formation of private interest-rate expectations. On one hand, SEP projections contain valuable information, achieving lower forecast errors than consensus surveys, VAR models, and several market-based measures at many horizons. Because the SEP is informative, some reliance on it by private forecasters is natural. On the other hand, because the SEP is updated only quarterly, SEP projections that are useful when released can become stale between updates. If private forecasts continue to place excessive weight on those earlier projections, they may respond too slowly to newly arriving information. Consistent with this prediction, survey forecast errors-and, to a weaker extent, market-based forecast errors-are systematically related to the gap between current expectations and lagged SEP projections, even after controlling for macroeconomic conditions, risk premia, and other predictors of forecast errors. The findings imply that official guidance can simultaneously improve average forecast accuracy while reducing the speed with which new information is incorporated into expectations. |
| Keywords: | anchoring bias; monetary policy expectations; Federal Reserve communications; forecast efficiency; dot plot; term structure |
| JEL: | E43 E47 E52 E58 G12 G14 |
| Date: | 2026–05–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103336 |
| By: | Katharina Bergant; Andres Fernandez; Mr. Ken Teoh; Martin Uribe |
| Abstract: | Employing large language models to analyze official documents, we construct a comprehensive record of daily changes in de jure restrictions on cross-border flows worldwide since the 1950s. Our analysis uncovers the wide array of instruments used to regulate cross-border financial flows over the past seven decades, leveraging the fine granularity of the new measures to characterize cross-country and time-series variation across eight categories of restrictions —- distinguishing by flow, direction, instrument type, intensity, and overall policy stance. We exploit the high frequency nature of the new data to document novel patterns in the use of these restrictions, as well as their relationship to crises and political economy determinants. |
| Keywords: | Cross-border flows; Controls; Large language models |
| Date: | 2026–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/098 |