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on Monetary Economics |
| By: | Angelos Athanasopoulos (Central Bank of Ireland); Donato Masciandaro (Bocconi University); Davide Romelli (Trinity College Dublin) |
| Abstract: | This paper provides novel evidence of the long‐run effects of reforms in central bank independence on inflation. Using instrumental‐variable local projections, we show that improvements in central bank independence have a much larger impact on inflation in the long run compared to the short run. Contrary to most of the previous literature, we also find that these long‐run effects are larger in developing countries. Our results are robust to alternative local projection designs, including doubly robust and difference‐in‐differences specifications. Finally, we provide evidence that reforms that strengthen central bank independence also reduce inflation persistence, reinforcing the effectiveness of monetary policy. |
| Keywords: | central bank design; central bank independence; inflation; persistence; central bank reforms |
| JEL: | E5 E31 E52 E58 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep2026 |
| By: | Gara Afonso; Jun-Davinci Choi; Gonzalo Cisternas; Will Riordan |
| Abstract: | In the first two posts of this three-part series, we discussed private market participants that are active in repo markets for profit-making motives. Central banks are also active repo market participants, but their reasons often differ from those of private participants. In today’s post, we discuss how central banks use repos to manage liquidity in the financial system and implement monetary policy. |
| Keywords: | central bank repos; Federal Reserve; standing repo operations (SRPs); overnight reverse repo (ON RRP) |
| JEL: | E52 E58 G1 N10 |
| Date: | 2026–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103858 |
| By: | Gordon Y. Liao; Eswar S. Prasad; Tony Zhang |
| Abstract: | We show that the dollar remains dominant in most aspects of global finance. The euro and renminbi are competing in an increasingly fragmented second tier of currencies, leaving no clear rivals to the dollar. We study how financial innovation could reshape the international monetary system. In principle, innovation levels the playing field between countries, for instance by reducing the need for vehicle currencies to intermediate transactions between other currency pairs and by making it easier to acquire and trade foreign assets. We show that an alternative outcome is more likely. Innovations that reduce frictions in cross-border transactions, especially dollar-backed payment stablecoins and other forms of tokenization of money, could interact with relative market thickness to reinforce the dollar’s dominance. This outcome is not preordained but depends on other countries’ willingness to embrace innovations and strengthen their financial markets and regulatory frameworks. While unipolarity has many disadvantages, we show that in some circumstances multipolarity might result in greater global fragility at times of financial market stress. |
| JEL: | E42 E51 F33 F36 G15 G33 O33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35822 |
| By: | Rafael Gonçalves; Ina Hajdini |
| Abstract: | Relying on a micro-level dataset of US firms' inflation expectations, we document that firms in industries with larger Domar weights and more flexible prices have more accurate inflation forecasts. To explain these patterns, we develop a rational inattention model of price-setting firms within a production network. In equilibrium, firms' inflation forecast accuracy depends on their attention to marginal costs, the comovement between their marginal cost and aggregate inflation, and the change in the marginal cost. When calibrated to US input-output data, the model replicates the cross-sectoral relationship between forecast accuracy, Domar weights, and price flexibility. Quantitatively, we find that production networks endogenously increase nominal rigidity. This channel accounts for about 30 percent of the networks' attenuation of the inflation response to monetary shocks, deepening the standard flattening of the Phillips curve from input-output linkages. |
| Keywords: | inflation expectations; rational inattention; production networks; inflation dynamics; monetary policy |
| JEL: | E31 E32 E71 |
| Date: | 2026–09–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:103851 |
| By: | Kaetlynd McRae |
| Abstract: | What happens after Governing Council sets the target for the policy interest rate? Setting the target rate is the most visible part of monetary policy, but it is only the first step in transmitting the rate decision to the Canadian economy. This paper explains how the Bank of Canada uses its monetary policy implementation framework (MPI) to ensure that the rate decision is reflected in financial markets by keeping short-term interest rates close to the target policy rate. |
| Keywords: | Financial markets and funds management; Funds management; Monetary policy; Monetary policy framework and transmission; Monetary policy tools and implementation; Money and payments; Payment and financial market infrastructures |
| JEL: | E E4 E41 E42 E5 E51 E52 E58 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-45 |
| By: | Michael D. Bordo (Rutgers University and NBER); Carolyn A. Wilkins (Princeton University and Bank of England) |
| Abstract: | This paper uses the history of private money to assess the conditions under which stablecoins could function safely at scale and what their growth may imply for U.S. monetary power. Historical systems of private money in the United Kingdom, the United States, Canada, Sweden, and Switzerland show that par circulation depended on institutional arrangements rather than payment technology. Drawing on the monetary history of private money, convertibility, and international currencies, the paper identifies five foundations for scalable private money: credible convertibility, high quality and transparent backing, a uniform regulatory perimeter, par clearing infrastructure, and credible crisis management and loss allocation. Stablecoins may improve settlement speed, programmability, and cross-border access, but they do not remove these requirements. Applying this framework to contemporary stablecoins and the GENIUS Act, the paper finds that the Act addresses several of these foundations more fully than others, with crisis management and cross-border coordination less fully developed. Dollar stablecoins could extend the reach of dollar settlement, but historical experience reviewed here suggests that whether this strengthens the dollar system depends both on the institutional framework supporting stablecoins and on the deeper foundations of U.S. monetary dominance: confidence in U.S. institutions, fiscal capacity, monetary credibility, and the rule of law. |
| Keywords: | Stablecoins, digital money, private money, commitment, coordination, crisis management, international role of the dollar, dollar dominance, cross-border cooperation, rules, regulations, rails |
| JEL: | E42 E44 G15 N20 N40 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:359 |
| By: | Krustev, Georgi |
| Abstract: | Leveraging the unique setting of unilateral euroisation, this paper examines the spillover effects of euro area monetary policy on Montenegro and Kosovo. Through the lens of a structural VAR model with block exogeneity, it shows that euro area monetary policy shocks can significantly influence output and inflation in these economies, albeit with a delayed response, while contributing only modestly to their overall business cycle fluctuations. JEL Classification: C11, C32, E52 |
| Keywords: | block exogeneity, monetary transmission, structural VAR |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263293 |
| By: | Jarociński, Marek; Karadi, Peter |
| Abstract: | High-frequency interest rate surprises around Fed announcements do not identify monetary policy (MP) shocks if markets are imperfectly informed. Instead, they can also reflect central bank information (CBI) shocks, when the Fed assesses the economy differently, and Fed-response-to-news (FRN) shocks, when markets misperceive the policy rule. The literature treats these as competing explanations; we show they are distinct, and jointly identify all three from the co-movement of interest rate and equity surprises, their predictability from public news, and heteroskedasticity between FOMC and non-FOMC communication. CBI effects are robust at daily and monthly frequencies; FRN matters only daily. Purging both strengthens monetary policy estimates. JEL Classification: E31, E32, E52 |
| Keywords: | Fed chair speeches, high-frequency identification, local projection, monetary policy shock, structural vector autoregression |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263292 |
| By: | García, Juan Angel; Gimeno, Ricardo; Hinds, Piers; Su, Haozhe; Tretyakov, Michael V. |
| Abstract: | This paper investigates the information content of the term structure of inflation risks and its usefulness for understanding inflation dynamics. Using prices of traded zero-coupon inflation caps and floors, we develop a robust non-parametric methodology, combined with a Student’s t-copula, to estimate spot and forward risk-neutral densities at short-, medium-, and long-term horizons, i.e., long-horizon risks are identified from liquid instruments alone, at daily frequency, without forward-starting contracts. Focusing on the euro area over 2009-2026, we show that the term structure of inflation risks provides valuable information about the persistence of inflation shocks and the degree to which changes in the inflation outlook become embedded at longer horizons. We also show that there is marked heterogeneity in the macroeconomic and financial conditions associated to inflation risks across horizons: short- and medium-term risks are mainly associated with current inflation, confidence indicators, commodity prices, and near-term macroeconomic risks, whereas long-term risks are more strongly related to monetary and financial conditions. These findings highlight the importance of analysing the entire term structure of inflation risks rather than relying on a single maturity. JEL Classification: G13, E31, E44 |
| Keywords: | financial conditions, inflation compensation, inflation risks, option prices, risk-neutral densities |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263294 |
| By: | Francesco D’Acunto; Dimitris Georgarakos; Geoff Kenny; Michael Weber |
| Abstract: | Standard macroeconomic theories assume that representative or heterogeneous agents share a common model of how the economy operates. Yet evidence shows that households hold heterogeneous subjective models---distinct beliefs about how macroeconomic variables interact. As a result, identical shocks or policies may elicit different responses from otherwise similar households. We test this hypothesis by measuring subjective models and investigating their role in the transmission of monetary policy to consumption embedding randomized controlled experiment in a large-scale, multi-country survey. Consumers who believe that monetary tightening primarily operates through its effects on borrowing or savings rates plan to reduce consumption more in response to randomly assigned rate increase scenarios. By contrast, those who think about inflation or general equilibrium effects adjust consumption less. These differences are not explained by demographics, financial characteristics, including mortgage holdings and mortgage type, or country-level factors. Households' actual consumption responses to endogenous policy-rate changes exhibit broadly similar patterns. Our findings stress that heterogeneity in subjective models is an overlooked determinant of monetary policy transmission. |
| JEL: | D15 D91 E21 E43 E52 E71 G51 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35831 |
| By: | Michael Pfarrhofer; Anna Stelzer |
| Abstract: | We answer the question posed in the title with a nonlinear mixed-frequency vector autoregression, estimated with Bayesian additive regression trees. The model combines monthly macro-financial variables with quarterly bank lending survey data, and identifies the dynamic responses from high-frequency policy surprises. Sign asymmetry dominates; a tightening produces monetary policy transmission mostly in line with the theoretical predictions, whereas easing of any size produces mostly insignificant responses. Peak effects vary with initial conditions, while several common, predefined regime splits do not yield considerable differences in the propagation of the shocks. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.37168 |
| By: | Samuel Drößler; Ulrich Fritsche; Junbo Huang; Max Weinig |
| Abstract: | This paper investigates how households conceptualize inflation and how these qualitative narratives correlate with inflation expectations and policy preferences. Using a representative survey of over 4, 000 German households, we elicit open-ended narratives regarding the 2022–2023 inflation surge and represent them as directed acyclic graphs (DAGs) via fine-tuned large language models. We find that German households overwhelmingly interpret the inflation episode through supply-side channels and the war in Ukraine, while demand-side explanations remain comparatively rare. Beyond these aggregate patterns, inflation narratives systematically vary by financial literacy, personal economic experience, and institutional trust. Narrative structure and content correlate with inflation beliefs: supply-side narratives are associated with lower inflation expectations, whereas narratives emphasizing government action or corporate price gouging correspond to higher expectations and lower target inflation rates. A preregistered randomized information provision experiment using real-world newspaper excerpts demonstrates that exposure to news narratives significantly impacts qualitative inflation expectations, whereas quantitative expectations display greater rigidity. However, narrative exposure significantly reduces reliance on prior inflation perceptions, with treatment effects exhibiting mild heterogeneity across levels of financial literacy and prior inflation experience. |
| Keywords: | . |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2026-014 |
| By: | Donald Coletti; Martin Kuncl; Martin Harding; Dmitry Matveev; Tolga Özden; Yang Zhang |
| Abstract: | Prima is the Bank of Canada’s new model for projection and policy analysis. It builds on the economic foundations of earlier Bank models, adding detail on how sectoral pressures affect production costs and their pass-through to consumer prices. |
| Keywords: | Models and tools; Econometric, statistical and computational methods; Monetary policy; Inflation dynamics and pressures; Real economy and forecasting |
| JEL: | C C4 C43 C8 C82 E E3 E30 E31 E37 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-47 |
| By: | Michael D Bordo (Rutgers University and NBER); Cecile Bastidon (U. Toulon & CAC-IXXI Complex Systems Institute, Lyon, and OFCE-Sciences Po, Paris) |
| 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. |
| Keywords: | International monetary system; Currency dominance; Democracy; Conflicts; Geopolitics; Monetary and financial graphs; Non-linear modeling; Conditional Markov chains |
| JEL: | C3 C82 E42 F33 G15 N2 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:355 |
| By: | Ricardo Hausmann (Harvard's Growth Lab); Kishan Shah (Center for International Development at Harvard University); Tim O'Brien (Center for International Development at Harvard University); Martina Cometti (Harvard's Growth Lab); Yomna Mohei Eldin (Harvard's Growth Lab); Lucila Venturi; Ricardo Villasmil (Harvard's Growth Lab); Pablo Andrés Neumeyer |
| Abstract: | This research note diagnoses the causes behind Malawi’s foreign exchange constraint and identifies options for addressing the problem. Malawi is currently experiencing a severe and prolonged macroeconomic crisis, characterized by declining per capita income, crippling foreign exchange shortages, high inflation, and a rapidly growing (domestic) debt burden. Multi-faceted macroeconomic reforms are needed (see Growth Lab’s previous report, “Malawi’s Path out of Poverty and Toward Prosperity”). However, we find that relaxing extreme foreign exchange shortages by achieving a market-clearing rate could be achieved relatively quickly. The gains of this reform would be large, and the risks would be limited if the exchange rate realignment is matched with consistent monetary and fiscal policy. This note explains this path. Excess money creation is the cause of both the high and increasing parallel market premium for foreign exchange and high inflation in Malawi today. Since 2020, the monetary base has expanded by a factor of four as the government has relied on the Reserve Bank of Malawi (RBM) to finance its large fiscal deficits. This has resulted in an increasing supply of Kwacha “chasing” a limited supply of dollars, which has caused a rising parallel market premium for foreign exchange. Much of the economy has, in practice, already shifted to the parallel rate, which means that the pass-through of a devaluation of the official rate on inflation would be limited. Previous one-off devaluations failed to address the parallel market premium because they did not align the path of the official exchange rate with that of money growth. Meanwhile, cracking down on the parallel market without addressing underlying causes also will not work because actors in the economy desperate for foreign exchange will always try to find workarounds. This paper discusses options for achieving a market-clearing exchange rate to end inefficient foreign exchange rationing and bring foreign currency back into official channels. This requires an initial sharp devaluation to unify the official and parallel rates, followed by a consistent policy to prevent renewed misalignment. Two operational paths are discussed as options: a managed float, where the rate is determined daily by bilateral market transactions, or a rule-based managed crawl, which anchors the daily adjustment of the exchange rate to the path of domestic liquidity growth (see Table 1). A full float and an end to capital controls is not advisable in the current context. Foreign exchange reform is necessary but cannot fully succeed in isolation. Measures aimed at addressing the foreign exchange shortage can work in the short-term to relax this binding constraint on growth. But these measures alone cannot restore other macroeconomic balances. To achieve lower inflation, the Government of Malawi must reduce its primary deficit and limit the need for money printing. Furthermore, policymakers must manage the fiscal impact of devaluation and the transition of administered prices (such as fuel and fertilizer) from the overvalued official exchange rate. Failure to do so could result in a negative fiscal feedback loop, where devaluation necessitates more money printing. Macroprudential policy may also allow for a reduction in the domestic interest burden, and increased donor support would help enable macroeconomic stabilization and growth. In the long term, Malawi must diversify and grow its export sectors to generate more foreign exchange. Analysis discussing these necessary dimensions of overall macroeconomic reform are discussed in the three annexes, while the note focuses on the somewhat independent options that Malawi can use to meaningfully address the binding foreign exchange constraint that the economy currently faces. |
| Keywords: | Foreign exchange, macroeconomic crisis, Malawi |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:glh:wpfacu:274 |
| By: | International Monetary Fund |
| Abstract: | This paper informs the Executive Board about recent developments in central bank digital currency (CBDC), and summarizes the key messages and findings from the third wave of CBDC virtual Handbook chapters published in November 2025. Both retail (rCBDC) and wholesale (wCBDC) CBDC explorations are advancing, with wholesale projects gaining prominence. Countries are in various stages of CBDC development, ranging from near-term issuance to pausing rCBDC efforts due to limited domestic needs. This set of six Handbook chapters covers macro-financial topics including the implications of rCBDCs for (1) financial stability and (2) payments competition; legal and regulatory themes such as (3) selected legal considerations and (4) financial integrity. It draws lessons from (5) payment ecosystem resilience in fragile and conflict-affected states for CBDC, and also sheds light on the emerging area of (6) tokenized reserves. The Handbook, financially supported by the Government of Japan, provides technical frameworks and guidance for policymakers especially in emerging markets, to assess CBDC’s potential and tradeoffs. It is not intended to evaluate CBDC’s overall appropriateness, which is left to policymakers given domestic circumstances. |
| Keywords: | Central bank digital currency; CBDC Virtual Handbook; macro-financial implications; competition; legal considerations; financial integrity; fragile and conflict-affected states; tokenized reserves; IMF staff; payment system resilience; IMF policy; transparency policy; IMF Policy; Central Bank digital currencies; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); International reserves; Global; South America; Central America; Caribbean; Southeast Asia; Pacific Islands; Africa |
| Date: | 2025–11–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2025/041 |
| By: | Christopher J. Neely |
| Abstract: | Monetary policy has been the primary tool of macroeconomic management since the 1970s. As a result, the effects of monetary shocks became an important area of policy research. In the 1980s, event studies showed that U.S. monetary-aggregate announcements strongly affected asset prices, although no single model readily explained the responses. Greater central-bank transparency in the 1980s and 1990s increased interest in measuring monetary policy's effects on financial and macroeconomic variables. In the 1990s, researchers predominantly used vector autoregressions (VARs) to estimate the effects of monetary shocks. This work raised questions about why monetary shocks explained little output variation and sometimes implied theoretically implausible price responses. Increasing Fed transparency allowed researchers to make substantial progress in measuring surprises from high-frequency interest-rate changes. The 2007-2009 Global Financial Crisis further intensified interest in monetary shocks. Subsequent research has examined dimensionality and time variation, information content, predictability, explanatory power, policy horizons, and information sets. Researchers have proposed many measures, but their relationships are often unclear. This paper reviews the literature on monetary shocks, their motivations, their construction, and the inference drawn from them. |
| Keywords: | monetary policy shocks; central-bank information effects; federal funds target; forward guidance; high-frequency identification; structural vector autoregressions; external instruments |
| JEL: | E52 E58 E44 C32 C36 G12 |
| Date: | 2026–09–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:103833 |
| By: | Olivier De Jonghe (European Central Bank; National Bank of Belgium); KonstantÄ«ns Beņkovskis (Latvijas Banka); Karolis Bielskis (Lietuvos Bankas); Diana Bonfim (Banco de Portugal; Católica Lisbon); Margherita Bottero (Banca d’Italia); Tamás Briglevics (Central Bank of Hungary); Martin Cesnak (National Bank of Slovakia); Mantas Dirma (Lietuvos Bankas); Marina Emiris (National Bank of Belgium); Pálma Filep-Mosberger (Central Bank of Hungary); Valentin Jouvanceau (Lietuvos Bankas); Nicholas Kaiser (Central Bank of Ireland); Dmitry Khametshin (Banco de España); Tibor Lalinsky (National Bank of Slovakia); Viola M. Grolmusz (Central Bank of Hungary); Laura Moretti (Central Bank of Ireland); ArtÅ«rs JÄ nis Å…ikitins (Latvijas Banka); Angelo Nunnari (Banca d’Italia); Maria Rodriguez-Moreno (Banco de España); Elitsa Stefanova (European Central Bank); Lajos Tamás Szabó (Central Bank of Hungary); KÄ rlis Vilerts (Latvijas Banka); Sujiao Emma Zhao (Banco de Portugal) |
| 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: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:mnb:wpaper:2026/1 |
| By: | Fernando E. Alvarez; David Argente; Alberto Cavallo; Francesco Lippi |
| Abstract: | We use the euro cash changeover, a large-scale and purely nominal reform that requires all firms to redenominate posted prices, to distinguish among theories of price rigidity. We develop a nonstationary menu-cost model in which firms anticipate the changeover date and may combine currency adoption with real price adjustment. The announcement makes the firm’s inaction region time-varying, a singular control problem with a moving boundary for which closed-form characterizations are rarely available. We solve this problem analytically by perturbation, recovering the whole path of the boundary, the date at which firms begin adopting the new currency, and the implied pricing moments. The model predicts that, as the changeover approaches, firms adjust more frequently but by smaller amounts, compressing the distribution of price changes. We test these predictions using historical CPI micro data from Austria, Finland, Greece, and Slovakia, a UK benchmark, and daily price data from the recent changeovers in Croatia and Bulgaria. Across changeovers, adjustment frequency rises while the size and dispersion of price changes fall. The model adds a single parameter to the standard menu-cost setup, the cost of pricing in the wrong currency. Calibrating it to the observed rise in adjustment frequency, the model reproduces the decline in the size of price changes and its subsequent recovery, neither of which is targeted. The evidence supports state-dependent price-setting models over models in which nominal redenomination leaves real pricing behavior unchanged. |
| JEL: | D40 E31 E42 F33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35790 |
| By: | Colin J. Hottman; Ricardo M. Reyes-Heroles |
| Abstract: | We study how international trade has affected U.S. inflation dynamics. We develop a multi-region New Keynesian model of an open monetary union in which regional Phillips curve slopes depend on exposure to imported goods. Guided by the model, we construct state-level measures of import penetration in final consumption and exploit cross-state variation to estimate regional Phillips curves over 1976-2017. Greater import exposure leads to significantly flatter state-level Phillips curves. We estimate that rising import exposure accounts for roughly 40 percent of the flattening of the U.S. Phillips curve over this period. Increased import exposure also shifted the U.S. Phillips curve downward, reducing inflation by about 0.17 percentage point annually between 1976 and 2008. A reversal of globalization to early-1990s levels would substantially alter monetary policy trade-offs, reducing the sacrifice ratio by almost one-half. Our findings show that international trade has played a quantitatively important role in shaping U.S. inflation dynamics. |
| Keywords: | globalization; inflation; Phillips curve; international economics |
| JEL: | E10 E30 F00 F40 F60 |
| Date: | 2026–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:103848 |
| By: | Gara Afonso; Jun-Davinci Choi; Gonzalo Cisternas; Will Riordan |
| Abstract: | Repo markets play a vital role in the U.S. financial system. In this three-part series, we examine who participates in these markets, what trade-offs influence how different repo segments are structured, and why repos matter for monetary policy. Today’s post introduces repo transactions, focusing on the major private-sector participants and why they engage in these markets. |
| Keywords: | repo market |
| JEL: | G12 G23 G24 E52 |
| Date: | 2026–09–28 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103821 |
| By: | Aurélien Goutsmedt (ISPOLE - UCLouvain - Université Catholique de Louvain = Catholic University of Louvain, F.R.S.-FNRS, ICHEC - Brussels Management School [Bruxelles]); Francesco Sergi (LIPHA - Laboratoire Interdisciplinaire d'étude du Politique Hannah Arendt Paris-Est - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel); Juan Acosta (Univalle - Universidad del Valle [Cali]) |
| Abstract: | What do economists do in central banks? Why do central banks hire economists? This book investigates the evolving role of economists and economic knowledge within central banks, arguing that their current centrality is neither self-evident nor historically inevitable. While the presence and influence of economists in central banks today may seem natural, this book shows that it is the result of a complex, gradual, and uneven historical process shaped by institutional structures, disciplinary transformations, and shifting relationships between science and policy. Drawing on a rich but dispersed body of literature, the book traces how economists progressively gained authority through the establishment of statistics departments, the adoption of macroeconometric models, and the emergence of a shared cognitive infrastructure between academia and central banks. Rather than focusing on individuals or doctrines, it examines general trends and institutional shifts across a series of national case studies to show how central banks function as boundary organizations, at the intersection of policy and science. |
| Date: | 2026–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05083645 |
| By: | Maria Sole Pagliari |
| Abstract: | This paper identifies AI news shocks from financial markets and traces their macroe-conomic effects in the United States and the euro area. We combine a daily equity factor based on differences in firms’ AI exposures with sign, magnitude, and narrative restrictions in a Bayesian VAR to isolate revisions in AI’s expected economic value. Monthly local projections reveal an investment-led adjustment in the US: capital-goods orders rise early and persistently, while aggregate activity responds more gradually and with greater uncertainty. Producer prices increase before consumer prices, and the expansion spreads from sectors closely connected to the AI production network to the broader economy. In the euro area, equity prices rise and the euro depreciates; import and energy costs feed into inflation before real activity strengthens. Inflation expectations and nominal rates also increase. The results highlight a monetary policy dilemma: financial spillovers and imported price pressures arrive before the broader productive gains from AI adoption. |
| Keywords: | AI news shocks; macroeconomic dynamics; international spillovers; pro-duction networks |
| JEL: | C32 E32 E44 F41 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:871 |
| By: | International Monetary Fund |
| Abstract: | The Integrated Policy Framework (IPF) assists IMF staff in providing advice on the joint use of foreign exchange intervention (FXI), macroprudential measures (MPMs), and capital flow management measures (CFMs), alongside standard monetary and fiscal policies. This note provides overarching considerations in applying the IPF to low-income countries (LICs), building on previous Fund advice. |
| Keywords: | IMF staff; IMF policy; Policy consideration; Ipf friction; transparency policy; IMF Policy paper; Exchange rates; Currency markets; Exchange rate arrangements; Global |
| Date: | 2026–05–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2026/014 |
| By: | Sami Diaf |
| Abstract: | Price stability remains a pillar in monetary policy practices and carries a special importance within monetary unions. Mainstream economics tried to leverage price stability using price indices and several metrics to shed light on specific dynamics and optimal macroeconomic levels. The wide availability of data led researchers to consider the study of systems using Random Matrix Theory, based on inner correlation patterns. This aims to enhance the multivariate analysis by removing noisy patterns from the signal and improve data quality for further inferences. This work considers the collection of monthly inflation indices in the Eurozone as a \textit{system} of prices to analyze its eigenvalues' statistical and asymptotic properties and uncover inner country-level insights. Results confirm the system cannot assumed to be randomly generated, and the data exhibit noise-dominated patterns, due to small and persistent variations at the country-level. The latter make the inter-country correlations more dynamic and the separation of the signal from the noise quiet difficult. Findings identified two countries as distorting inflation dynamics besides three other distinct, regional-based groups of countries. Variability sources might stem from economic episodes fueling inflation spikes in some countries, as well as methodological aspects used to ensure data quality and representativeness in the European Union. Despite being complex, the system demonstrates a certain stability, in terms of self-organization; while large monthly fluctuations cannot be considered as rare events, but part of the data-generating process. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.35011 |
| By: | Fukui, Masao; Nakamura, Emi; Steinsson, Jón |
| Abstract: | Abstract We study the consequences of “regime-induced” exchange rate depreciations by comparing outcomes for peggers versus floaters to the U.S. dollar in response to a dollar depreciation. Pegger currencies depreciate relative to floater currencies and these depreciations are strongly expansionary. The boom is associated with a fall in net exports, and (if anything) an increase in interest rates in the pegger countries. This suggests that expenditure switching and domestic monetary policy are not the main drivers of the boom. We show that a large class of existing models cannot match our estimated responses and develop a model with imperfect financial openness that can. Following a depreciation, uncovered interest parity deviations lower the costs of borrowing from abroad and stimulate the economy, as in the data. The model is consistent with (unconditional) exchange rate disconnect and the Mussa fact, even though exchange rates have large effects on the economy. |
| Keywords: | 38 Economics (for-2020), 3801 Applied Economics (for-2020), 3802 Econometrics (for-2020), 3803 Economic Theory (for-2020), 14 Economics (for), Economics (science-metrix), 3801 Applied economics (for-2020), 3802 Econometrics (for-2020), 3803 Economic theory (for-2020) |
| Date: | 2025–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:cdl:econwp:qt5wq6v1rf |
| By: | Yena Joo; Ali Rouhghalandari; Vivian Chu; Xin Ha |
| Abstract: | Producer price indexes measure changes in the prices that producers receive for their outputs or that they pay for their inputs. Statistics Canada publishes a range of producer price indexes for specific products and industries. For the first time, these series have been combined into a small set of broad sectoral measures. |
| Keywords: | Models and tools; Econometric, statistical and computational methods; Economic models; Monetary policy; Inflation dynamics and pressures; Real economy and forecasting |
| JEL: | C C4 C43 C8 C82 E E3 E30 E31 E37 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-46 |
| By: | Pym Manopimoke; Nuwat Nookhwun; Tanaporn Sriklay; Tanisa Tawichsri |
| Abstract: | In an open emerging market economy, firm inflation expectations are not simply noisy survey responses; instead, they are a state-dependent transmission channel through which global shocks affect firm behavior. Using monthly firm-level survey data from Thailand between 2012 and 2023, we show that short-term expected inflation—though biased and highly dispersed— responds systematically to macroeconomic conditions, particularly global inflation and oil prices. This response is state dependent, with firms exhibiting more attention during periods of higher inflation and stronger economic growth. Moreover, salient global shocks such as negative oil supply news shocks can lead to persistent and upward revisions in inflation expectations, particularly when inflation is high, while domestic shocks such as the minimum wage hike in Thailand during 2012–2013 only had modest and short-lived effects. Finally, using oil supply news shocks as an instrument, we find strong evidence of state-dependence for the influence of firms’ inflation expectations on business decisions. Price-setting and employment decisions are only significant in higher inflation episodes, while higher expected inflation drags firms’ investment, particularly during periods of lower growth. |
| Keywords: | Firm inflation expectations; Emerging markets; Oil shocks; Minimum wage; Price-setting; Investment; Employment; State-dependence |
| JEL: | E31 D84 O11 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:265 |
| By: | William C. Dudley (Princeton University); Nellie Liang (Brookings Institution) |
| JEL: | E42 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:353 |
| By: | Gara Afonso; Jun-Davinci Choi; Gonzalo Cisternas; Will Riordan |
| Abstract: | The repo market in the U.S. is a mosaic of segments with distinct participants and various settlement and clearing practices. Why do large cash lenders typically settle their trades through a third-party agent? Why does the interdealer market clear through a central counterparty? Why do levered investors favor bilateral trades? In the second post of this series, we follow the cash as it navigates through repo markets to better understand the costs and benefits that shape the existing market structures. |
| Keywords: | repo markets; intermediation; dealers; money markets |
| JEL: | E52 G1 G21 G23 |
| Date: | 2026–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103827 |
| By: | Christian Bustamante; Xing Guo; Lu Han; Soyoung Lee; Gaelan MacKenzie; Mariel Yacolca Maguiña; Jacob Short |
| Abstract: | By how much do import tariffs raise aggregate prices? We develop a simple decomposition that separates the aggregate price effect of a tariff into three channels—cost pass-through, markup adjustments, and consumer substitution across varieties—and calibrate an oligopolistic competition model with endogenous markups to firm-level market shares for Canadian domestic producers, U.S. exporters, and rest-of-world suppliers. A 25% counter-tariff on U.S. imports raises Canada's aggregate price index by 0.66—well below the 1.25% that direct cost pass-through alone would predict. The dominant offsetting force is consumer substitution toward non-U.S. varieties, which reduces the price effect by 0.47 percentage points; markup adjustments, holding fixed pre-tariff market shares, contribute a further 0.26 percentage point decrease. The gap between cost pass-through and the true price effect widens sharply with the tariff rate: at a 50% tariff, cost pass-through alone predicts more than twice the true price effect. |
| Keywords: | Monetary policy; Inflation dynamics and pressures; Structural challenges; International trade, finance and competitiveness |
| JEL: | E E3 E31 F F1 F13 F14 L L1 L11 L16 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-36 |
| By: | Tatjana Dahlhaus (Bank of Canada); Madan Ghosh (Carleton University); Yena Joo (Bank of Canada); Stephen Murchison (Bank of Canada); Genevieve Nelson (Bank of England); Rachit Lumb (Bank of Canada); Jonathan Swarbrick (University of St Andrews); Alexander Ueberfeldt (Bank of Canada); Raven Wheesk (Bank of Canada); Yinxi Xie (Indiana University, Bloomington); Yang Zhang (Bank of Canada) |
| Abstract: | Climate change presents significant macroeconomic challenges, particularly for small open economies deeply integrated into global trade and energy markets. Focusing on Canada, we analyze the macroeconomic implications of the transition to a low-carbon economy, paying attention to global and domestic spillovers. On the domestic side, we introduce Energy-ToTEM (E-ToTEM), an extension of the Bank of Canada’s Terms-of-Trade Economic Model (ToTEM), which captures energy sector dynamics, substitution effects, and policy interactions. To account for international forces, we use a global, multi-sector, multi-region general equilibrium model, allowing us to assess international climate policy transmission and global demand implications for Canada. Our results indicate that, under the net-zero scenario, global carbon prices rise persistently through 2050. By 2050, world gross domestic product (GDP) is about 8% lower and Canadian GDP about 7% lower relative to a no-policy benchmark, while inflation rises modestly under the historical monetary policy rule. Monetary policy faces a clear trade-off: strict inflation targeting would deepen the Canadian output loss to about 7.5%, whereas a more accommodative stance would limit it to around 5.5%, at the cost of inflation about 1 percentage point above target. Overall, our findings highlight the importance of accounting for both global spillovers and monetary policy when evaluating the macroeconomic consequences of the transition to net zero. |
| Keywords: | macroeconomic simulations; transition to net-zero; climate policies; scenario analysis |
| JEL: | E27 E52 Q43 Q58 |
| Date: | 2026–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:san:econdp:2604 |
| By: | Mary Amiti; Sebastian Heise; David E. Weinstein |
| Abstract: | There has been a lot of interest in how tariffs affect consumer prices (for example, Cavallo et al. 2021, 2025). In this post, we present results from our new research paper that estimates the effects of the 2025-26 tariffs on retail consumer prices. We find that for every percentage point increase in average tariffs, consumer goods prices increase by about a quarter of a percent after one year. Roughly two-thirds of the effect arises because tariffs raise the prices of imported consumer goods. The remaining third arises indirectly: tariffs increase the prices of goods made in the U.S. because producers pay more for imported parts and materials, and because producers raise their markups when competing imports cost more. The effects differ in their timing. Prices of imported goods respond quickly to tariffs, while prices of U.S.-made goods adjust over six to twelve months as higher costs move through the supply chain. |
| Keywords: | tariffs; pass-through; inflation; consumer prices; import prices |
| JEL: | E31 F13 F14 |
| Date: | 2026–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103890 |
| By: | International Monetary Fund |
| Abstract: | The Global Financial Safety Net (GFSN) comprises international reserves, bilateral swap arrangements, regional financing arrangements, and the International Monetary Fund. It offers financing when crises occur and complements countries’ own policy responses in cushioning the impact of shocks. The GFSN performed reasonably well during major crises like the Global Financial Crisis and the Covid-19 pandemic, supporting financial stability and preventing broader disruptions. However, it did not need to bear the full brunt of these crises thanks to extraordinary policy actions of major economies that generated significant spillovers and reduced demand for GFSN resources. Experience across GFSN layers has been mixed. International reserves are the primary shock absorber, but reserve adequacy is highly uneven. Bilateral swap arrangements have prevented disruptions of market funding in key currencies, limiting global contagion. Yet, they are less proven for balance of payments support, and many lack transparency. Regional Financing Arrangements offer an additional layer of support but remain rarely used (except during the euro area crisis) and unevenly distributed across regions. The IMF plays a central role in the GFSN, offering the widest form of international risk sharing thanks to near-universal membership and helping prevent crises through macroeconomic surveillance. Overall, the GFSN remains multilayered and, despite its large size, coverage is uneven, with many low-income countries and emerging economies lacking sufficient access. The rapidly evolving global context marked by more frequent shocks, limited policy buffers, and transformative trends, could strain the GFSN. Strengthening the GFSN requires addressing uneven access, including by rebuilding reserves where needed; improving predictability by making access more reliable; enhancing crisis preparedness by incentivizing sound policies, and fostering better coordination across GFSN layers. |
| Keywords: | Financial safety net; International Monetary System; reserves; swap arrangements; regional financing arrangements; IMF; crisis response; IMF staff; Gfsn layer; GFSN layer; IMF policy; IMF surveillance; Gfsn usage; Gfsn performance; Financial sector stability; Global financial crisis of 2008-2009; Crisis prevention; International reserves; Global; South America; Central America; Caribbean |
| Date: | 2025–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2025/035 |
| By: | Dean Corbae; Pablo D'Erasmo |
| Abstract: | We develop a simple model of banking industry dynamics to study the relation between market structure and financial stability. Motivated by data, we analyze an environment where a small number of dominant (nonatomistic) banks strategically interact with a large number of small (atomistic) banks. A nontrivial endogenous bank size distribution arises out of entry and exit in response to aggregate and regional shocks to borrowers’ production technologies and banks’ idiosyncratic deposit inflows. Since the model has nonatomistic banks that generate granular spillovers from idiosyncratic shocks and pose systemic risk, we use the model to study the implications of too-big-to-fail policies. |
| Keywords: | Macroprudential policy; bank size distribution; industry dynamics with imperfect competition |
| JEL: | E44 G21 L11 |
| Date: | 2026–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:103867 |
| By: | Steve Coffey; Gabriel Ehrlich; John C. Haltiwanger; Ron S. Jarmin; David Johnson; Tod Johnson; Matthew D. Shapiro |
| Abstract: | This paper presents early results from the RESET Demonstration Project, an initiative that constructs price and sales indices using item-level transactions data. The project’s overarching goal is to demonstrate the feasibility and advantages of leveraging modern transactions data for economic measurement by pointing toward a future in which official economic statistics are rebuilt on 21st-century data and technology. The paper introduces new inflation measures for Food at Home and evaluates them on two fronts: how they compare to current official statistics and what they offer as novel measures that capture more accurately the dynamics of consumer choice. The paper also addresses the challenges of producing reliable and credible official statistics from item-level transactions data and reports findings on recent Food at Home inflation trends. |
| JEL: | C80 E30 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35817 |
| By: | International Monetary Fund |
| Abstract: | This note provides guidance to IMF staff on the consistent recording and assessment of central bank foreign exchange liquidity lines—including bilateral swap lines and repos—in staff reports. With the global network of these arrangements expanding significantly, they now carry important implications for countries’ external buffers and potential vulnerabilities. Careful analysis of FX liquidity lines is therefore essential in IMF surveillance and programs. Building on existing IMF guidance notes and statistical manuals, this note seeks to strengthen consistency and accuracy in how these arrangements are treated in IMF staff reports, promote transparency while safeguarding confidentiality, and ensure evenhanded treatment across the membership. |
| Keywords: | Central Bank FX Liquidity Lines; Bilateral Swap Lines (BSLs); Repurchase Agreements (Repos); IMF Staff Reports; Macroeconomic Framework; Gross International Reserves (GIR); Net International Reserves (NIR); External Debt; Government Debt; Debt Sustainability Analysis (DSA); Reserve Adequacy; Contingent Assets/Liabilities; Activation and Recording; Confidentiality and Transparency; Surveillance and Program Cases; Reporting Standards; FX ll; FX liquidity lines; central bank foreign exchange; transparency policy; liquidity line; Reserve assets; International reserves; Global |
| Date: | 2025–09–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfpps:2025/030 |
| By: | Ricardo Marto; Matthew McCollum |
| Abstract: | Industries with unusually strong productivity growth, at times coinciding with new technologies, have seen relative declines in producer price inflation. |
| Keywords: | productivity growth; producer prices; inflation |
| Date: | 2026–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:103830 |
| By: | Maya Kodeih; Aliaa Alnaggar; Mucahit Cevik |
| Abstract: | Monetary-policy announcements and central-bank communications play a central role in foreign exchange markets, yet their qualitative, unstructured form makes their forecasting value difficult to quantify. While prior research has largely focused on sentiment extracted from financial news, comparatively little is known about the relative contribution of different dimensions of monetary-policy communication. Existing studies primarily evaluate whether textual information improves overall forecasting performance but provide limited insight into which communication channels drive such improvements. To address this gap, this paper introduces a statistical attribution methodology that decomposes monetary-policy communication into interpretable channels and quantifies their incremental forecasting contribution under false-discovery-rate control. Monetary-policy news is transformed into structured communication signals using large language models (LLMs) and temporal feature engineering. These signals are evaluated using rolling-window experiments with tree-based machine-learning models. The results show that monetary-policy communication contains measurable predictive information. Attribution analysis shows that predictive value is concentrated in a small subset of signals, with communication timing providing the strongest individual feature-level contribution, targeted communication-activity measures also contributing positively, and LLM-derived sentiment providing complementary information at the group level. The findings indicate that communication-based forecasting value extends beyond sentiment alone and that attribution, rather than aggregate accuracy alone, is central to evaluating news-derived signals. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.32773 |