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on Monetary Economics |
| By: | Benigno, Pierpaolo |
| Abstract: | We develop a tractable monetary framework in which central bank liabilities and privately issued stablecoins provide liquidity services. We study the interaction between managing the unit of account and managing the means of payment in a currency system. A wedge between market rates and administered remuneration on reserves and tokens makes the supply of public liquidity an independent policy instrument. We characterize when a fully remunerated central bank digital currency or frictionless private issuance can achieve liquidity satiation without losing price-level control, and why balance-sheet risk, seigniorage, and intermediation frictions prevent these knife-edge outcomes. An intermediate regime with a small central bank balance sheet and an elastic backstop stabilizes liquidity premia and inflation. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21033 |
| By: | Corsetti, Giancarlo |
| Abstract: | Countries around the world hold large stocks of reserves—on average 10% of GDP, with some countries holding as much as 90%. This paper examines the role of international reserve accumulation through the lens of the Fiscal Theory of the Price Level (FTPL). The main insights are as follows. First, for a given level of net debt, issuing reserves against nominal debt modifies the government’s asset base, increasing the stock of liabilities that can be devalued via price-level movements. A high stock of reserves therefore reduces inflation volatility stemming from fiscal shocks. Second, for a given stock of reserves, the greater the equilibrium elasticity of the exchange rate to domestic inflation, the stronger the valuation effects on foreign-currency assets, which help stabilize prices and the exchange rate by affecting net debt. However, these valuation effects are double-edged: a positive stock of international reserves also influences the transmission of foreign nominal (inflation and currency) shocks. In addition to providing a rationale for foreign exchange interventions, nominal-to-real spillovers raise issues in fiscal and monetary policy design. |
| Keywords: | Valuation effects; Debt sustainability; International spillovers; Fiscal policy |
| JEL: | E31 E62 E63 F31 F34 H63 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21113 |
| By: | Niepelt, Dirk |
| Abstract: | We review the macroeconomic literature on retail central bank digital currency (CBDC), organizing the discussion around a CBDC-irrelevance result. We identify both fundamental and policy-related sources of relevance, or departures from neutrality. Bank disintermediation — the crowding out of deposits — does not, by itself, constitute such a source. We argue that the literature has primarily focused on policy-related sources of non-neutrality, often without making this focus explicit. From a macroeconomic perspective, CBDC is, at its core, a matter of monetary architecture, and political economy considerations are central to understanding CBDC policy design. |
| Keywords: | Monetary architecture; Central bank digital currency; Private money; Neutrality; Lender of last resort |
| JEL: | E42 E51 G21 G28 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21141 |
| By: | Rose Portier (Centre d'Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne et Banque de France) |
| Abstract: | Monetary policy dynamics can be split into two phases: cycle and plateau. This paper examines how these two phases of the policy rate shape monetary policy transmission to interest rates. We provide new evidence that monetary policy surprises have stronger effects during plateau phases than during tightening or easing cycles. This pattern holds in the United States, euro area and United Kingdom. It is not driven by unconventional policies, hysteresis from past cycles, or anticipation of future cycles. It operates through revisions to medium-term policy expectations and holds beyond the lower monetary policy uncertainty and background noise characterizing plateau phases |
| Keywords: | Monetary policy cycles; Long-term interest rates; Monetary policy surprises; State-dependence; Policy signaling |
| JEL: | E43 E52 E58 G12 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:26008 |
| By: | Minki Kim; Mitchell VanVuren |
| Abstract: | This paper develops a general equilibrium macroeconomic model to rationalize why large-scale cash transfers in low-income settings generate high multipliers with little price inflation. We provide two mechanisms, slackness in local production and openness to external trade, and show they have distinct policy implications. We esti mate the modelon baseline data from an ongoing large-scale cash-transfer experiment in Malawi. The estimated economy lies on a slackness plateau where firms have sub stantial idle capacity, muting the price response and generating a local GDP multiplier of between 1.1 and 1.5. Within this regime, the welfare-maximizing transfer design spreads transfers across more villages rather than concentrating them at higher per household amounts. Our approach illustrates the value of pairing a structural model with an ongoing field experiment. |
| Keywords: | Cash Transfer, Slackness, Openness, Fiscal Multiplier |
| JEL: | E0 O1 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_764 |
| By: | Matteo Deleidi; Enrico Sergio Levrero; Antonino Lofaro |
| Abstract: | This paper assesses the impact of a monetary policy tightening on prices and income distribution. We estimate Structural Vector Autoregressive models for Japan, the UK, and the US over the period 1960Q1-2019Q4. Our findings reveal a cost channel of monetary policy since an increase in interest rates exerts a positive and long-lasting impact on the price level. Furthermore, we highlight the negative effects of restrictive monetary policies on real wages, as price increases are not compensated by an equivalent increase in nominal wages. These findings remain robust across different subperiods and when alternative measures of expectations are incorporated. Finally, by estimating pure shocks from a counterfactual VAR, we decompose the transmission of monetary policy into the demand, distributional, and exchange-rate channels. While the demand channel only partially mitigates the cost channel, the distributional channel amplifies it. By contrast, the exchange-rate channel exerts a disinflationary effect mainly since the 1980s |
| Keywords: | Monetary policy; Structural vector autoregression; Counterfactual analysis; Price puzzle, Functional income distribution. |
| JEL: | E24 E31 E43 E44 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:imk:fmmpap:124-2026 |
| By: | Forbes, Kristin; Ha, Jongrim; Kose, M. Ayhan |
| Abstract: | Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through†their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks—particularly global supply shocks—have significant implications for modeling monetary policy and designing central bank frameworks. |
| Keywords: | Federal funds rate |
| JEL: | E31 E32 E52 F41 F42 F44 F47 G2 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21109 |
| By: | McLeay, Michael; Tenreyro, Silvana |
| Abstract: | An emerging academic and policy view contends that a monetary-policy induced depreciation by a (non-US) country invoicing in dollars cannot stabilise activity, as the classical expenditure-switching channel is muted. This weakens the exchange-rate channel of monetary policy transmission. The key premises underlying this view are that i) exporters have monopoly power and ii) their prices are sticky in US dollars. However, goods priced in dollars tend to have more flexible prices and higher elasticities of substitution. We propose a new open economy model with more realistic assumptions and show that loosening monetary policy boosts exports and activity; the limit to any expansion is not demand, but supply capacity. We furthermore show that low pass-through is not informative about the degree of nominal stickiness: limited price responses are an equilibrium result in our model, rather than an assumption. We present new evidence that both exports and activity respond strongly to exchange-rate changes driven by monetary policy. |
| Keywords: | Monetary policy; Expenditure-switching channel of monetary policy transmission |
| JEL: | E31 E52 E58 F41 Q02 Q30 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21020 |
| By: | Sriya Anbil; Alyssa G. Anderson; Ethan Cohen; Romina Ruprecht |
| Abstract: | We present a new constraint on the size of the Fed’s balance sheet: repo market capacity. Calibrating a structural model to the recent monetary tightening cycle, we show that repo market capacity—driven by money market fund liquidity supply—is the binding constraint on the Fed’s balance sheet, not bank reserve demand, which was highlighted in the events of September 2019. We also demonstrate a novel complementarity between interest rate and balance sheet policies: higher policy rates expand repo capacity, allowing the central bank to operate with a smaller balance sheet. |
| Keywords: | monetary policy implementation; quantitative tightening; reserves; overnight reverse repo facility; shadow banks |
| Date: | 2026–06–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103441 |
| By: | Wolf, Martin; Zessner-Spitzenberg, Leopold |
| Abstract: | We study an inflationary supply shock in an economy with a high amount of private sector debt. In our framework, the central bank cannot control inflation by raising the interest rate sharply after the shock as doing so would trigger a debt crisis. It therefore follows a "backstop approach" of raising the interest rate sufficiently slowly so that the debt crisis is marginally avoided. We show that this backstop approach invites equilibrium multiplicity. Once agents expect the central bank to respond slowly to inflation, interest rate expectations fall, keeping private leverage high. As this constrains the central bank even more, inflation remains high for longer than fundamentals alone would imply. We derive these insights in a Keynesian growth model with financial frictions, calibrated to the recent Covid inflation crisis. |
| Keywords: | Monetary policy; Financial stability; Financial crisis; Inflation; Keynesian growth; Multiple equilibria |
| JEL: | E22 E31 E32 E44 E52 O42 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21161 |
| By: | Acosta, Miguel; Ajello, Andrea; Bauer, Michael; Loria, Francesca; Miranda-Agrippino, Silvia |
| Abstract: | This paper introduces the U.S. Monetary Policy Event-Study Database (USMPD), a novel, public, and regularly updated dataset of financial market data around Federal Open Market Committee (FOMC) policy announcements, press conferences, and minutes releases. Using the rich high-frequency data in the USMPD, we document several new empirical findings. Large monetary policy surprises have made a comeback in recent years, and post-meeting press conferences have become the most important source of policy news. Monetary policy surprises have pronounced negative effects on breakeven inflation based on Treasury yields. Risk assets, including dividend derivatives, also respond strongly and negatively to monetary policy surprises, consistent with conventional channels of monetary transmission. Press conferences have stronger effects than FOMC statements on most asset prices. Finally, the term structure evidence shows peak effects on market-based inflation and dividend expectations at horizons of several years. |
| Keywords: | Federal Reserve |
| JEL: | E43 E52 E58 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21003 |
| By: | De Fiore, Fiorella; Lombardi, Marco; Mangiante, Giacomo |
| Abstract: | This paper studies the pass-through of input price shocks to firms’ expectations and pricing decisions using firm-level data from the Bank of Italy’s Survey on Inflation and Growth Expectations. We find a strong and asymmetric pass-through: positive input price shocks significantly raise firms’ price expectations, realised output prices and short-term inflation expectations, while negative shocks have little impact. The pass-through varies systematically with firm characteristics: it is higher for upstream firms and for firms facing greater uncertainty, adjusting prices more frequently, or operating with thinner profit margins. Macroeconomic conditions also matter: firms’ expectations respond more strongly to business-specific signals in periods of low inflation and to aggregate signals in periods of high inflation. Finally, we show that providing firms with information about current inflation dampens the pass-through to inflation expectations, underscoring the importance of central bank communication. |
| Keywords: | Pass-through; Survey data; Inflation; Firm expectations |
| JEL: | D22 D84 E31 E50 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20835 |
| By: | Gautier, Erwan; Conflitti, Cristina; Enderle, Daniel; Fadejeva, Ludmila; Grimaud, Alex; Gutiérrez, Eduardo; Jouvanceau, Valentin; Menz, Jan-Oliver; Paulus, Alari; Petroulas, Pavlos; Roldan-Blanco, Pau; Wieland, Elisabeth |
| Abstract: | We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010-2019, roughly a four percentage-point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and nonenergy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost 1 percentage point lower if the frequency had not responded to the inflation surge. |
| Keywords: | Price rigidity |
| JEL: | E31 E52 F33 L11 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21149 |
| By: | Ehrmann, Michael; Hubert, Paul |
| Abstract: | Monetary policy effects are usually identified through surprises. We test whether their effects differ when central banks exceed market expectations (“overdelivery†) versus fall short (“underdelivery†). Using a panel of 14 advanced economies over three decades, we document that short-term interest rates respond up to ten times more to overdelivery surprises. Overdelivery triggers macroeconomic forecast revisions consistent with central bank information effects, while underdelivery generates standard monetary transmission responses. In contrast, overdelivery does not shift perceptions of policymakers’ inflation and output responsiveness differently than underdelivery. The asymmetry does not extend to macroeconomic data surprises, ruling out reference-dependent preferences as a cause. |
| JEL: | E52 E44 D84 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21241 |
| By: | Stefan Nagel |
| Abstract: | A large share of secular variation in real interest rates can be understood as the effect of monetary policy leaning against experience-based long-run inflation expectations. Survey microdata show that adaptive learning from experienced inflation generates highly persistent, slow-moving long-run inflation expectations. When expectations are shaped by experience, central banks cannot anchor them through communication. Instead, when expectations deviate from the inflation target, monetary policy must remain persistently hawkish or dovish to generate realized inflation outcomes that, through agents’ belief updating, gradually pull long-run expectations back toward the target. Consistent with this mechanism, I find a strong positive relationship between experience-based long-run inflation expectations and real interest rates in the U.S., Germany, the U.K., and Japan. Under their subjective expectations, private-sector agents do not anticipate future reversals in inflation and short-term real interest rates. As a result, long-term real interest rates move with experience-based long-run inflation expectations about as much as short-term real interest rates do, consistent with the data. Secular movements in real rates are also accompanied by persistent patterns in interest-rate forecast errors. Overall, the interaction of monetary policy and learning from experience generates a distinct source of secular real-rate variation, beyond movements in the natural rate of interest. |
| JEL: | E43 E71 G12 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35379 |
| By: | Monnet, Eric |
| Abstract: | The Bretton Woods system is often described as freeing national monetary policies from the gold-reserve constraints of the gold standard. Breaking the “gold fetters†was essential to the embedded liberalism and economic interventionism of the postwar era. Yet gold retained a crucial role: monetary authorities backed currency with gold reserves, both de facto and de jure, frequently maintaining gold cover ratios comparable to those of the gold standard. How, then, could gold backing coexist with autonomous domestic macroeconomic policy? This article shows that the combination of two phenomena provides an answer: credit growth and currency growth became increasingly decoupled after 1945, and central banks shifted their emphasis from money toward credit. This created substantial scope to stimulate domestic economic activity through credit expansion without being constrained by the link between gold and currency in circulation. Econometric analysis for 38 countries indicates that gold reserves remained strongly correlated with currency, but not with bank credit. Changes in credit markets and central bank instruments therefore allowed gold backing to persist largely as a symbolic tie, without constraining domestic policy. Gold, however, exerted pressure on US policy and shaped international monetary relations. These findings indicate that institutional persistence does not necessarily generate similar economic effects across historical periods. |
| Keywords: | Bretton Woods |
| JEL: | D8 E5 F5 F55 M14 N1 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21215 |
| By: | Conesa Martinez, Marina; Kasekende, Elizabeth N.; Li, Nan; Mugume, Adam; Samuel Namwanja, Musoke; Okou, Cedric; Presbitero, Andrea |
| Abstract: | This paper examines the effectiveness of monetary policy transmission in developing countries using loan-level data from Uganda's credit registry. We analyze more than 632, 000 household loans issued by all commercial banks between 2017 and 2023, a period marked by significant policy rate fluctuations. We find that household credit, which accounts for over 50 percent of new loan accounts, responds to monetary policy: rate hikes are followed by higher lending rates and reduced loan size and maturity. Controlling for credit demand with time-varying borrower-group fixed effects, we find stronger transmission among banks with lower liquidity and capital, and those holding more government securities. The effects are more pronounced for fixed-rate loans than for floating-rate loans. In general, our results support the presence of a bank lending channel in Uganda, similar to what is observed in more advanced economies. |
| Keywords: | Monetary policy transmission; Household credit; Bank lending channel; Development finance |
| JEL: | E52 E58 G21 G51 O16 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20839 |
| By: | Ulrike Malmendier; Stefan Nagel |
| Abstract: | Empirical evidence commonly cited as indicating that inflation expectations have become better anchored includes the declining sensitivity of expectations to inflation surprises over time, particularly around the adoption of inflation targeting. These patterns are typically attributed to the influence of explicit or implicit inflation targets on inflation expectations. We show that this evidence is consistent with a model of experience-based learning in which individuals learn solely from their life-time history of realized inflation, without anchoring their expectations to an announced inflation target. In this model, the prolonged experience of low short-run inflation persistence in the pre-COVID decades renders long-run expectations insensitive to inflation surprises, matching the patterns observed in empirical anchoring tests. A unique prediction of the experience-based learning model is also borne out in the data: the decline in surprise sensitivity since the 1980s is strongest among younger individuals. The memory of low inflation persistence experiences further explains why long-run inflation expectations remained stable in the face of the post-COVID inflation surge. At the same time, simulations indicate that the sensitivity of long-run expectations to inflation surprises would rise sharply if individuals were to experience another sustained episode of highly persistent inflation. Overall, long-run inflation expectations may be less firmly anchored than commonly believed. |
| JEL: | E31 E52 E71 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35395 |
| By: | Kengo NUTAHARA |
| Abstract: | This paper investigates asset-price-targeting monetary policy in a New Keynesian model with money illusion. Money illusion is introduced as misperceptions of current and expected future inflation. We derive a necessary and sufficient condition for equilibrium determinacy and express it as an extended Taylor principle. In the benchmark case, a policy response to asset prices may weaken determinacy. With current inflation misperception, however, higher inflation can raise dividends and asset prices, making asset-price targeting stabilizing. The results show that the effects of asset-price targeting depend on both nominal rigidities and inflation perceptions. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-010e |
| By: | Chen Lin; Eswar S. Prasad; Daniel Rabetti; Che Zhang |
| Abstract: | We study the emerging market for tokenized US Treasuries and yield-bearing dollar instruments on public blockchains. Using a comprehensive dataset that combines on-chain transactions, protocol-level total value locked, pool yields, and monetary policy and stress events, we document three core findings. First, yields can be decomposed into distinct components reflecting issuer fees, lending premia, leverage, basis-trade carry, and collateral pledgability, with the latter generating economically large implicit convenience yields. Second, monetary policy transmission into on-chain dollar markets is highly heterogeneous across product designs, with administratively set rates adjusting slowly and basis-trade-backed instruments displaying economically amplified responses to policy shocks. Third, tokenized Treasuries serve as digital safe havens during episodes of cross-asset stress, attracting large inflows during risk-off events while simultaneously exposing new fragilities arising from the interaction between on-chain composability and off-chain reserve structures, particularly through stablecoin balance sheets. Overall, we provide insights into the distinctive dynamics of pricing, transmission, and fragility of digital Treasuries as decentralized and traditional financial infrastructures increasingly integrate. |
| JEL: | E44 E52 G1 G2 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35412 |
| By: | Born, Benjamin; Lamersdorf, Nora; Schuster, Jana-Lynn; Steffen, Sascha |
| Abstract: | Using modern natural language processing, we construct a high-frequency inflation expectations index from German-language tweets. This index closely tracks realized inflation and aligns even more closely with household survey expectations. It also improves short-run forecasts relative to standard benchmarks. In response to monetary policy tightening, the index declines within about a week, with the effects concentrated in tweets by private individuals and during the recent period of elevated inflation. Using 117 million online transactions from German retailers, we show that higher inflation expectations are followed by lower household spending on discretionary goods. By linking these shifts in demand to stock returns, we find that, during periods of elevated inflation, firms operating in discretionary sectors experience significantly lower stock returns when inflation expectations rise. Thus, our Twitter-based index provides market participants and policymakers with a timely tool to monitor inflation sentiment and its economic consequences. |
| Keywords: | Inflation expectations; Social media; Large Language Models; Nlp; Household consumption; Stock returns; Monetary policy |
| JEL: | E31 D84 E58 C45 C81 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20977 |
| By: | Miranda-Agrippino, Silvia; Nenova, Tsvetelina; Rey, Hélène |
| Abstract: | Using a novel indicator for the People’s Bank of China monetary policy stance, we estimate a policy rule that accounts for the dual nature of its price stability mandate—encompassing domestic inflation and the exchange rate—and for the evolution of its operational framework. The Ins: The domestic transmission follows textbook patterns, with exceptions due to the active management of the renminbi and the financial account. The Outs: International spillovers are powerful and affect commodity markets, global production and trade. The pass-through to foreign (US) prices is substantial. Financial spillovers are second-order, and mostly derivative from trade spillovers. |
| Keywords: | Monetary policy; International spillovers; China |
| JEL: | E44 E52 F33 F42 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20958 |
| By: | Agarwal, Sumit; Mayordomo, Sergio; Rodriguez Moreno, Maria; Tarantino, Emanuele |
| Abstract: | We study how household balance-sheet adjustments shape the transmission of monetary policy to bank credit supply. Using Spanish credit registry data around the ECB’s 2022–2023 rates hike, we show that high-income households with floating-rate mortgages accelerated repayments, generating bank-specific liquidity inflows. Banks more exposed to these inflows expanded credit to micro and small firms, while consumer credit, mortgages, and investment assets were unaffected. This reallocation did not increase delinquency or risk-taking. Our results complement alternative transmission channels and highlight a cross-segment mechanism linking household financial behavior to the bank lending channel, exploiting predetermined mortgage-rate exposure around monetary policy tightening. |
| JEL: | D14 E43 E51 E52 G21 G28 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21039 |
| By: | Canova, Fabio; Pérez Forero, Fernando J. |
| Abstract: | We investigate the transmission of US monetary policy shocks in high and low inflation regimes using a Bayesian threshold vector autoregressive model. The propagation of conventional disturbances differs: the peak response of output growth and inflation is smaller, but the effects lasts longer when inflation is high. Liquidity shocks are more expansionary when inflation is high. The reaction of financial markets to the shocks accounts for the differences. Implications for theoretical models are discussed. |
| Keywords: | Monetary policy shocks |
| JEL: | C3 E3 E5 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21339 |
| By: | Ahmed, Rashad; Rebucci, Alessandro; Clouse, James; Natalucci, Fabio; Sun, Geyue |
| Abstract: | The GENIUS Act, recently signed into law, establishes a dual federal and state regulatory framework for stablecoins, effectively segmenting the USD stablecoin market into GENIUS-compliant stablecoins and those that are not. This paper discusses the use cases and potential benefits of stablecoins in terms of payment system efficiency and costs, as well as their substitutability with money market mutual funds and bank deposits. It then analyzes the financial stability risks associated with both GENIUS-compliant and unregulated stablecoins using empirical analysis and historical case studies. It concludes by discussing the economic implications of the emergence of a large dollar stablecoin ecosystem. The discussion is supported by a new survey of expert opinions canvassed through Large Language Model (LLM) analysis of all U.S. podcast episodes on stablecoins from January 20 to July 17, 2025. |
| Keywords: | Cryptocurrency; Stablecoins |
| JEL: | E42 F33 G21 G23 O33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20833 |
| By: | Howes, Cooper; Dordal i Carreras, Marc; Coibion, Olivier; Gorodnichenko, Yuriy |
| Abstract: | We construct a new dataset of FOMC meeting transcripts from 1966 to 1990 to analyze the sources of heterogeneity in individual monetary policy preferences and study how this heterogeneity shapes policy decisions. Using these detailed discussions, we manually quantify and characterize each FOMC participants’ preferred policies along with their reasoning and justification. We show that participants' beliefs about the effects of monetary policy—specifically, their perceived slope of the Phillips Curve—play a central role. Participants who believe monetary policy has stronger effects on real activity are more likely to cite output as a justification for easing, while those perceiving stronger price effects emphasize inflation as a reason for tightening. We then show that the Chair plays a unique and powerful role in reconciling these views, not just in setting policy rates, but also in minimizing dissent. The latter occurs because dissenters find their ability to influence policy in subsequent meetings is significantly curtailed. |
| Keywords: | Monetary policy; Narratives; Committees |
| JEL: | E3 E4 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20968 |
| By: | Reis, Ricardo |
| Abstract: | This article uses inflation expectations to investigate the mechanisms that linked supply and demand shocks to inflation outcomes during 2021-24. It describes several theoretical mechanisms through which shocks led to inflation, highlighting the role of expectations in this process. It uses multiple sources of expectations data for the US, EA, and UK to evaluate each of these channels. Finally, it surveys the literature that has used expectations data to make sense of the 2021-24 inflation surge. The article applies the results from this investigation to assess how well anchored inflation expectations were during the surge and at the end of it. |
| Keywords: | Phillips curve |
| JEL: | E31 E52 D84 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21277 |
| By: | Albertazzi, Ugo; Faber, Finn; Georgescu, Oana-Maria; Gavazza, Alessandro; Lecomte, Ernest |
| Abstract: | We investigate the supply and demand drivers of bank deposit pricing in the Euro area during the period 2007–2024. We document that the pass-through of policy rates to sight deposit rates is low, asymmetric, varies across the monetary policy regimes, and decreases over time. We build and estimate an equilibrium model of bank deposit markets, and find that the price sensitivity of depositors exhibits large heterogeneity between households and firms, across countries, and over time. Our estimates suggest that rate-sensitive depositors increasingly switched to alternative, higher-yielding savings products over time, thereby decreasing the average rate-sensitivity of the remaining pool of sight deposits. In turn, banks’ market power over sight deposits increased, thereby accounting for the sluggish increase in overnight deposit rates following the 2022 European Central Bank’s policy rate hikes. JEL Classification: G21, G28, E52, E43 |
| Keywords: | bank market power, deposit pricing, price elasticity |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263255 |
| By: | Luo, Yulei; Qu, Lijuan; Wang, Gaowang |
| Abstract: | This paper examines how monetary authorities should balance inflation and output stabilization when firms face rational inattention and working capital requirements. In our environment, monetary expansion both stimulates aggregate demand and lowers marginal costs, yet rational inattention endogenously determines the net transmission: limited information capacity strictly governs the policy sensitivity of the price level. We identify an endogenous regime-switching property in optimal policy: as information capacity improves, the focus shifts from price to output stability, a transition strictly accelerated by the cost channel. For natural rate shocks, this implies a shift from aggressive to restrained policy responses. For markup shocks, the cost channel generates a supply-side subsidy that makes an accommodative policy optimal in high-information environments, overturning the conventional "lean against the wind" prescription. Furthermore, we establish that financial frictions amplify welfare losses from natural rate disturbances but can endogenously mitigate the costs of markup shocks. We analytically and numerically confirm the robustness of these mechanisms under elastic attention, generalized signal structures, and persistent shocks. |
| Keywords: | Optimal Monetary Policy; Rational Inattention; Cost Channel |
| JEL: | D8 E32 E52 E58 |
| Date: | 2026–04–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128958 |
| By: | Alves, Felipe; Violante, Giovanni L. |
| Abstract: | As the economy emerges from a crisis, macroeconomic policy confronts a dilemma: a protracted stimulus can foster a more inclusive labor market recovery, yet risks igniting inflation that ultimately undermines workers’ welfare through real income erosion. This tension amplifies in the presence of the ZLB and aggregate capacity constraints. We embed this insight into a quantitative model of the US economy. We study how monetary and fiscal policies managed this inflation-inclusion trade-off after the pandemic, contrasting actual outcomes with counterfactual scenarios. Our experiments yield five findings: (i) the trade-off was unusually difficult because policy was squeezed between these two constraints; (ii) inflationary pressures arose from the joint deployment of prolonged monetary and fiscal stimulus; either policy alone would have produced milder price dynamics; (iii) either inclusive fiscal policy or inclusive monetary policy in isolation would have been sufficient to contain the negative labor market hysteresis at the bottom of the distribution; (iv) inclusive fiscal policy combined with a more traditionally inflation-focused central bank would have achieved higher welfare for the vast majority of households; (v) welfare effects reflect mostly corrections of incomplete-market inefficiencies rather than gains from aggregate stabilization. |
| Keywords: | Distribution; Hysteresis; Inclusion; Inflation |
| JEL: | E21 E24 E31 E32 E52 J24 J64 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21188 |
| By: | Greg Kaplan; Ken Miyahara |
| Abstract: | We build a model that combines (i) heterogeneous households with incomplete markets, and (ii) state-dependent pricing with strategic complementarities by firms, to analyze the effects of large macroeconomic shocks and policy interventions. Both features significantly influence the transmission of fiscal stimulus and monetary policy—heterogeneous households because of failures of Ricardian equivalence, and state-dependent pricing because of its nonlinear effects on inflation. We use our model to quantify how monetary and fiscal policy shaped macroeconomic dynamics in response to the large shocks of 2020, and how alternative policy choices could have led to different aggregate and distributional outcomes. We find large departures from Ricardian equivalence and strong stepping-on-a-rake effects of interest rate changes. The large unfunded fiscal transfer program helped prevent deflation in 2020 and significantly raised output throughout 2021 and 2022, but led to permanently higher prices. The monetary easing through 2020 and 2021 also contributed to preventing deflation, but had a minimal impact on GDP. The monetary tightening from 2022 lowered the maximum inflation rate, but contributed to persistently above-trend inflation. These policies led to net welfare gains for low-wealth households and net welfare losses for high-wealth households, but those welfare effects are due to incomplete markets for idiosyncratic risk not aggregate stabilization. Alternative commitments to funding fiscal stimulus could have achieved similar short-term effects on inflation and output with a much smaller long-term increase in the price level. |
| JEL: | D3 D4 E3 E5 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35400 |
| By: | Alves, Felipe; Violante, Giovanni L. |
| Abstract: | The current monetary policy framework of the Fed intends to be more ’inclusive’ by running the economy hot for longer during expansions. The logic of this strategy rests on Okun’s (1973) hypothesis that sustaining a ‘high-pressure economy’ persistently improves labor market outcomes of low-wage workers. To evaluate this conjecture, we develop a Heterogeneous Agent New Keynesian framework with a three-state frictional model of the labor market where low-skilled workers are more exposed to the business cycle and recessions have a long-lasting effect on their labor force participation and earnings, in line with the evidence. Under a canonical Inflation Targeting rule, the ZLB generates a deflationary bias and severely amplifies the persistent scars of recessions at the bottom of the wage distribution. The Lower-for-Longer strategy is an effective antidote to the ZLB-driven hysteresis and leads to notable earnings gains for low-wage workers and a reduction to overall earnings inequality. If pursued aggressively, however, the policy reverts the inflation bias from negative to positive. Since policymakers might prioritize differently inflation relative to inclusion, we conclude by quantifying the inflation-inclusion trade-off implied by various monetary policy rules. |
| Keywords: | Monetary policy |
| JEL: | E21 E24 E31 J24 J64 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21189 |
| By: | Mark Setterfield (Department of Economics, New School for Social Research, USA); Christopher R. Herdelin (Department of Economics and Finance, Saint Peter's University, USA) |
| Abstract: | In this paper, we present an alternative to the conventional view regarding the Goodwin pattern. We demonstrate that the Goodwin pattern emerges from a three-dimensional system of real, monetary, and distributional dynamics where the monetary linkage includes a central bank incorporating an asymmetric reaction function. The asymmetric reaction function is the result of a central bank that is inflation averse resulting in a deflationary bias. Therefore, the central bank sets interest rates in response to variations in the wage share and real activity, however, there is no influence of distribution on real activity. In our model, the central bank reaction function reflects implicit inflation targeting in real activity × wage share space responding to goods market and labour market pressure. In other words, the central bank finds itself in a conflicting claims environment, changing interest rates when either output or the wage share deviate from their target values. Our results show that the introduction of the central bank reaction function with a deflationary bias produces the cyclical behavior associated with the Goodwin pattern, but more importantly, it also demonstrates a weakening of the profit squeeze mechanism and a secular decline in the wage share. |
| Keywords: | Goodwin pattern, central bank, reaction function, cyclical growth |
| JEL: | E11 E12 E32 E37 E43 E58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2608 |
| By: | Ali Ozdagli; Michael Weber |
| Abstract: | An important way monetary policy affects the economy is through household spending. When the Federal Reserve increases or lowers interest rates, the effects do not end with just the businesses most exposed to the resulting changes in household spending. |
| Keywords: | monetary policy |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103493 |
| By: | Hui He; Yao Zhao; Dayong Zhou |
| Abstract: | The paper develops a new monetarist DSGE model to examine the macroeconomic implications of fiat-money-backed stablecoins and the effectiveness of prudential policies in mitigating associated risks. The model features two segmented sectors: a centralized real economy where fiat money facilitates consumption and investment, and a decentralized virtual economy characterized by anonymous bilateral search and matching, in which transactions are exclusively conducted using stablecoins. Calibrated to the U.S. economy, the simulation results reveal that stablecoins amplify the propagation of exogenous shocks to key macroeconomic variables by weakening the effectiveness of monetary policy. However, prudential regulations—specifically those governing the backing ratio of stablecoins to fiat-denominated reserve assets, analogous to banking liquidity requirements—can serve as stabilizing instruments, dampening volatility and enhancing macroeconomic resilience in the presence of stablecoins. |
| Keywords: | Stablecoin; DSGE; Monetary Search; Currency Competition; Prudential Regulation; IMF working papers; Dayong Zhou; dampening volatility; views of the IMF; digital currency; can stablecoins; Real interest rates; Dynamic stochastic general equilibrium models; Consumption; Global |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/129 |
| By: | Tarek Alexander Hassan; Thomas M. Mertens; Jingye Wang; Tony Zhang |
| Abstract: | This paper develops a calibrated general-equilibrium model to study how different configurations of trade and financial policy reshape the hierarchy of global currencies—and the U.S. dollar's position at its anchor. Currency safety and anchor status arise endogenously from each economy's 'effective size'—the weight its domestic shocks carry in setting world prices. Tariffs reduce this effective size on the goods side; capital controls do the same on the financial side. A unifying result emerges: The economy that maintains the deepest integration with the global trading network retains the largest safety premium and gains anchor status. We use this framework to evaluate the effects of three policy levers for Europe that affect the effective size of the euro: internal harmonization and enlargement, trade openness, and capital-account openness. The stakes are large: In our model, shifts in currencies' safety can redirect global capital flows and alter sovereign borrowing costs by hundreds of billions of dollars annually. |
| JEL: | F13 F31 F33 F36 F38 F41 G15 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35386 |
| By: | Miranda-Agrippino, Silvia; Williams, John C. |
| Abstract: | The predictability of monetary policy surprises based on past, public information has been interpreted in two related yet fundamentally different ways. The “Fed information effect†posits that it arises due to markets updating their view of the economy, based on signals implicitly revealed by the FOMC. The “Fed reaction to news†explanation posits that markets update their view of the FOMC’s reaction function instead. We show that interest rate surprises calculated around macroeconomic releases exhibit the same predictability pattern as monetary policy surprises. Since these occur at a time when there is no scope for markets to learn about the Fed’s behaviour, this pattern suggests an additional information channel unrelated to FOMC communication. |
| Keywords: | Monetary policy surprises; Fed information effect; Fed reaction to news; interest rate surprises; monetary policy premium |
| JEL: | E44 E52 E58 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21056 |
| By: | Jonathon Hazell (London School of Economics (LSE)); Stephan Hobler (London School of Economics (LSE)) |
| Abstract: | This paper measures the causal effect of deficits on inflation using a “high frequency narrative approach”. We identify an event that released news about the 2021 deficits in the United States—the Georgia Senate election runoff. We calculate the size of the shock using new narrative data from investment banks. We then study the high frequency response of inflation forecasts from asset prices, in order to separate deficits from other factors affecting inflation. We estimate an “inflation multiplier” of 0.19% price level growth over two years, for a 1% deficit-to-GDP shock. Our estimate implies that the 2021 deficits caused around a third of the 2021-22 inflation—meaning deficits were important but not the only cause. A heterogeneous agent New Keynesian model quantitatively matches the size and dynamics of the inflation multiplier. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cfm:wpaper:2505 |
| By: | Schmidt, Sebastian |
| Abstract: | I study price level determination in a currency union when some member countries' government securities earn a convenience yield. These "convenience assets" generate fiscal seigniorage revenues that, given appropriate fiscal and monetary policies, back the union's price level, much like primary surpluses and monetary seigniorage do. An exogenous drop in the private-sector demand for convenience assets reduces seigniorage revenues and raises the price level. It also results in a wealth transfer across countries owing to the heterogeneity in convenience yields. |
| Keywords: | Currency union; Fiscal theory of the price level; Convenience yield; Cross-country heterogeneity |
| JEL: | E31 E63 F45 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21001 |
| By: | De Jonghe, Olivier; Benkovskis, Konstantins; Bielskis, Karolis; Bonfim, Diana; Bottero, Margherita; Briglevics, Tamás; Cesnak, Martin; Dirma, Mantas; Emiris, Marina; Filep-Mostberger, Palma; Jouvanceau, Valentin; Kaiser, Nicholas; Khametshin, Dmitry; Lalinsky, Tibor; Grolmusz, Viola; Moretti, Laura; Nikitins, Arturs; Nunnari, Angelo; Rodriguez Moreno, Maria; Stefanova, Elitsa; Szabo, Lajos Tamas; Vilerts, KÄ rlis; Zhao, Sujiao (Emma) |
| Abstract: | We study heterogeneity in households' credit across nine European countries (Belgium, Spain, Hungary, Ireland, Italy, Latvia, Lithuania, Portugal, and Slovakia) during 2022-2024 using granular credit register data. We first document substantial between- and within-country variation in mortgage and consumer lending by borrower age, loan maturity, and interest rate fixation. We then quantify the pass-through of the ECB’s recent tightening cycle to household borrowing costs, and assess its heterogeneous impact across households. Pass-through is nearly complete for mortgages (around 0.9) but considerably weaker for consumer credit (around 0.4). While mortgage pass-through is relatively homogeneous across countries, consumer credit shows pronounced cross-country differences that cannot be explained by borrower or loan characteristics. Younger households face stronger mortgage pass-through but weaker consumer credit pass-through relative to older borrowers, and longer maturities are associated with stronger pass-through in both credit markets. |
| Keywords: | Monetary policy transmission; Household borrowing; Credit registers; Interest rate pass-through; Cross-country heterogeneity |
| JEL: | E52 G21 D14 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20928 |
| By: | Cristi, José; Kalemli-Ozcan, Sebnem; Sans, Mariana; Unsal, Filiz |
| Abstract: | We study the international transmission of U.S. monetary policy (FED hikes) and a strong U.S.dollar. Both of these variables are endogenous and thus we follow the recent developments in the literature to measure the exogenous components of each from the perspective of the rest of the world (ROW). We show that while U.S. monetary policy shocks act as financial shocks increasing risk premia in emerging markets, a shock to U.S. dollar does not generate the same effect. |
| JEL: | F30 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21042 |
| By: | Olena Kostyshyna (Bank of Canada); Isabelle Salle (University of Amsterdam); Hung Truong (University of Ottawa) |
| Abstract: | Using micro-level data from the Canadian Survey of Consumer Expectations and a heterogeneous expectations model, we characterize the heterogeneity in inflation expectation formation among households across inflation regimes and demographic groups. We show that the recent inflation surge not only increased the level and dispersion of inflation expectations, but also altered expectation formation itself, with marked demographic heterogeneity and more widespread trend-chasing behavior than before the pandemic. Furthermore, only when inflation is high are these trend- chasing behaviors associated with higher expectations for a wide range of economic variables in the short and the long run, concerns about monetary policy, and restrained household spending along weak real wage expectations. Our micro-based insights show how an inflation surge broadly ‘scars’ forecasting behaviors, which poses a challenge for completing the ‘last mile’ of disinflation. |
| JEL: | D84 E31 E70 |
| Date: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260036 |
| By: | HacıoÄŸlu Hoke, Sinem; Ostry, Daniel; Rey, Hélène; Rousset Planat, Adrien; Stavrakeva, Vania; Tang, Jenny |
| Abstract: | Drawing on 100 million transactions, we show how speculators, hedgers, and market makers interact in the world’s largest FX derivatives market, and that derivatives trading can affect exchange rates. Firms in the largest client sectors — pension and investment funds, insurers, and nonfinancials — use FX derivatives primarily to hedge currency risk, with dealer banks providing the liquidity. Hedge funds, with comparatively smaller net exposures, trade speculatively, whereas dealer banks insulate themselves from changes in speculative demand by taking offsetting positions with hedgers, especially nonfinancials. Non-bank market makers, instead, take residual exchange-rate exposures "on the margin". Hedge funds' speculative flows help transmit monetary policy shocks to exchange rates, while investment funds' unwinding of hedges contribute to dollar appreciations when credit risk rises. Our results highlight that exchange rates depend on the composition of trading activities in FX derivatives markets. |
| Keywords: | Exchange rates; Hedging; Speculation; Market making; Heterogeneity |
| JEL: | F30 F31 G15 G20 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20978 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Banking crises are commonly associated with bank runs and banking panics, yet our empirical understanding of bank runs is constrained by a lack of bank-level data. In a new paper, we use large language models (LLMs) to extract information on bank runs from millions of digitized historical newspaper pages, creating the most comprehensive database of bank runs in U.S. history. Every bank run episode that we identify is documented on a companion website where users can browse and examine individual episodes, and read the original newspaper articles. In this post, we describe how we built this dataset and discuss what its basic features reveal. |
| Keywords: | bank runs; banking crises; bank failures; deposit insurance; liquidity; solvency; artificial intelligence (AI) |
| JEL: | G01 |
| Date: | 2026–07–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103501 |
| By: | Acharya, Viral; Hillenbrand, Sebastian; Venkateswaran, Venky; Underwood, Margaret |
| Abstract: | We measure and analyze inflation uncertainty in the US. We construct a novel composite indicator of inflation uncertainty (CIU) from two components: a news-based measure derived from textual analysis of newspaper articles using large language models and a market-based measure that draws on prices of options on Exchange Traded Funds and commodities. Unlike survey- or inflation-option-based measures, our index is available in real time and extends back to 1926. CIU reveals that inflation uncertainty spiked during the Great Depression, World War II, the 1970s and 1980s, following the Global Financial Crisis, and in the post-pandemic period. We highlight the driving forces behind these fluctuations in uncertainty and analyze their economic consequences. Heightened inflation uncertainty is associated with higher prices of real assets — such as gold, silver, and housing — but with lower prices of nominal assets, including government bonds, corporate bonds, and equities. Moreover, we find that increases in inflation uncertainty are followed by declines in private investment and real economic activity. |
| Keywords: | Inflation uncertainty; Inflation expectations; Large Language Models; Financial options |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20921 |