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on Monetary Economics |
| By: | Iorgulescu, Elissa-Ana-Maria; Kuntara Pukthuanthong; Quinn, William |
| Abstract: | We develop two long-run monthly proxies for inflation expectations in the United States: a market-based measure derived from commodity prices from 1877-2020, and a narrative intensity measure based on the text of all New York Times articles from 1870-2020. The market-based measure, despite having been influential in extant literature, is found to be largely unrelated to subsequent inflation. However, the narrative intensity measure is a strong and consistent predictor of future inflation. For the period of overlap with the Michigan Survey of Consumers, its correlation with survey-based inflation expectations is 0.74. We then use this measure to provide new evidence on debates surrounding historical inflations and deflations. Our most notable result is that, contrary to the current consensus, the deflation of 1930-33 became anticipated relatively early. An unsupervised article-level topic analysis over the 150-year sample documents a shift from inflation narratives based on commodities, currency, and market quotations to narratives based on energy, central banks, and monetary policy. Finally, we find that unexpectedly hawkish monetary policy predicts an increase in inflationary narrative intensity, but that this relationship is driven entirely by the element of monetary surprises that is a linear function of macroeconomic conditions. |
| Keywords: | Inflation Expectations, Inflation, Deflation, Economic Narratives, Economic History |
| JEL: | E31 E32 E52 N11 N12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:qucehw:344109 |
| By: | Abad, Jorge; Nuño, Galo; Bigio, Saki; Garcia-Villegas, Salomon; Marbet, Joël |
| Abstract: | How does heterogeneity in banks’ interest-rate risk exposure shape monetary policy transmission? We develop a quantitative macroeconomic model of heterogeneous banks to answer this question. We establish an irrelevance result: differences in interest-rate risk exposure between fixed- and variable-rate banking systems matter for transmission only when bank solvency concerns become relevant. Calibrating the model to the euro area, we show that idiosyncratic default risk pushes a substantial share of banks toward the solvency threshold, making heterogeneity quantitatively important. When policy rates rise, fixed-rate banks suffer net interest margin compression—funding costs increase while legacy loan income stays unchanged—eroding capital and triggering sharper deleveraging. The lending elasticity to monetary policy is one-third larger in fixed-rate economies. The effects extend to financial stability: tightening raises bank failure rates in fixed-rate systems while lowering them in variable-rate systems. The results provide a rationale for macroprudential and monetary policy coordination and for monetary policy gradualism. JEL Classification: E51, E52, G21, G28 |
| Keywords: | bank solvency, capital requirements, interest-rate risk, macroprudential policy |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263299 |
| By: | Ricardo Reis |
| Abstract: | An unexpected increase in energy costs raises inflation directly through flexibly-set prices. Whether that shock amplifies to a larger and persistent rise in inflation depends on its transmission through the economy. This paper examines four channels of transmission of the Iran conflict to inflation in the EA, UK, and the US. The first is the transmission to the sticky prices in core sectors. Recent advances in menu cost models predict that inflation will rise faster than usual and monetary policy is less powerful to curb it. The second is transmission to spending, wages, and nominal returns through higher expected inflation. The empirical literature on household and firm inflation expectations points to some evidence for this amplification. The third channel is through other aggregate demand policies, especially fiscal policy. The IMF’s reassessments of the fiscal outlook provide some guarded grounds for optimism. The fourth mechanism is through an erosion in the credibility of the long-run inflation target. Data from market prices indicates that the inflation anchor has not moved. All combined, the data as of May 2026 suggests that the Iran war shock will have a significant impact on inflation that persists into 2027, but that is smaller and more short-lived than the 2021–24 inflation disaster. |
| Keywords: | monetary policy, inflation targeting, see-through policy, supply shocks |
| JEL: | E31 E52 E58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1384 |
| By: | Diana Lima; Duarte Maia; Paul Levine; Jonathan Swarbrick; Stylianos Tsiaras |
| Abstract: | The recent period of rising inflationary pressures and monetary policy tightening posed new challenges for macroprudential authorities in the euro area. In a monetary union, national authorities are unable to set independent monetary policy and rely on macroprudential tools to deal with domestic financial imbalances. This paper examines how inflation and interest rate tightening originating in the broader euro area spill over to a small open economy within the union, and assesses the role of national macroprudential policy in mitigating these effects. Using a structural model with banking frictions, housing, and both borrower-based and capital-based instruments, we show that pre-emptive and countercyclical macroprudential policy can strengthen banking sector resilience and dampen the impact of external shocks. In contrast, procyclical tightening may worsen outcomes, particularly when resilience is initially low. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202609 |
| By: | Faïk, Emmanuel; Vergote, Olivier |
| Abstract: | This paper quantifies the regulatory cost of short-term money market transactions and analyses how post-global financial crisis prudential reforms shape the structure of euro area money markets and the redistribution of central bank reserves. As the stock of reserves declines with the normalisation of the European Central Bank’s balance sheet, trading in money markets is becoming increasingly important to banks’ liquidity management. As the related money market volumes rise, regulatory constraints may become a more visible determinant of trading activity and short-term rate formation. Focusing on key Basel III requirements – the liquidity coverage ratio, net stable funding ratio and leverage ratio – the paper derives stylised estimates of the marginal regulatory cost associated with unsecured and secured interbank transactions. The results indicate that unsecured interbank lending entails material regulatory costs, estimated at around 35 basis points for lenders and around 15 basis points for borrowers in the second half of 2025, reflecting capital and stable funding requirements. By contrast, secured transactions such as repurchase agreements benefit from substantially lower costs, typically well below 10 basis points when backed by high-quality collateral. These differences create structural incentives favouring secured over unsecured intermediation, suggesting that repo markets are likely to remain the main channel for reserve redistribution as the stock of reserves declines. The findings imply that post-crisis regulation has contributed to a persistent shift in the structure of euro area money markets, with implications for liquidity distribution and monetary policy implementation. JEL Classification: E43, E52, E58, G21, G28 |
| Keywords: | bank regulation, liquidity regulation, monetary policy implementation, money markets, repo markets |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026401 |
| By: | Ayrton Amaral; Anis Foresto; Pabalelo Mosoma |
| Abstract: | The post-pandemic inflation surge and South Africas recent adoption of a new 3%-point inflation target has renewed interest in the anchoring of private sector inflation expectations. |
| Date: | 2026–10–08 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11106 |
| By: | Martin Geiger (Liechtenstein Institute and University of Innsbruck); Iacovos Sterghides (Central Bank of Cyprus); Marios Zachariadis (University of Cyprus) |
| Abstract: | Utilizing a large household-level dataset of inflation expectations for twelve euro-area economies, we attempt to assess the formation and accuracy of inflation expectations following major disruptions of the macroeconomy which we identify during the period from 2004:1 to 2025:2. We find that the arrival of such adverse events tends to increase the degree of inaccuracy in inflation expectations. We also find that this happens because inflation expectations tend to go up in response to these adverse shocks relative to the 12-month ahead inflation realizations, which offers direct evidence of households overestimating inflation. This is consistent with overreaction of inflation expectations in response to inflationary news and with inflation-as-a-bad behavioral patterns in response to adverse non-inflationary shocks. We infer that such behavioral forces appear to have played an important role in the formation of inflation expectations in the euro-area following adverse shocks during the past two decades. |
| Keywords: | forecast errors; shocks; behavioral; belief heterogeneity; Central Bank communication |
| JEL: | D84 E31 E70 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cyb:wpaper:2026-3 |
| By: | Santiago Alvarez-Blaser (Banco de España) |
| Abstract: | This paper investigates the relationship between price dispersion and inflation, shedding light on one major source of the cost of high inflation. By analyzing novel product-level web-scraped data from over 60, 000 restaurants and supermarkets across 18 countries facing high and low inflation periods, I uncover new evidence of a significant positive correlation between inflation and price dispersion. My findings reveal that average annualized inflation, ranging between 0 and 20 percentage points across countries within a condensed time frame, is significantly associated with higher price dispersion in both the restaurant and the supermarket sectors. The estimates indicate that the marginal effect of suboptimal inflation on product-level distortions is positive, economically significant in all inflation environments and heterogeneous across sectors. Cross-sectionally, I find that as annualized inflation rises from 0% to 10% inefficient price dispersion is about 46% higher for supermarkets and 73% higher for restaurants. Lastly, the relationship between inflation and price dispersion does not flatten much at higher inflation, so that the marginal cost of additional inflation does not vanish as inflation rises – a pattern standard menu-cost models do not generate. This indicates a sustained impact of inflation on price dispersion, implying that accommodating higher inflation levels incurs substantial welfare costs. |
| Keywords: | inflation, price-setting, price distortions |
| JEL: | E31 E32 E58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2638e |
| By: | Marco Carli (Italian Ministry of Economy and Finance and Tor Vergata University); Francesca Diluiso (Bank of England); Mathias Hoffmann (Deutsche Bundesbank) |
| Abstract: | How should monetary policy respond to climate policy shocks? We develop an Environmental New-Keynesian model with green and fossil energy to assess the macroeconomic impacts of carbon pricing and green subsidy shocks and to identify the optimal monetary policy responses. Our findings indicate that these shocks create a policy trade-off between stabilizing inflation and the output gap. This trade-off is resolved in favor of output-gap stabilization, with optimal monetary policy focusing on dampening real output fluctuations while temporarily looking through inflation movements. Dual mandate Taylor rules yield lower welfare costs than inflation-only targeting rules and align the welfare performances of core and headline inflation targeting regimes. |
| Keywords: | Climate policy;E-DSGE models;monetary policy trade-offs;supply shocks. |
| JEL: | E31 E52 Q43 Q58 |
| Date: | 2026–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023787 |
| By: | Diego Vilán; WanTing Xu |
| Abstract: | Over the past decades, central bank communication has become an increasingly important component of modern monetary policy frameworks. Policy rates, asset purchases, and balance-sheet tools remain central to the transmission of monetary policy, but speeches, press conferences, forward guidance, and other forms of public communication have all played a direct role in shaping expectations about the future path of policy. |
| Date: | 2026–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103907 |
| By: | Kilponen, Juha; Kortelainen, Mika |
| Abstract: | We extend an estimated euro-area Smets-Wouters (2007) model with endogenous price-adjustment hazards and a credibility-weighted expectations channel and study the interaction between state-dependent pricing (SDP) and inflation-expectation de-anchoring as complementary sources of second-round inflation dynamics. We establish four results. First, the two channels are super-additive: the long-run price-level cost of a large cost-push shock exceeds the sum of individual effects when both channels are active. Second, de-anchoring is material only when routed through the forward expectation term, not through backward indexation. Third, a formal Kalman-filter state-space estimation using ECB Survey of Professional Forecasters (SPF) and Consumer Expectations Survey (CES) data finds that professional forecasters remained fully anchored while households de-anchored significantly once inflation crossed approximately 5% during 2021-2024 inflation surge, consistently with rational inattention. Fourth, looking through a large cost-push shock is costly because the supply-side and expectations-side risks compound. |
| Keywords: | state-dependent pricing, inflation expectations, de-anchoring, rational inattention, second-round effects, monetary policy |
| JEL: | E31 E32 E52 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:344113 |
| By: | Rohan Kekre; Moritz Lenel |
| Abstract: | We propose a general equilibrium model in which U.S. monetary policy affects global risk premia by revaluing the wealth of currency-mismatched arbitrageurs. Assuming their portfolios are mean-variance efficient, arbitrageurs must be short the dollar. A U.S. tightening thus erodes arbitrageurs' net worth and raises the global price of risk. We discipline this mechanism to rationalize the effects of U.S. monetary policy on international asset prices, and we quantify the associated macroeconomic spillovers and role of policy responses abroad. In a potential future with higher dollar interest rates, arbitrageurs' dollar funding and U.S. monetary policy spillovers are dampened. |
| JEL: | E44 E52 F31 G15 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35902 |
| By: | Alessandro Guerriero; Giuseppe Pagano Giorgianni |
| Abstract: | Perceived inflation in the euro area systematically departs from measured HICP inflation. This gap arises because households place disproportionate weight on salient consumption items, especially frequently purchased goods such as food. Since these items also tend to adjust prices more often, they generate inflation signals that are noisier and more volatile than aggregate inflation. At the micro level, households that are more exposed to food in their consumption basket exhibit a stronger response of perceived inflation to an adverse food supply shock. Additionally, stronger inflation perceptions are accompanied by a sharper increase in pessimism regarding consumption attitudes. At the macro level, perceived inflation reacts with more intensity and persistence compared with actual inflation, while retail sales decline. To interpret these results, we develop a HANK framework with non-homothetic preferences and subjective inflation perceptions. The model shows that heterogeneity in consumption baskets and the greater price volatility of salient goods jointly amplify the effects of negative supply shocks affecting those goods, turning food price disturbances into broader and more persistent contractions in economic activity. |
| Keywords: | Inflation perceptions; HANK; Proxy-SVAR; Local Projections |
| JEL: | E31 D84 E21 E32 C23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp285 |
| By: | Harald Badinger (Department of Economics, Vienna University of Economics and Business); Christian Glocker (Austrian Institute of Economic Research); Stefan Schiman-Vukan (Austrian Institute of Economic Research) |
| Abstract: | Using a structural VAR with a relatively agnostic identification based on narrative sign restrictions, this paper, in line with recent empirical evidence, documents an increase in the labor share following restrictive monetary policy in the euro area. We then complement the empirical analysis with a theoretical investigation that provides mechanisms linking monetary policy and the labor share—a connection that has so far been regarded as lacking an explanation. Specifically, we show that the observed responses of the labor share, real wages, and productivity to a monetary policy shock can be reconciled within an otherwise standard New Keynesian framework once capital accumulation is introduced and both nominal and real frictions—in particular, labor adjustment costs—are incorporated. |
| Keywords: | Monetary policy, labor share, euro area, structural VAR, New-Keynesian model, labor market frictions |
| JEL: | C32 E25 E52 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp397 |
| By: | Iñaki Aldasoro; Rashad Ahmed |
| Abstract: | We test whether stablecoins and bank deposits act as substitutes by estimating the semi-elasticity of stablecoin market capitalization with respect to deposit rate changes. Using local projections fit to weekly U.S. data from January 2019 to June 2025, we find that deposit rate increases predict slower stablecoin growth. To address endogeneity, we exploit a nonlinearity in deposit rate pass-through. Whereas other money market rates track the federal funds rate roughly linearly, banksreprice deposits more aggressively once it exceeds approximately 3%. Against average ten-week stablecoin growth of 15%, ordinary least squares estimates imply a reduction of roughly 3 percentage points per basis point of deposit repricing, or about 3.75 percentage points per one-standard-deviation move. Instrumental variable estimates are roughly three times larger and pass a placebo test using non-stablecoin cryptocurrencies. Effects are stronger for USDC than for USDT, consistent with the former’s closer ties to U.S. depositors. Cross-sectional variation in repricing across deposit tiers provides independent evidence of substitution. The size of the stablecoin sector therefore depends in part on howbanks price deposits. |
| Keywords: | stablecoins, bank deposits, deposit rates, substitution, monetary policy |
| JEL: | E42 E43 G21 G23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1382 |
| By: | Ebener, Luca; McGregor, Thomas |
| Abstract: | We introduce a novel measure of how European Central Bank (ECB) monetary policy is interpreted by analysts at major investment banks. We construct a “policy interpretation shock” based on the language used in analysts’ reports covering monetary policy decisions by the ECB’s Governing Council (GovC). The main identifying assumption is that changes in the way analysts report on policy communication by the GovC—that is, the change in the policy tone from the preview report to the recap report—reflect unexpected information revealed by the policy event. Using GPT-based sentiment extraction, we show that the tone in these reports closely tracks that of the GovC, often even anticipating shifts in tone. Changes in the policy tone before and after meetings capture how market intermediaries interpret and adjust their assessment of policy decisions. These interpretation shocks are followed by contractionary macroeconomic responses and systematic movements in financial-market prices. These findings underscore the important role of communication in shaping expectations and influencing economic outcomes. JEL Classification: E52, E58, E44 |
| Keywords: | analyst reports, large language models, monetary policy communication |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263298 |
| By: | Thomas Drechsel; Daniel J. Lewis; Davide Melcangi; Laura Pilossoph |
| Abstract: | To study monetary policy transmission at the firm level, researchers typically consider heterogeneity along a small number of firm characteristics, such as size or leverage. We instead estimate the full distribution of firms’ investment responses to monetary policy, using a clustering regression framework. Our novel approach captures multidimensional and unobservable heterogeneity across firms and time. We find that investment by most firms in most time periods responds little to monetary policy. Only about 5 percent of firm-time observations are associated with a strong response. We then investigate the sources of heterogeneity ex post. We find that most of the variation in investment sensitivity arises within firms over time. Although several firm characteristics predict responsiveness to monetary policy, the majority of heterogeneity remains unexplained by firm observables. We demonstrate that our empirical estimates provide new targets for disciplining structural models of firm heterogeneity. |
| Keywords: | monetary policy; investment; firm heterogeneity; panel local projections; clustering |
| JEL: | E22 E32 E52 |
| Date: | 2026–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103901 |
| By: | Cahn, Christophe; Fève, Patrick; Matheron, Julien |
| Abstract: | This chapter traces how dynamic stochastic general equilibrium (DSGE) models became a central tool for quantitative policy analysis in Central Banks. Their appeal grew out of the shortcomings of large-scale macroeconometric models, the Lucas and Sims critiques, and the gradual shift from real business-cycle theory to the New Keynesian framework. The chapter reviews the medium-scale DSGE model that became standard in policy institutions, as well as extensions dealing with unemployment, open-economy transmission, financial frictions, and fiscal policy. It also discusses the practical machinery (solution, estimation, forecasting, and counterfactual analysis) through which these models are brought to the data and used in policy work. Thefinalpartturnstoheterogeneous-agentNewKeynesian models (HANK), where incomplete markets and distributional heterogeneity reshape the transmission of monetary and fiscal policy. The central claim is that DSGE models remain valuable less as definitive descriptions of the economy than as a disciplined way to connect theory, data, and policy experiments, while identifying where richer mechanisms are needed. |
| Keywords: | DSGE models; central banks; New Keynesian models; HANK; monetary policy; Policy analysis |
| JEL: | E32 E52 E58 C11 D14 D31 |
| Date: | 2026–10–19 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:132301 |
| By: | Bernardo Candia |
| Abstract: | Using multiple randomized controlled trials (RCTs) implemented through surveys of US households, I show that household spending responses to exogenous changes in inflation expectations depend on the inflation environment. In times of low inflation, higher inflation expectations arising from information treatments lead households to reduce their consumption of durable goods (the negative income/uncertainty effect dominates). In contrast, in times of high inflation, I find a sharp positive effect on durable goods spending after an exogenous shock to inflation expectations (intertemporal substitution effect dominates). |
| Keywords: | inflation expectations; surveys; randomized controlled trials (RCTs) |
| JEL: | E3 E4 E5 |
| Date: | 2026–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:103916 |
| By: | Christophe Cahn; Patrick Fève; Julien Matheron |
| Abstract: | This paper traces how dynamic stochastic general equilibrium (DSGE) models became a central tool for quantitative policy analysis in Central Banks. Their appeal grew out of the shortcomings of large-scale macroeconometric models, the Lucas and Sims critiques, and the gradual shift from real-business-cycle theory to the New Keynesian framework. The paper reviews the medium-scale DSGE model that became standard in policy institutions, as well as extensions dealing with unemployment, open-economy transmission, financial frictions, and fiscal policy. It also discusses the practical machinery (solution, estimation, forecasting, and counterfactual analysis) through which these models are brought to the data and used in policy work. The final part turns to heterogeneous-agent New Keynesian models (HANK), where incomplete markets and distributional heterogeneity reshape the transmission of monetary and fiscal policy. The central claim is that DSGE models remain valuable less as definitive descriptions of the economy than as a disciplined way to connect theory, data, and policy experiments, while identifying where richer mechanisms are needed. |
| Keywords: | DSGE Models; Central Banks; New Neoclassical Synthesis Models; HANK; Monetary Policy; Policy Analysis |
| JEL: | E32 E52 E58 C11 D14 D31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1066 |
| By: | Francesco Leghissa |
| Abstract: | Italian monetary policy remained subordinated to public financing between the 1960s and the euro, deficits being routinely accommodated through monetary base creation. This paper asks whether that configuration amounted to a non-Ricardian regime in the sense of the Fiscal Theory of the Price Level. Bivariate VARs, a structural-cyclical decomposition of the primary balance addressing the observational equivalence critique, and a three-variable variance decomposition all yield Ricardian-like dynamics. Yet the structural primary balance behaved as a near-autonomous process, satisfying the definition of active fiscal policy. I characterise this as a hybrid regime, latent fiscal dominance within a Ricardian outcome, sustained by the central bank’s dual role as fiscal accommodator and market coordinator. The 1981 divorce dismantled that architecture progressively rather than triggering a regime switch: fiscal contributions to monetary base variance fell from 93 to at most 48 per cent, a transition the Annual Reports show was completed only under Maastricht. |
| Keywords: | fiscal theory of the price level; fiscal dominance; Bank of Italy–Treasury divorce; monetary-fiscal interaction; VAR. |
| JEL: | E52 E62 E63 H63 N14 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04302026 |
| By: | Khder Alakkari (Department of Statistics and Programming, Faculty of Dentistry, Al Andalus University for Medical Sciences, Tartus, Syria; Faculty of Economics, Latakia University, P.O. Box 2230, Syria; Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria); Bushra Ali (Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria); Petre Caraiani (Institute for Economic Forecasting, Romanian Academy, Romania; Bucharest University of Economic Studies, Romania); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | We examine whether the responses of U.S. stock-market bubble indicators to two distinct components of Federal Reserve announcements vary with the lagged deregulation state: conventional monetary-policy (MP) shocks and central-bank-information (CBI) shocks. The monthly analysis covers February 1990--May 2025 and uses six multi-scale LPPLS confidence indicators that distinguish positive and negative episodes at short, medium, and long horizons. A news-based deregulation index enters with a one-month lag. Linear, interaction, varying-coefficient, and smooth-transition local projections distinguish average responses from variation across regulatory states. In a 6-lag linear validation, CBI shocks show more consistent cumulative responses than conventional MP shocks, both with and without lagged deregulation as a control. Observed-state P90--P10 contrasts from the interaction local projections indicate that conventional MP responses vary with deregulation, most clearly for short- and medium-horizon positive-bubble indicators. Direct CBI responses are directionally consistent, but the corresponding P90–P10 contrasts do not support systematic CBI amplification as deregulation rises. For the linear benchmark, simultaneous confidence bands remove isolated pointwise horizon findings. These findings describe how the responses of LPPLS confidence indicators to monetary announcement shocks vary with the deregulation state. |
| Keywords: | deregulation, monetary policy shocks, central-bank information shocks, stock-market bubbles, local projections, state dependence, LPPLS |
| JEL: | C22 C32 E44 E52 E58 G12 G14 G18 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202634 |
| By: | Garcia, Thomas; Lambert, Claudia; Pancaro, Cosimo; Rimbaud, Claire; Soldà, Alice |
| Abstract: | Holding limits are a central design feature of proposed retail central bank digital currencies (CBDC). While such limits mechanically prevent individuals from exceeding a maximum balance, they may also generate behavioral responses whose directions are a priori unclear. We conducted an incentivized online experiment with participants from four euro-area countries, exogenously varying the presence and level of a holding limit to causally separate direct mechanical effects from behavioral effects. We find that behavioral responses increase holdings of the means of payment subject to the holding limit, consistent with an attraction effect. This effect is material only when the limit is high enough. Enabling reverse waterfall —automatic conversion into this limited means of payment— increases adoption while reducing holdings. These results suggest that combining holding limits with automatic funding mechanisms can support CBDC use while containing holdings, thereby helping to mitigate potential financial stability risks. JEL Classification: E42, C91, D14, E58 |
| Keywords: | behavioral economics, CBDC, digital currency, experimental economics, holding limits |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263300 |
| By: | Carlos Montes-Gald\'on |
| Abstract: | Most empirical models of trend inflation treat it as a latent random walk driven by unobserved shocks, so they cannot say which economic conditions move it. Deep-$\pi^*$ makes the innovations to the trend a possibly nonlinear function of a large number of macroeconomic indicators, estimated with neural networks, so that Shapley values can be used to attribute every movement of the trend to the indicators behind it. Two complementary loss functions define a current trend, which fits inflation today, and a forward-looking trend, which best predicts inflation over the next year. In US data, employment-related variables were the largest contributors to the post-pandemic rise of the current trend. However, the forward-looking trend rose earlier, with real activity, employment, and money and credit as the main drivers, and peaked eight to twelve months before the current trend. Both trends looked through most of the movements in energy and commodity prices. The contributions of the indicators are nonlinear, with sizeable interactions between them. Re-estimated every month during the surge, the model forecast inflation more accurately than the standard UC-SV model and a random walk, and in early 2021, when professional forecasters expected inflation of 3% or less, the forward-looking trend was already signalling an increase in persistent inflation. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.26298 |
| By: | Wenxin Du; Catherine Huang; David Scharfstein |
| Abstract: | Cross-border payments remain slow and expensive despite significant improvements in digital financial infrastructure over the past several decades. This paper compares the cost of sending cross-border payments across three payment rails: traditional banks operating through the correspondent banking system and SWIFT, fintech money trans fer operators (MTOs) such as Wise, Remitly, and the digital arm of Western Union, and stablecoin-based transfers. We construct harmonized all-in costs measures across these three rails for different corridors and payment values. We find that fintech MTOs have significantly compressed the costs of cross-border payments, and demonstrate that stablecoins are not a panacea for frictions in cross-border payments. |
| Keywords: | cross-border payments, fintechs, stablecoins, SWIFT |
| JEL: | E42 F31 G21 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1385 |
| By: | J. Scott Davis; Ben Kim; Andrei Zlate |
| Abstract: | The Economist's Big Mac Index is a measure of the real exchange rate that instead of measuring the price of a basket of goods and services, measures the price of one good, the McDonald's Big Mac. Recent empirical work finds that financial factors, and not monetary ones, underlay a very high correlation between nominal exchange rates and the Big Mac-based real exchange rate. |
| Date: | 2026–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103957 |
| By: | Marcel Brambeer (University of Bonn); Michael Joyce (National Institute of Economic and Social Research); Alex Kontoghiorghes (Bank of England) |
| Abstract: | UK insurance companies hold a large share of UK corporate bonds, while US insurers are also significant investors in dollar-denominated issues by UK firms. Using a unique security-level dataset combining UK and US regulatory transactions data, we study how UK and US monetary policy shocks affect the demand of life insurers for UK corporate bonds. Employing a panel local projections framework, we find that UK monetary tightening raises domestic insurer demand but reduces foreign demand, counteracting the overall demand impact. US monetary contractions generate similar asymmetries, increasing demand from UK insurers and decreasing it from US insurers. These patterns are consistent with differences in regulation, portfolio allocation incentives, and liability structures across UK and US insurers. |
| Keywords: | International portfolio choice;insurance companies;corporate debt;monetary policy. |
| JEL: | E44 G11 G15 G23 G30 |
| Date: | 2026–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023786 |
| By: | Maximilian Boeck; Anja Bauer; Jonas Dovern |
| Abstract: | This paper studies how energy supply shocks affect the entire cross-sectional distribution of household inflation expectations. Using monthly German survey data from 2003 to 2025, we estimate a functional vector autoregression that combines macroeconomic aggregates with the expectation distribution and identify oil supply news shocks and natural gas supply shocks using external instruments. Oil shocks induce a hump-shaped rightward shift of the distribution, increase disagreement, and disproportionately move probability mass toward very high expectations. Natural gas shocks generate faster but smaller responses. In both cases, households overestimate the inflationary effects of the shocks. We further document substantial heterogeneity across household types by splitting the survey sample based on age, gender, and other characteristics. Given evidence that higher moments of the expectation distribution matter for macroeconomic dynamics, monitoring only average expectations is likely to understate the business-cycle consequences of energy supply shocks. |
| Keywords: | inflation expectations, functional VAR, energy, supply shocks |
| JEL: | E31 D84 C32 Q43 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13047 |
| By: | Gerardo Ferrara; Andreas Schrimpf; Ganesh Viswanath-Natraj; Zijie Wang |
| Abstract: | We study how offshore non-deliverable forward (NDF) markets transmit exchange-rate pressures to domestic currency markets. Using unique transaction-level data on the universe of centrally cleared NDFs for ten emerging-market currencies over 2013–2025, we show that offshore NDF order flow moves both offshore forward and domestic spot exchange rates and widens the offshore–onshore forward spread. To our knowledge, this is the first transaction-level evidence on price formation in these markets. A $1 billion long-USD order flow depreciates the domestic spot rate by about 10 basis points and the offshore NDF rate by about 18 basis points. The spot impact is larger when dealer balance sheets are tight. Policy episodes in the Chinese renminbi, Malaysian ringgit, and Indian rupee show how changes in offshore speculative activity and arbitrage between offshore and onshore markets affect the spread and domestic exchange rates. We rationalize these findings with a model in which offshore demand pressure generates NDF order flow, dealers hedge inventory through domestic spot markets, and capital controls limit intermediation between offshore and onshore forward markets. |
| Keywords: | exchange rates, non-deliverable forwards, capital controls, price discovery |
| JEL: | E44 E58 F3 F38 G15 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1383 |
| By: | Alina Ermolaeva; Hannah Magdalena Seidl |
| Abstract: | Does artificial intelligence (AI) change the transmission of monetary policy? We develop a two-sector heterogeneous-agent New Keynesian model with task-based production, in which AI automates part of the work in one exposed sector and leaves the other shielded. In the AI steady state, the economy holds more capital, and labor income shifts from the exposed workers, who lose through hours, to the shielded workers, who gain through higher wages. We then compare the same rate cut across the two economies. It stimulates macroeconomic aggregates more in the AI economy. The deeper capital stock delivers a larger initial stimulus. Investment responds as strongly as without AI, but on a permanently larger base, so the same response means more demand. Machines absorb part of the exposed sector’s share of that demand. The shielded sector’s share becomes labor income, which is spent in turn. It matters who gets automated: the amplification of monetary policy in an AI economy runs through the workers AI does not replace. |
| Keywords: | Artificial intelligence, automation, task-based production, HANK, monetary transmission, labor share, sectoral incidence |
| JEL: | E21 E24 E32 E52 J23 O33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2184 |
| By: | Roc Armenter |
| Abstract: | Changes in the Treasury’s cash management practices after the COVID pandemic in-creased the Fed’s balance sheet by as much as 2 percentage points of nominal GDP, including the larger buffer required to maintain ample reserve levels. A parsimonious time-series model shows that, once we account for the impact of the Treasury’s extraor-dinary measures during debt-ceiling episodes, the observed changes in the Treasury General Account since COVID are mostly driven by higher target balances. An effec-tive sterilization program by the Fed would require timely and accurate information at high frequencies. |
| Keywords: | monetary policy; ample reserves; COVID-19; Fed balance sheet |
| Date: | 2026–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:103953 |