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on Monetary Economics |
| By: | Eric Tong (Bank of England); Rennae Cherry (Bank of England) |
| Abstract: | We identify central bank communication shocks designed to measure how policy messages reach households. The shocks are constructed from central bank text, where policy messages originate, and newspaper narratives, through which households encounter them. We compare central bank narratives with pre-announcement newspaper narratives and decompose the resulting narrative surprises into stance and information communication shocks. Applying the framework to the Bank of Canada, the Bank of England, and the Federal Reserve, we find that central bank narratives shape media coverage and move households’ one-year-ahead inflation expectations. Tighter stance communication shocks lower inflation expectations, while expansionary information communication shocks raise them, especially when households’ attention is high. Conventional shocks identified with high-frequency asset-price moves do not deliver these responses, underscoring the importance of measuring central bank communication as households experience it. Taken together, the results qualify the view that central bank communication rarely reaches the public, but also show that its effects depend on how central bank messages are received and perceived. |
| Keywords: | Central bank communication;event-study;textual analysis;households’ inflation expectations |
| JEL: | E31 E52 E58 |
| Date: | 2026–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023316 |
| By: | Hylton Hollander (University of Cape Town); Clinton Joel (National Treasury) |
| Abstract: | Most inflation-targeting central banks target a small but positive underlying rate of inflation, often called trend inflation1. Yet its appropriate level remains uncertain. The extended deliberation in South Africa to move from a 3 - 6% target band to a 3% point target (with a ±1% tolerance band) illustrates this tension. In our working paper (Trend Inflation and the Costs of Price Dispersion in a Fiscal DSGE Model), we examine the role of trend inflation in an economy and argue that, all else equal, lower trend inflation is better for the economy. |
| Keywords: | Trend inflation, monetary policy, price dispersion, Phillips curve, sacrifice ratio |
| JEL: | E30 E52 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:rza:ersawp:275 |
| By: | Christoph Grosse Steffen; Stéphane Lhuissier; Daniel J. Lewis |
| Abstract: | Central bank communications frequently contain information about financial-market backstops that affect monetary policy transmission. We identify these transmission protection surprises in the euro area, alongside policy stance and central bank information surprises, by exploiting heteroskedasticity in minute-by-minute asset price movements. Unlike standard factor models, our approach allows active policy dimensions and their impacts to vary across events. Event-specific decompositions quantify the narrative record and reveal substantial heterogeneity of effects across announcements. We show that transmission protection is a distinct dimension of central bank announcements, with financial-market effects separate from both policy stance and information shocks. |
| Keywords: | Monetary Policy, High-Frequency Identification, Central Bank Communication, Information Effects, Financial Stability, Transmission Protection |
| JEL: | E52 E58 F45 G12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1061 |
| By: | Diego Rodrigues (Université du Québec à Montréal (UQAM)); Tim Willems (Bank of England and Centre for Macroeconomics) |
| Abstract: | By setting interest rates, monetary policy affects the cost of carrying inventories – giving rise to a ‘cost-of-carry channel’ of monetary policy transmission. Via a simple model, we show that higher inventory carrying costs drive firms, especially those holding larger inventories, to cut their prices. We test this hypothesis using data from the US goods, housing, and oil markets – finding robust evidence supporting the cost-of-carry channel. We then introduce this channel into a New Keynesian setup and show that it makes optimal policy more focused on inflation stabilisation when inventories are more plentiful – the reason being that the central bank faces a more favourable sacrifice ratio in such an environment. |
| Keywords: | Inventories;monetary policy;monetary transmission mechanism;inflation. |
| JEL: | E30 E31 E32 E52 E58 |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023275 |
| By: | Benjamin Hemingway (Bank of England) |
| Abstract: | Rapid innovation in digital payments and the advent of new forms of privately issued digital money have increased interest in the concept of singleness of money. This paper provides an analytical framework for studying the singleness of money consisting of a three-period banking model where banks choose both the unit of account of their debt and whether it can be used as a medium of exchange. The paper suggests that small deviations from singleness may still be consistent with the efficient allocation, consistent with the fact that small deviations from par already arise today (for example, ATM withdrawal fees). However, inefficient equilibria are more likely to occur if the newly introduced forms of digital money are issued by private entities with distinct business models from incumbent financial institutions. The model also highlights the stabilising roles of both cash and central bank reserves in promoting the singleness of money. Reserves ensure issuers share a consistent asset base, while cash provides a backstop by enabling interoperability through central bank money. |
| Keywords: | Banking;money;singleness;unit of account. |
| JEL: | E41 E42 E58 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023296 |
| By: | David Ronicle (Bank of England) |
| Abstract: | This paper presents the first in-depth empirical assessment of the Bank of England’s ‘overfunding’ policy, a neglected historical episode that may offer insights about quantitative tightening. Overfunding – government bond issuance in excess of fiscal financing needs – was used as an active monetary policy tool in the early 1980s to slow money growth. Exploiting high frequency issuance announcements and a novel external instrument derived from money market segmentation, I show that overfunding shocks had countervailing effects on asset prices. Excess gilt issuance raised long-term yields, via a portfolio balance channel, but reduced short-term rates, potentially through signalling effects. These offsetting forces led to limited effects on inflation and monetary aggregates. This offers a valuable insight for policymakers now – that the different channels of quantitative tightening can be exploited to calibrate the aggregate effects of balance sheet unwind. |
| Keywords: | Quantitative tightening;balance sheet policies;bond supply;term premia;signalling;monetary targeting |
| JEL: | E44 E52 E58 G12 N14 |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023305 |
| By: | Agnès Bénassy-Quéré; Matthieu Bussière; Thaïs Masseï; Arthur Saint-Guilhem |
| Abstract: | We assess the degree of heterogeneity in monetary policy transmission (MPT) across euro area countries for the period 2000–2025. Using monthly local projections, we estimate the effects of monetary policy on a broad set of transmission variables at both euro area and national levels. First, we find limited heterogeneity of output and inflation responses to monetary policy shocks, despite asymmetric responses of mortgage market-related variables. Second, key structural differences, such as households’ indebtedness, debt maturity, interest rate rigidity and sectoral composition, do shape heterogeneities in MPT across euro area countries, according to our results. Considered jointly, though, these differences partly offset one another, leading to a relatively homogeneous transmission of monetary policy. Third, a monthly FAVAR estimation confirms and broadens our local projections results: asymmetry remains contained for output and inflation, but it is higher for sovereign spreads, food prices, credit variables and our consumption proxy. Finally, a rolling-window estimation of the FAVAR model shows that time-varying heterogeneity in MPT is characterized by temporary and crisis-driven divergences that consistently revert to a low baseline, reflecting key monetary policy interventions rather than deeper structural economic divergences. Unconventional monetary policies play a central role in this pattern: they tend to reduce country divergences during crisis periods, impacting more strongly the countries most affected, hence operating, by design, as a heterogeneous policy shock according to our main metric. |
| Keywords: | Monetary Policy Transmission, High-Frequency Identification, Local Projections, FAVAR |
| JEL: | C32 C38 F45 E52 E31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1062 |
| By: | Flores Zendejas, Juan; Nodari, Gianandrea |
| Abstract: | This article explores how profit-seeking behavior among central banks shaped their adherence to the gold exchange standard during the interwar period, focusing on the case of Chile. Existing literature has emphasized ideology, credibility, and political considerations to explain monetary orthodoxy. However, it has largely overlooked the role of financial incentives embedded in the structure of the gold exchange regime. Drawing on new archival evidence, particularly the minutes of the Central Bank of Chile’s Board of Directors, we show that the institution actively managed its foreign reserves to maximize returns by placing them in correspondent banks in London and New York. This proactive strategy was encouraged by institutional design and shareholder expectations but created vulnerabilities by reducing reserve liquidity and increasing exposure to currency and counterparty risk. These fragilities became evident during the sterling crisis of 1931, when Chile incurred severe losses and was unable to act as a lender of last resort, leading to its abandonment of the gold standard in 1932. The Chilean case reflects broader practices among European and Latin American central banks, revealing how profitability considerations shaped monetary behavior and contributed to systemic fragility. |
| JEL: | E58 F33 N16 N26 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:195486 |
| By: | Mridula Duggal (Bank of England) |
| Abstract: | This paper studies how inflation expectations respond to monetary-policy regime changes. I develop a New Keynesian model with trend inflation and adaptive learning in which adopting inflation targeting (IT) is a downward shift in the central bank’s inflation objective. Under rational expectations, expected inflation adjusts on impact. Under adaptive learning, beliefs update gradually and expectations adjust only partially between announcement and implementation. I then use professional-forecaster surveys for 32 countries and exploit staggered IT adoption to trace expectations and realised inflation around regime transitions. Empirically, inflation declines following adoption, while survey expectations exhibit little systematic adjustment. The results indicate that inflation leads expectations, at odds with the canonical New Keynesian rational-expectations prediction, and imply that – following the adoption of IT – credibility can be built over time as policy delivers lower inflation outcomes. |
| Keywords: | Inflation expectations;monetary policy;subjective expectations;adaptive learning;inflation;regime shifts |
| JEL: | D83 D84 E52 E58 |
| Date: | 2026–03–20 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023297 |
| By: | Thomas Drechsel (University of Maryland, NBER, CEPR); Michael McLeay (Bank of England); Silvana Tenreyro (London School of Economics); Enrico D Turri (London School of Economics) |
| Abstract: | We show that the optimal monetary policy and exchange rate framework depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions may vary with the commodity cycle, and we compute the welfare-optimal policy in the presence of price and wage rigidities. Stabilising domestic prices is welfare-optimal for commodity exporters, in line with standard open-economy policy prescriptions. But for economies that use commodities as inputs in production, optimal policy largely ‘looks through’ the direct and indirect effects of commodity shocks on domestic prices; this contrasts with some earlier findings and policy practice (which only ‘looks through’ the direct effect). In emerging and developing economies, where financial conditions are more tied to the commodity cycle, trade-offs are starker and implementing the optimal policy may be challenging, since it requires enough credibility to keep inflation expectations anchored amidst greater volatility in some nominal variables. |
| Keywords: | Monetary policy;exchange rates;inflation targeting;commodity prices;small open economy |
| JEL: | E31 E52 E58 F41 Q02 Q30 |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023308 |
| By: | Andrea De Polis (Banco de España); Leonardo Melosi (European University Institute and CEPR); Ivan Petrella (Collegio Carlo Alberto, University of Turin and CEPR) |
| Abstract: | Time-varying asymmetric inflation risks generate persistent stagflationary effects. A quantitative general equilibrium model with time-varying skewness in the distribution of cost-push shocks matches these effects. Central to the analysis is a representation theorem that provides a tractable characterization of a broad class of models with asymmetric shock distributions. The theorem enables a closed-form characterization of optimal monetary policy, according to which the central bank should lean against the balance of inflation risks, while rendering quantitative general-equilibrium models with time-varying risks amenable to counterfactual and scenario analysis. |
| Keywords: | Balance of risks, optimal monetary policy, asymmetric beliefs, policy trade-offs, risk-adjusted inflation targeting, geopolitical risks. |
| JEL: | E52 E31 C53 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2626 |
| By: | Jasmin E. Dacio (Bangko Sentral ng Pilipinas); Reizle Jade C. Platitas (Bangko Sentral ng Pilipinas); Sarah Jane A. Castañares (Bangko Sentral ng Pilipinas); Sanjeev A. Parmanand (Bangko Sentral ng Pilipinas) |
| Abstract: | This paper investigates whether the exchange rate pass-through (ERPT) to inflation varies with the direction and magnitude of change in the nominal exchange rate. Using non-linear and multiple threshold autoregressive distributive lag models, we reconsidered the premise of linearity and symmetry often assumed in the literature on ERPT. We found that in the case of the Philippines, the long-run ERPT is larger and statistically significant during depreciation episodes. Meanwhile, pass-through is limited during appreciation episodes, possibly reflecting the downward stickiness of prices. Further, ERPT tends to be higher at large enough depreciations while it remains limited even during large appreciations. After accounting for asymmetry, the results are consistent with previous studies establishing the decline of ERPT since the Bangko Sentral ng Pilipinas adopted an inflation-targeting framework in 2002. |
| JEL: | E31 E50 F31 F47 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202516 |
| By: | Tsutomu Watanabe |
| Abstract: | For decades, Japanese inflation expectations were anchored near zero, helping stabilize prices but also making it harder for the Bank of Japan to escape deflation. That zero-percent anchor has now largely disappeared. Yet a new anchor at the BOJs 2 percent target has not taken its place. Japan is therefore caught between inflation anchors, leaving expectations—and potentially prices and the yen—more vulnerable to shocks. Establishing a credible 2 percent anchor is now a key challenge for monetary policy. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-014e |
| By: | Vedanta Dhamija (Bank of England); Ricardo Nunes (University of Surrey); Roshni Tara (Bank of England) |
| Abstract: | Housing is a closely monitored and prominent sector for households. We find that households in the United States tend to overweight house price expectations when forming inflation expectations with a coefficient of 25%–45%, significantly above the weight of house prices in the inflation index. We first use two data sets, a multitude of controls, and an instrumental variable approach to address endogeneity. We then use a second strategy based on household heterogeneity. As expected, we find a significant effect of numeracy skills and whether households moved house recently. We model this household behaviour in a two-sector New Keynesian model with an overweighted and a non-overweighted sector and show that overweighted sectors are disproportionately more important for monetary policy. |
| Keywords: | Salience;inflation expectations;house price expectations;monetary policy |
| JEL: | D10 E12 E31 E52 E58 |
| Date: | 2026–01–23 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023291 |
| By: | Eddie Boy L. Fuentes (Bangko Sentral ng Pilipinas); Mary Kryslette C. Bunyi (Bangko Sentral ng Pilipinas); Cherrie R. Mapa (Bangko Sentral ng Pilipinas) |
| Abstract: | Understanding the formation of inflation expectations is crucial for monetary policymaking, given that these expectations shape inflation dynamics. Using Bangko Sentral ng Pilipinas (BSP) Consumer Expectations Survey (CES) data, we test whether Filipino households’ inflation expectations can be characterized as adaptive, rational, or sticky. Empirical evidence indicates that households are partly adaptive and not fully rational. However, the survey data are more consistent with the sticky information model, which posits that agents are generally inattentive and infrequently update their forecasts. Results from an epidemiological model, validated using Bayesian posterior estimation, suggest that half of the households retain lagged, previous--quarter expectations; a third follow “rational†professional forecasts; and a fifth update adaptively based on the latest inflation data. We also estimate a state--dependent model, which shows that agents update forecasts more frequently during inflationary periods. |
| JEL: | D10 D84 E31 E58 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202510 |
| By: | Benjamin Straus; Stéphane Surprenant; Kerem Tuzcuoglu |
| Abstract: | In this note we examine how monetary policy affects housing demand, supply and prices in Canada, and whether these effects vary with labour market conditions. Using state-dependent local projections identified with narrative monetary policy shocks, we find that lower interest rates have larger effects when unemployment is low. Easing boosts resales quickly, raises housing starts with a delay, and increases house prices persistently. Because demand tends to respond more strongly than supply, monetary policy appears unable to alleviate housing affordability pressures and may instead intensify them when labour market conditions are strong. |
| Keywords: | Monetary policy; Monetary policy framework and transmission |
| JEL: | C C3 C32 E E5 E52 R R3 R31 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-35 |
| By: | Joan Christine S. Allon-Pineda (Bangko Sentral ng Pilipinas); Eduard Renzo D. Santos (Bangko Sentral ng Pilipinas) |
| Abstract: | Successive supply shocks led to above-target inflation for the Philippines from 2021 to 2023. Formulating the optimal policy response to bring inflation back to target requires central banks to have estimates of the direct and indirect pass through of supply shocks to domestic inflation. We estimate the direct and second round effects of shocks to global oil, global food, and domestic rice prices on various measures of inflation as well as inflation expectations using local projections methodology. In addition, we examine the asymmetry in the pass-through of price increases vis-Ã -vis a price reductions. Global oil and food price shocks produce significant and persistent inflationary responses that trigger further second-round effects and a significant but lagged impact on month-ahead inflation expectations. Decomposing realized inflation, the impact of global oil shocks has historically been larger than food shocks. Second-round effects from oil shocks are larger than its direct effects, while the latter is larger for global food and domestic price shocks. This is consistent with the role of oil as an intermediate good, which is in contrast with both food and rice which are considered final commodities. Assessing the asymmetry of shocks, headline and core inflation were found to respond asymmetrically to oil price shocks, although the effect does not persist for more than a month. Policymakers must continue to monitor the emergence of second-round effects and ensure that inflation expectations are well-anchored, especially during large, positive oil and food price shocks. |
| JEL: | E31 E37 C32 C36 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202506 |
| By: | Ruslana Datsenko (Bank of England); Martin B Holm (University of Oslo and CEPR) |
| Abstract: | Monetary policy is usually evaluated through aggregate output and inflation, with less attention to how it reallocates innovative investment across firms. Existing evidence shows that higher rates reduce innovation, but the firms driving this response remain unclear. Combining Norway’s research and development (R&D) survey with administrative data and narrative monetary shocks for 2001–18, we estimate heterogeneous firm responses. Contractionary policy reduces R&D most in high-growth firms with recent equity issuance, consistent with the asset-price channel of monetary transmission. Standard debt-based measures explain little heterogeneity. Monetary policy therefore has long-run real effects primarily by reducing R&D in high-growth innovative firms. |
| Keywords: | Monetary policy;innovation;productivity;research and development |
| JEL: | E52 O31 |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023314 |
| By: | Cyn-Young Park (The South East Asian Central Banks (SEACEN) Research and Training Centre); Kwanho Shin (Korea University) |
| Abstract: | This paper examines whether the early diffusion of artificial intelligence (AI) is visible in productivity and price outcomes relevant to monetary policy. We combine firm-level information on AI adoption from Korea’s Survey of Business Activities with annual industry- and region-level data for 2017–2023. We construct value-added- and employment-weighted measures of AI intensity and use their 2019 values as predetermined measures of initial AI intensity. Both measures strongly predict the cross-sectional distribution of AI intensity in 2023. We then estimate reduced-form panel regressions that compare 2023 outcomes across industries and regions with different initial levels of AI intensity, controlling for unit and year fixed effects. We find no systematic evidence that more AI-intensive industries or regions experienced stronger output or labour-productivity growth in 2023. Industry-level price effects are also statistically insignificant and vary across price measures. At the regional level, however, employment-weighted AI intensity is positively associated with overall consumer price inflation, while restaurant price inflation is higher under both measures of AI intensity. These findings suggest that the supply-side benefits of AI had not yet become visible in aggregate productivity by 2023, whereas inflationary pressures may have emerged in some locally determined consumer services. This pattern is consistent with demand responding before productivity gains are fully realised, although our empirical design does not identify the underlying mechanism. The findings have important implications for monetary policy: during the early stages of AI diffusion, central banks should not assume that anticipated productivity gains will immediately expand effective supply or alleviate inflationary pressures. We discuss the implications of this transitional asymmetry for central banks in Asian economies, where rapid AI adoption may coincide with persistent supply constraints and sector-specific price pressures. |
| Keywords: | Artificial Intelligence (AI), AI Adoption, Productivity Growth, Inflation, Monetary Policy and Central Banking |
| JEL: | E31 E52 O33 O47 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:sea:wpaper:wp63 |
| By: | Aniruddha Rajan (Bank of England); Francesc Rodriguez-Tous (Bayes Business School, City St. George’s, University of London); Francesc Salgado-Moreno (Bank of England) |
| Abstract: | We study how monetary policy affects the fixation structure of mortgage contracts, a feature that is crucial for how household consumption adjusts following changes in policy rates. Using loan‑level data covering the universe of residential mortgages in the UK, we show that lenders do not adjust the relative supply of mortgages with different fixation lengths in response to changes in the level of interest rates, but they do so following changes in the term spread. Monetary policy‑induced increases in the slope of the yield curve cause lenders to increase the supply of longer‑fixation mortgages. This effect is particularly strong for lenders with a greater share of fixed‑rate mortgages in their existing portfolios – consistent with an interest rate risk management motive – as well as during expansionary monetary policy episodes. When monetary policy is contractionary, however, increases in the term spread lead banks to increase the supply of shorter as compared to longer‑fixation mortgages. Finally, we find that the choice of monetary policy instrument has material – and directionally opposing – implications for the supply of mortgages at different fixation lengths. |
| Keywords: | Monetary policy;bank lending;household finance;mortgages;local projections |
| JEL: | E43 E52 G21 G51 |
| Date: | 2025–11–28 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023280 |
| By: | Matthieu Chavaz (Bank for International Settlements); David Elliott (Bank of England); Win Monroe (Copenhagen Business School) |
| Abstract: | We exploit the surprise announcement and subsequent amendment of a central bank funding scheme to test how public liquidity provision affects credit market outcomes. Contrary to the notion that public liquidity is primarily a substitute for private liquidity, banks that are more exposed to stress in private wholesale funding markets use less central bank funding. We rationalise this pattern by establishing an 'equilibrium channel' of public liquidity. The mere availability of central bank funding reduces the cost of private wholesale funding. This stimulates lending by banks exposed to wholesale funding, regardless of whether they actually use the central bank funding. Using a surprise amendment to the design of the scheme, we show that the 'strings attached' to central bank funding help to explain why it is an imperfect substitute for private funding. |
| Keywords: | Central bank funding;mortgage lending;bank funding risk |
| JEL: | E52 E58 G21 |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023283 |
| By: | Gockel, Christine; Strohsal, Till |
| Abstract: | We study how inflation expectations can be anchored through different forms of communication and whether such anchoring survives political change. Using a two-wave panel RCT around the 2025 German federal election, we show that providing the ECB's target and projections lowers expectations by about 100 basis points. We then introduce a teaching-style intervention explaining the ECB's institutional role using simple language and an intuitive metaphor, which proves equally effective. Treatment effects persist through the election, and partisan polarization remains modest. Our results suggest that well-designed communication - combining quantitative information with clear explanations of institutional responsibility - can durably anchor beliefs even in changing political environments. |
| Keywords: | elections, anchoring, inflation expectations, central bank communication, survey experiment, randomized controlled trial (RCT) |
| JEL: | E31 E42 E52 D84 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:342441 |
| By: | Michael McMahon (University of Oxford, CEPR); Matthew Naylor (Bank of England, University of Oxford); Ryan Rholes (University of Mississippi); Peter Rickards (Reserve Bank of Australia, University of Oxford) |
| Abstract: | We examine how central banks can effectively communicate forecast uncertainty in a two-part experimental study. Part I tests how different visual media – fan charts, dot plots, box-and-whisker plots, speedometers, and ranges – communicate uncertainty to both the general public and expert audiences. We find that fan charts are well understood and perform best at jointly conveying both expectations and uncertainty. Part II implements a novel dynamic information experiment with 1, 600 UK participants across four stages, examining the effects of uncertainty communication on expectations and uncertainty perceptions over time. We find that while point forecasts anchor expectations marginally more than fan charts initially, forecast errors significantly de-anchor expectations, particularly for ‘unlucky’ errors that move inflation away from target. Critically, fan charts materially mitigate this de-anchoring, acting as an ‘insurance policy’ that helps protect central bank reputation. We also document that the public consistently underestimates the degree of uncertainty, and that communicating uncertainty via fan charts helps the public learn more realistic uncertainty perceptions. Our findings have important implications for central bank communication strategies. |
| Keywords: | Central bank communication;forecast uncertainty;fan charts;expectations;anchoring |
| JEL: | C91 D83 E52 E58 |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023318 |
| By: | Michael Ellington (University of Liverpool Management School); Costas Milas (University of Liverpool Management School); Ryland Thomas (Bank of England) |
| Abstract: | We provide evidence that quantitative easing (QE) and quantitative tightening (QT) policies are state contingent. Using 60 years of UK data on public-sector debt sales to the banking system we identify a novel bank funding shock that indicates the impact of unconventional monetary policies changes significantly over time, and that regimes are non-recurrent. Our approach also permits an appraisal of state contingency at different stages of transmission. Over successive QE rounds, we find the responsiveness of government bond yields to a given amount of QE falls. However, demand becomes more responsive to yield changes, while inflation exhibits more persistence and greater sensitivity to the output gap. In the presence of such state contingencies, our results suggest careful monitoring is needed when assessing the impact of QE policies. |
| Keywords: | Quantitative easing;quantitative tightening;unconventional monetary policy;bank funding;vector autoregression |
| JEL: | C11 C32 E52 E58 |
| Date: | 2026–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023307 |
| By: | Mr. Philip Barrett |
| Abstract: | I analyze multi-horizon market forecasts for macroeconomic variables in Brazil from 2010 to 2026, using a structural macroeconomic model to interpret stated beliefs as the outcomes of a coherent belief system. This produces time-varying beliefs about policy rules, transmission mechanisms, and structural shocks. Beliefs about the monetary policy rule vary in two distinct dimensions, with the perceived target and Taylor response coefficients showing independent variation. Monetary transmission is seen as weak; the perceived Philips and IS curves are very flat. Markets see fiscal policy as increasingly unresponsive to higher debt. The perceived inflation target is unchanged after an unexpected monetary tightening, but the perceived response to inflation increases, with larger effects for monetary surprises and smaller for news shocks. |
| Keywords: | Expectations; Inflation; Monetary Policy; Fiscal Policy; Credibility |
| Date: | 2026–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/173 |
| By: | Harold Glenn A. Valera (Bangko Sentral ng Pilipinas); Mark J. Holmes (University of Waikato); Vic K. Delloro (Bangko Sentral ng Pilipinas) |
| Abstract: | In this paper, we address the challenge of using aggregate data to study the effects of fuel and rice prices on overall inflation in emerging markets. Our quantile regression analysis using the Philippines' province-level monthly data from 1996 to 2024 finds a strong impact during periods of higher inflation. Indeed, this impact is verified in Indonesia, Thailand, and India. We also find that inflation targeting and rice tariffication reduce such an impact and that high-poverty and rice-deficit areas exhibit a higher fall in rice inflation effect post-tariffication. In addition, the impact of remittances on Philippine inflation is nonlinear, while it is asymmetric for the other three countries. |
| JEL: | E31 E52 C32 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202502 |
| By: | Clemente Pinilla-Torremocha (Bank of England and European Research University) |
| Abstract: | This paper investigates the post-Covid inflation surge in the euro area, combining three features: decomposition of long-term trends and business-cycle dynamics – such as potential GDP, trend inflation, output-gap, and inflation-gap; time-varying volatility and fat-tailed distributions to accommodate extreme observations; and structural shock identification, distinguishing shocks by their persistence (permanent versus transitory) and domain (global versus domestic, demand versus supply, or energy specific). Unlike the existing literature, findings show that domestic supply shocks feed into the persistent component of euro-area inflation, raising trend inflation to 3% by 2022. Demand shocks – domestic and global – manifest in the transitory component (inflation gap), explaining 85% of the post-Covid inflation surge. |
| Keywords: | Inflation dynamics;trends and cycles;permanent and transitory shocks;stochastic volatility;fat-tails;domestic-global;demand-supply |
| JEL: | E31 E32 E44 |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023292 |
| By: | Jenny Chan (Bank of England); Sebastian Diz (Central Bank of Paraguay); Derrick Kanngiesser (Independent Researcher) |
| Abstract: | We study a New Keynesian model where production inputs and pricing decisions are made under information frictions. Firm production is constrained by inputs that are chosen before shocks are realized, based on firms’ expectations of future demand. We show that the assumption of real rigidities versus nominal rigidities is not innocuous, as assuming the presence of either or both affects the pass-through of demand shocks to aggregate output and inflation. When the choice of production inputs is made under imperfect information about demand shocks, the impact on inflation is amplified while the impact on output is dampened. When both production inputs and pricing decisions are made under imperfect information about demand shocks, the pass-through to output is amplified while the impact on inflation is dampened. Additionally, we show that expectations about demand can behave similarly to a supply shock, as these expectations influence the natural level of output and enter the New Keynesian Phillips curve in a manner analogous to a cost-push shock. Empirical evidence suggests that inflation falls following a positive surprise in industrial production, consistent with the model version featuring real rigidities. |
| Keywords: | Information frictions;New Keynesian;real rigidities |
| JEL: | E31 E31 E52 E58 |
| Date: | 2025–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023277 |
| By: | Deborah Gefang; Stephen G. Hall; George S. Tavlas |
| Abstract: | We examine how macroeconomic and geopolitical developments in the United States, the euro area, and China affect the currency composition of central banks' foreign exchange reserves. Using an unbalanced panel of reserve shares for 53 countries over 1999-2023, we estimate a constrained system of equations that explicitly imposes the adding-up restriction on reserve shares. The results indicate substantial persistence in reserve holdings and significant cross-currency dependence, supporting a system-wide dynamics of reserve composition. In the country fixed-effects specification (1) issuer economic size, (2) uncertainty, (3) sanctions, (4) trade linkages, and (5) issuer credibility are significantly associated with reserve allocation across currencies. With the inclusion of year fixed effects, the persistence and cross-currency dependence remain, while trade linkages and sanctions emerge as the most important determinants of reserve composition. The results highlight the importance of accounting for the compositional nature and interdependence of reserve shares when examining the determinants of global reserve holdings. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.24468 |
| By: | Nikoleta Anesti (Bank of England); Edward Hill (Bank of England); Andreas Joseph (Bank of England) |
| Abstract: | This paper investigates the ability of large language models (LLMs), primarily ‘GPT-3.5 Turbo’ (GPT), to form inflation perceptions and expectations based on macroeconomic price signals. We compare the LLM’s output to household survey data and official statistics, mimicking the information set and demographic characteristics of the Bank of England’s Inflation Attitudes Survey (IAS). Our quasi-experimental design exploits the timing of GPT’s training cut-off in September 2021 which means it has no knowledge of the subsequent UK inflation surge. This setting turns out to be crucial to track aggregate survey results and official statistics at short horizons. At a disaggregated level, GPT replicates key empirical regularities of households’ inflation perceptions, particularly for income, housing tenure, and social class. A novel Shapley value decomposition of LLM outputs suited for the synthetic survey setting provides well-defined insights into the drivers of model outputs linked to prompt content. We find that GPT demonstrates a heightened sensitivity to food inflation information like that of human respondents. However, we also find that it lacks a consistent model of consumer price inflation, eg by exhibiting unexplained kinks in component sensitivity. More generally, our approach could be used to evaluate the behaviour of LLMs for use in the social sciences, to compare different models, or to assist in survey design. |
| Keywords: | Large language models;inflation expectations;household surveys;Shapley values |
| JEL: | C8 C14 C45 C83 E31 |
| Date: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023312 |
| By: | Krishan Shah (Bank of England); Philip Bunn (Bank of England); Marko Melolinna (Financial Conduct Authority) |
| Abstract: | Many firms use required rates of return on investment – or hurdle rates – to evaluate the attractiveness of their investment projects. This paper examines the adjustment of these hurdle rates to a tightening in monetary policy. Using new survey evidence from the 2022–23 hiking cycle, we find that hurdle rates for UK firms tend to be high and that they responded sluggishly to increases in interest rates over this period. Firms who use external finance to fund investment were more likely to have adjusted their hurdle rates in response to higher interest rates; but even for these firms, only around half of the increase in cost of capital was passed into hurdle rates. Using high-frequency monetary policy shocks over a longer period of time, we show that firms with sticky hurdle rates reduce investment by less in response to contractionary policy shocks than firms that update their hurdle rates more frequently. |
| Keywords: | Investment;interest rates;monetary policy;discount rates |
| JEL: | E22 E52 G31 |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023284 |
| By: | Roshin Paul P (Indira Gandhi Institute of Development Research); Taniya Ghosh (Indira Gandhi Institute of Development Research) |
| Abstract: | The causes and consequences of Indian households' Inflation Expectations (IE) are investigated using an ad-hoc survey covering 1010 urban households across Delhi, Mumbai, Chennai and Kolkata. This paper verifies the reason for upward bias in the IE of households by collecting their item-wise IE an approach not previously employed in Indian surveys and proposes an alternate method to derive an overall IE with less bias. A significant reduction in the overall IE of households and the disagreement among them was observed when it is calculated as a weighted average of their item-wise IE. Policymakers may adopt this approach as the weighted average of item-level expectations yields a more representative and less biased IE of households. The reduction was more noticeable among women, as well as individuals with lower income and less education. The investigation on the behavior of respondents anticipating higher future inflation found that most households plan to seek higher income, stockpile non-perishable essential goods, and draw down their savings actions that are likely to increase both current inflation and inflation in the near future. Effective expectations management through clear, credible, and forward-looking communication is vital to anchor inflation and ensure macroeconomic stability. |
| Keywords: | Cross sectional survey, Household data, Expectations, Consumer price index, Inflation, Monetary policy |
| JEL: | C83 D84 E31 E52 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2026-009 |
| By: | Goldbach, Stefan; Nitsch, Volker |
| Abstract: | This paper explores a monetary experiment, the adoption of Bitcoin as legal tender in El Salvador in 2021, to analyse the impact of digital currencies on international capital flows. Using a difference-in-differences approach, we find that, instead of making transfers easier, El Salvador’s official cross-border financial activity has decreased after the monetary change. This finding may reflect an increase in uncertainty. However, it is also in line with findings that link digital assets to illegal activity as previously officially recorded financial transfers may have been replaced by unrecorded activities. |
| Date: | 2026–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:161818 |
| By: | Gert Bijnens; John Hutchinson; Arthur Saint-Guilhem |
| Abstract: | This paper examines the effects of cryptocurrency regulation on price deviations in the Bitcoin market, focusing on regulatory implementations rather than announcements. I construct a unique database of regulations across 28 countries since 2009, categorized into seven types, and analyse Bitcoin price data since September 2013. Our findings indicate that the Law of One Price does not hold in the Bitcoin market. Contrary to initial conjectures, more regulated markets exhibit higher price convergence with the USD benchmark. According to the type of regulation, this result is mixed. Regulations enhancing reliability and transparency, such as the expansion of securities laws, banking and payment regulations, and the implementation of regulatory sandboxes foster price convergence. In contrast, partial bans—primarily targeting banks—exacerbate price divergence, underscoring the significant role of financial institutions in the Bitcoin market. Additionally, anti-money laundering/countering the financing of terrorism (AML/CFT) laws reduce local prices regardless of USD price level, suggesting the cryptoasset's use in illicit activities.. |
| Keywords: | Labour Hoarding, Monetary Policy Transmission, Firm-Level Heterogeneity, Employment Adjustment, Financial Constraints |
| JEL: | E52 J23 E32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1053 |
| By: | Joshi, Ekta; Gomez, Laura; Morales Opazo, Cristian |
| Keywords: | International Development |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404643 |
| By: | Elio Cucullo (Bank of England and Bayes Business School); Andrew Clare (Bayes Business School); Angela Gallo (Bayes Business School) |
| Abstract: | We study the overnight bilateral gilt repo market to assess how global non-bank financial institutions (NBFIs) supply liquidity to large UK banks. Using proprietary transaction-level data from the Bank of England, we show that, in this segment, NBFIs provide substantially more liquidity than traditional interbank lenders, with volumes 6 to 12 times larger. We compute a relative pricing measure, the Spread-of-Spread (SoS), to capture the NBFI premium over the interbank repo lending. We document that before 2022, NBFI funding was cheaper than the interbank market, with the average SoS at -7 basis points, but became more expensive and volatile thereafter, averaging around 10 basis points. We document two mechanisms: an opportunity-cost channel where higher short-term rates lead NBFIs to pass higher liquidity cost onto banks, and a balance-sheet constraint channel, whereby monetary tightening heterogeneously compresses NBFIs balance-sheet capacity, increases the shadow cost of liquidity, and amplifies the persistence of volatility in the SoS. |
| Keywords: | Banks;non-bank financial institutions;repo market;liquidity. |
| JEL: | C58 G01 G21 G23 |
| Date: | 2026–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023317 |
| By: | Blanco, Andres; Boar, Corina; Jones, Callum; Midrigan, Virgiliu |
| Abstract: | We show that standard menu cost models cannot simultaneously reproduce the dispersion in the size of micro-price changes and the extent to which the fraction of price changes increases with inflation in the U.S. time-series. Though the Golosov and Lucas (2007) model generates fluctuations in the fraction of price changes, it predicts too little dispersion in the size of price changes and therefore little monetary non-neutrality. In contrast, versions of the model that reproduce the dispersion in the size of price changes and generate stronger monetary non-neutrality predict a nearly constant fraction of price changes. |
| JEL: | E3 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19268 |
| By: | Fos, Vyacheslav; Xu, Nancy |
| Abstract: | Using 472 FOMC meetings (1969–2019) and the exogenous rotation of voting rights among Reserve Bank presidents, we identify meetings where local economic conditions in voting districts significantly affect the Federal funds target rate (FFR), while those in non-voting districts show no effect. This voting-group effect persists after controlling for national conditions and Greenbook forecasts, implying that actual FFR decisions plausibly deviated from what average information and expectations would have suggested. Distortions are sizable, persistent, and priced into futures and Treasury markets prior to FOMC meetings. We demonstrate these findings using both components of the Fed’s dual mandate: inflation and unemployment rates. |
| Keywords: | Monetary policy |
| JEL: | E5 E58 D7 G1 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19269 |
| By: | Luis M. Viceira; Sally Shen |
| Abstract: | This paper examines optimal currency demands for global equity and bond investors in a large cross-section of developed and emerging markets over the 1975-2023 period. It extends the framework of Campbell et al. (2010) by incorporating both optimal portfolio-risk minimizing currency exposures, accounting for empirically measured hedging costs arising from deviations of Covered Interest Parity (CIP), and optimal expected-return-driven currency demands based on non-zero expected excess currency returns arising from empirically measured deviations of Uncovered Interest Parity (UIP). The analysis shows that the main conclusions of their portfolio risk-minimizing framework hold for this larger and longer panel of countries and that they are robust to deviations from CIP. Specifically, it is optimal for portfolio risk-minimizing equity investors to hold exposures to the U.S. dollar and the euro while avoiding exposure to all other currencies, whereas bond investors should hedge all currency exposures. In contrast, observed deviations from UIP are sufficiently large and persistent among currencies with high average relative interest currencies, especially Emerging Markets currencies, to generate expected return-driven currency demands that offset, and in some cases reverse, portfolio-risk minimizing demands, even for investors with low risk tolerance. The average excess returns on those currencies are large enough to compensate investors for their substantial return volatility and strong positive covariance with equity returns. |
| JEL: | F0 F21 F23 F3 F30 F31 F37 G0 G1 G11 G15 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35498 |
| By: | Yusuf Emre Akgunduz; Kubra Bolukbas; Mehmet Selman Colak; Merve Demirbas Ozbekler; Muhammed Hasan Yilmaz |
| Abstract: | This paper investigates the impact of banks’ medium-term inflation expectations on credit supply in a major emerging market. Theoretically, higher inflation expectations can either expand credit via the Fisher effect or contract it through a risk premium channel. By linking novel survey data on banks’ macroeconomic expectations with micro-level credit records in Türkiye (2009–2019), our findings suggest that the risk-premium channel dominates. Within-firm estimations show that an increase in a bank’s inflation expectation leads to a contraction in domestic currency credit supply. These results are robust to instrumental-variable estimations and an event-study design centered on the 2018 exchange rate shock. Beyond credit volumes, higher expectations lead to elevated interest rates and tighter collateral requirements. This contraction is most pronounced for small, highly leveraged, and domestically focused firms, with adverse spillovers to investment, productivity, and export performance via firm-bank relationships. |
| Keywords: | Inflation expectations, Bank behavior, Credit supply |
| JEL: | G21 E31 D84 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2616 |
| By: | Joan Christine S. Allon-Pineda (Bangko Sentral ng Pilipinas) |
| Abstract: | Identifying the sources of inflation is a complex yet crucial endeavor for effective monetary policymaking. A significant challenge arises from the fact that key elements of inflation dynamics, such as the output gap and inflation expectations, are often unobserved. This study implements a Hemisphere Neural Network whose peculiar architecture allows the estimation of the unobserved states within an augmented New Keynesian Phillips Curve. In the context of Philippine inflation, the estimated latent states effectively capture macroeconomic concepts such as real activity, inflation expectations, and commodity price dynamics, as evidenced by their correlation with input variables and alignment with major economic events. Long-run expectations is found to remain steady between 3.5-4.5 percent, while commodity prices account for most spikes in realized inflation. The model’s estimated output gap is aligned with existing measures from the Bangko Sentral ng Pilipinas, while the estimated inflation expectations align with short- to medium-term expectations from businesses and professional forecasters. Finally, the research offers significant insights into inflation dynamics and provides an analytical tool for monitoring policy-relevant inflationary pressures. |
| JEL: | C45 E31 E32 E52 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202505 |
| By: | Stéphane Dupraz |
| Abstract: | Central banks typically rely on the following heuristic: Look through transitory supply shocks to stabilize the output gap, but pivot toward inflation stabilization when supply shocks become persistent. Yet standard macroeconomic models provide little support for this heuristic. They justify it for markup shocks—a particular type of supply disturbance—but imply that, for the most common supply shocks, such as productivity, labor supply, or energy prices, stabilizing the output gap remains close to optimal even when these shocks are persistent. What, then, rationalizes a hawkish response to persistent supply shocks? This paper shows that, contrary to conventional wisdom, the risk that inflation expectations de-anchor is not sufficient. Even when expectations are backward-looking, output-gap stabilization remains close to optimal. Instead, real wage rigidity emerges as the key mechanism. When real wages are sufficiently rigid, stabilizing the output gap becomes substantially more costly, and optimal policy shifts toward inflation stabilization in response to persistent supply shocks, regardless of whether expectations can de-anchor. These findings suggest that monitoring real wage rigidity may be at least as important as monitoring inflation expectations when assessing the need for a hawkish policy pivot. |
| Keywords: | Supply Shocks ; De-Anchoring ; Real Wage Rigidity |
| JEL: | E52 E31 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1054 |
| By: | Manuel Gloria (Bank of England); Chiara Punzo (Bank of England) |
| Abstract: | We develop a DSGE model that incorporates state-dependent commercial bank capital requirements as a source of non-linearity. The presence of non-bank financial institutions (NBFI) amplifies the contractionary effects of monetary policy, primarily through the asset price channel. The amplification effect is strongest in the left tail of the GDP distribution and remains pronounced under zero lower bound conditions. The short-run vulnerabilities exposed by NBFIs contrast with their long-run benefits: a greater share of NBFI lending is associated with higher welfare. |
| Keywords: | Non-bank financial institutions;financial frictions;bank capital;macroprudential policy;monetary policy;GDP-at-risk |
| JEL: | E32 E58 G23 |
| Date: | 2025–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023278 |
| By: | Michael D. Bordo; Cécile Bastidon |
| Abstract: | We propose stress tests based on an original International Monetary System (IMS) model with regime switchings. The model is calibrated for nine reference currencies from the beginning of the Classical Gold Standard to the present. Regime switchings in currency dominance are related to combinations of conditions on a multidimensional environment variable that includes five classes of shocks: technology; development; monetary, financial and fiscal institutions; democracy and conflicts; and the regulatory environment. We provide an original database of events for these five classes of shocks, which is used for calibration. The calibration highlights the important role of the democracy and conflicts component in regime switchings. The calibrated model is then used to perform stress tests on the current prospects of currency dominance for a broad set of scenarios. A salient result from the scenarios we tested is that the dominance of the US dollar is at most marginally affected. No other currency emerges as a major player, suggesting strong inertia in the system’s current centripetal dynamics. |
| JEL: | C3 C82 E42 F33 G15 N2 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35647 |
| By: | Harold Glenn A. Valera (Bangko Sentral ng Pilipinas); Cymon Kayle Lubangco (Bangko Sentral ng Pilipinas); Mark J. Holmes (University of Waikato) |
| Abstract: | We propose a new measure of revisions to consumer inflation expectations using repeated cross-sections rather than requiring panel data. We calculate the value of group average expectations in a prior period as a proxy for what an individual’s expectations might have been using micro data in the Philippines for Q1 2010 to Q2 2024. In contrast to existing mixed evidence, the resulting revisions show sensitivity to price changes in 14 food and energy goods. The equivalence testing finds that the group-based coefficients are valid, as they are: (a) different from an overall sample average-based revision results with Philippine data and (b) similar to rotating panel-based revision results using data from the Michigan Survey of US households. Using Philippine data, we also provide new evidence of significant effects of a firm’s frequency of price changes on expectation revisions. |
| JEL: | C53 D84 D31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bhd:dpaper:202514 |
| By: | Aaron L. Garavito-Acosta (Central Bank of Colombia); Edgar Caicedo-Garcia (Central Bank of Colombia); Wilmer Martinez-Rivera (Central Bank of Colombia); Juan J. Ospina-Tejeiro (Central Bank of Colombia) |
| Abstract: | This paper develops and applies a standardized framework for forecasting year-on-year inflation in Colombia using large language models (LLMs). We conduct six sequential experiments in which the information set available to the models is progressively expanded by incorporating historical macroeconomic data, contextual indicators, explicit economic structure, and contemporaneous information retrieved through web search. Each configuration is executed daily and generates 24-month inflation forecasts in real time rather than retrospectively, together with qualitative explanations of the forecasts and, in the more advanced configurations, assessments of the shocks affecting inflation. This real-time design mitigates look-ahead bias and produces genuine forecast vintages. The framework is implemented as a programmatic pipeline in Python that queries the OpenAI and Google APIs, executes predefined experiment-specific prompts, and automatically processes and stores the model responses, while applying forecast validation and revision procedures in the more advanced configurations. The results show that richer information environments produce less monotonic inflation paths that remain above the 3% target over the forecast horizon and are more consistent with the contemporaneous domestic and external shocks affecting inflation. The qualitative analysis also shows that the models consistently identify relevant inflation drivers and their interactions. These richer forecast paths are broadly consistent with the pattern observed in survey-based inflation expectations. A formal evaluation of forecast accuracy will be conducted as additional real-time forecast vintages become available. |
| Keywords: | Large language models; Inflation forecasting; Colombia; Prompt design |
| JEL: | C53 E01 E31 E37 F31 E23 |
| Date: | 2026–08–25 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp23-2026 |
| By: | Philip Bunn (Bank of England); Nicholas Bloom (Stanford University); Craig Menzies (Bank of England); Paul Mizen (King's College London); Gregory Thwaites (University of Nottingham); Ivan Yotzov (Bank of England) |
| Abstract: | We present new evidence on how firms set prices using direct questions from a large economy-wide survey of UK firms. Since 2023, 54% of firms report setting prices in a state-dependent manner, as opposed to changing prices at fixed intervals. In contrast, 44% of firms used state-dependent pricing in 2019. Smaller firms, those with a higher share of non-labour costs, and those reporting higher subjective uncertainty around sales and prices are more likely to be state-dependent. We then analyse the implications of price-setting behaviour for inflation dynamics. State-dependent firms experienced a sharper increase in price growth over 2022–23, and also a faster subsequent decline. Using evidence from a randomised survey experiment, firm-level forecast errors and local projections, we show that prices of state-dependent firms respond more strongly to cost shocks. The difference between state-dependent and time-dependent firms is furthermore larger for bigger shocks, consistent with theoretical predictions. |
| Keywords: | Inflation;price-setting;survey data;firms |
| JEL: | C83 D22 D84 E31 |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023288 |
| By: | Fernandez-Gallardo, Alvaro; Lloyd, Simon; Manuel, Ed |
| Abstract: | We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for advanced European economies using a narrative-identification strategy in a quantile-regression framework. While macroprudential policy has near-zero effects on the center of the GDP-growth distribution, tighter policy brings benefits by reducing the variance of future growth, significantly boosting the left tail while simultaneously reducing the right. Assessing a range of channels through which these effects materialize, we find that macroprudential policy particularly operates through ‘credit-at-risk’: it reduces the right tail of future credit growth, dampening booms, in turn reducing the likelihood of extreme GDP-growth outturns. |
| Keywords: | growth-at-risk;macroprudential policy;narrative identification;quantile local projections |
| JEL: | E32 E58 G28 |
| Date: | 2026–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140592 |
| By: | Cieslak, Anna; McMahon, Michael |
| Abstract: | We study how monetary policy affects financial risk premia. Unlike existing studies, we focus on the Federal Open Market Committee’s (FOMC’s) forward-looking policy stance, beyond the current announcement and macroeconomic forecasts, which we derive from the policymakers’ private deliberations. A more hawkish policymakers’ stance in the FOMC meeting predicts lower risk premia during the intermeeting period. This effect is not explained by the content of the FOMC statement and unfolds gradually after the announcement. We document the importance of intermeeting communication via speeches and minutes to show how communicating forward-looking stance is vital in managing policy-induced risk perceptions. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19313 |
| By: | Jan Carlo B. Punongbayan (School of Economics, University of the Philippines Diliman) |
| Abstract: | This paper estimates the pass-through of world oil price innovations to Philippine fuel prices and headline CPI, and decomposes total CPI pass-through into a fuel-basket component and a residual non-fuel component. Using a structural VAR and 25 years of monthly pump price data, I find that a 10 percentage point increase in year-on-year oil price growth is associated with about a 4.9 percentage point increase in gasoline price growth and a 6.6 percentage point increase in diesel price growth at 12 months, while the corresponding effect on headline CPI inflation is about 0.65 percentage points. The residual non-fuel component accounts for the larger share of the CPI response, though its estimated magnitude is somewhat sensitive to the estimation method. Results are robust to extensions with the exchange rate and rice prices, local projections with HAC inference, alternative data transformations, sub-period splits around the TRAIN Law, and an alternative pump price series. |
| Keywords: | oil price pass-through; consumer prices; structural VAR; Philippines |
| JEL: | E31 Q43 C32 F31 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:phs:dpaper:202603 |
| By: | Xu Lu; Yang Song; Yao Zeng |
| Abstract: | How slow are bank transfers, and how do transfer delays affect deposit demand? Using transaction-level data from millions of depositors, we measure transfer delays by matching debits and credits across accounts held by the same depositor. Shorter delays correlate with more transfers and lower balances. Exploiting county-level exposure to Zelle’s staggered rollout, we find that faster payments reduce delays and deposit growth. Calibrating a deposit-management model, we find that transfer delays raise deposit demand, and the magnitude of this effect varies with interest rates and consumption volatility. Payment frictions therefore shape transactional deposit demand and monetary transmission. |
| JEL: | E41 E42 E52 E58 G21 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35638 |
| By: | Nyborg, Kjell G. |
| Abstract: | Repo rates frequently exceed unsecured interbank rates. This apparent anomaly occurs under different institutional structures, currencies, and tenors, often over prolonged periods. I develop a theory of liquidity sourcing and provisioning under constraints that results in a trilateral linkage between unsecured and repo rates and the rate of return of the underlying collateral in the cash market. The model incorporates what differentiates repos from plain collateralized loans, namely, that cash providers get the collateral for the duration of the contract. The collateral spread (unsecured minus repo) emerges as a measure of stress. Negative spreads are symptoms of highly stressed markets. |
| JEL: | G12 G13 G21 E43 E58 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19243 |
| By: | Ifada, Felix I.; Adesokan, James A. |
| Abstract: | The study examined the impact of inflation on income in Nigeria for the period of 1990–2023. The study made use of four explanatory variables, which are: external remittance, interest rate, inflation rate, and exchange rate on income in Nigeria. The data were obtained from various issues of the Central Bank of Nigeria (CBN) Statistical Bulletin, journals, as well as financial indicators. Augmented Dickey-Fuller (ADF) and Johansen cointegration tests were employed to confirm the stationarity of the series and the long-run relationship among the series. The findings indicate that remittances positively impact economic growth and income distribution, supporting household consumption and investment. Higher interest rates increase the cost of borrowing, limiting access to credit, reducing investment, and negatively impacting income distribution. High inflation reduces household purchasing power, particularly affecting low-income earners, thereby worsening income distribution. The study therefore concluded that remittances play a crucial role in boosting real GDP and improving household welfare, emphasising the need for policies that facilitate their inflow. Conversely, high interest rates, inflation, and exchange-rate volatility negatively impact economic growth and exacerbate income inequality. The study therefore recommended that the Central Bank of Nigeria should implement policies to reduce transaction costs and encourage diaspora investments. The apex bank should also promote financial-sector reforms to lower borrowing costs and boost investment. The government should enhance domestic production to stabilise prices and reduce inflationary pressures. |
| Date: | 2026–08–10 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:6zfxh_v1 |
| By: | Hegemann, Hendrik; Wieland, Volker |
| Abstract: | This note updates our March 2026 scenario analysis of the inflationary consequences of the energy-price shock associated with the Iran war. Using the same Bayesian VAR specification and posterior estimates, we incorporate observed energy prices through July 2026. Despite a different monthly price profile, the implications of the July baseline for euro area consumer prices are broadly similar to the March baseline. A significant share of the effect is still to materialize: relative to July, the contribution to year-on-year headline HICP rises by a further 0.6- 0.7 percentage points to a peak of around 1.75 percentage points in February 2027. The contribution to core HICP rises by about 0.4 percentage points to a peak of approximately 0.5 percentage points by mid-2027. By contrast, a scenario with "gradual normalization" would unwind most of the remaining headline pressure within a few months, whereas a "renewed supply disruptions" scenario with a temporary return of oil-product prices to their earlier peaks would add moderately to the July baseline. More persistent disruptions, however, could generate larger effects than the three-month scenarios considered here. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:343085 |