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on Monetary Economics |
| By: | Olena Kostyshyna; Luba Petersen; Jing Yang |
| Abstract: | Using a controlled macroeconomic experiment, we compare monetary policy rules that differ in how much they look through inflation: a Lean-Against policy that responds strongly to inflation and a Look-Through policy that responds less strongly. We combine each rule with communication protocols that vary the information the central bank releases about its policy response: restricted qualitative information, detailed quantitative information, and detailed quantitative information combined with inflation and output projections. Midway through each session, we raise the persistence of the cost-push shock. Looking through large, persistent shocks raises and prolongs inflation and increases the risk that inflation expectations unanchoring, while responding with tighter policy curbs inflation sooner. Communication matters mainly through projections. Adding detailed quantitative information to qualitative statements has little effect on output gaps, inflation, expectations or forecast errors. Communicating projections reduces inflation and output losses, anchors inflation expectations and lowers forecast errors. Under Look-Through, projections anchor inflation expectations and reduce inflation after the increase in supply shock persistence. Looking through supply-shock-induced inflation is only advisable when the central bank can communicate credible and focal projections to guide expectations. |
| Keywords: | Monetary policy; Monetary policy framework and transmission; Monetary policy tools and implementation |
| JEL: | C C9 D D8 D84 E E5 E52 E58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-39 |
| By: | Jonathan Hambur (Reserve Bank of Australia); Qazi Haque (University of Adelaide) |
| Abstract: | We study how professional forecasters perceive a central bank's reaction function, and how those perceptions evolve over time, using survey data from Australia between 2015 and 2025. Adapting recent survey-based approaches, we recover time-varying perceived policy rules that map expected macroeconomic conditions into expected policy rates. We find that perceived responsiveness to inflation was modest prior to the pandemic, reflecting views that rates would not be cut to tackle low inflation. The perceived responsiveness then rose sharply after sustained policy tightening began in 2022. Central bank communication about labour market conditions and financial stability shaped perceptions of the reaction function over these periods. However, during the elevated period of uncertainty following COVID, beliefs about the importance of inflation adjusted only after forecasters observed realised policy actions, highlighting the limits of communication alone. We also show that heterogeneity in long-run beliefs, including views about long-run inflation, plays an important role in shaping interest rate expectations, but can be parsimoniously captured using forecaster fixed effects. |
| Keywords: | perceived monetary policy rules; survey expectations; central bank communication |
| JEL: | E43 E52 E58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2026-06 |
| By: | Pita Marcet, Alicia; Schröder, Christian; Wolters, Maik H. |
| Abstract: | Inflation is often overpredicted during persistent low-inflation periods. We evaluate a model in which inflation expectations can de-anchor, allowing transitions to a low-inflation equilibrium at the effective lower bound. We assess relative and absolute forecast performance using conventional and state-dependent tests. Relative to a model with expectations anchored at the inflation target, the transition model yields substantial accuracy gains during Japan's prolonged low-inflation episode and for euro area core inflation in the 2010s. These gains do not extend to the United States, where inflation remained closer to target. The absolute forecast evaluation also provides comparatively favorable evidence for the transition model in Japan and for euro area core inflation. Central bank projections are particularly strong at short horizons, reflecting their richer real-time information sets. For euro area core inflation during the low-inflation period, however, the transition model's forecast errors were roughly 50 percent lower than the ECB's for the following year and two years ahead. |
| Keywords: | Inflation Forecasting, Inflation Expectation De-anchoring, State-dependent Forecast Evaluation, Effective Lower Bound, Multiple Equilibria, Central Bank Projections |
| JEL: | C52 C53 E31 E37 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:344239 |
| By: | Frederico Bastone (PUC-Rio); Mauro Sayar Ferreira (Cedeplar/UFMG) |
| Abstract: | We study monetary policy surprises in Brazil using daily financial-market changes around 158 COPOM announcements from 2005 to 2024. We extract two orthogonal factors from interest-rate futures, interpreted as target and path components of monetary policy news, and estimate their effects on nominal yields, real yields, breakeven inflation, and Focus survey inflation expectations. Both factors move the yield curve, but with different timing: path surprises are priced rapidly, while target surprises are followed by more gradual adjustment around the release of COPOM minutes. Inflation expectations respond mainly at the medium-term horizon. In linear specifications, contractionary surprises reduce second-year expected inflation, consistent with expectations-anchoring or demand effects. Nonlinear specifications reveal important sign asymmetries: some surprises move expected inflation in the direction predicted by standard policy transmission, while others are consistent with announcements revealing information about the inflation outlook. Because COPOM decisions are announced after local markets close, the event window is daily rather than intraday; predictability tests show that the path factor is partly correlated with global financial news. The results should therefore be interpreted as event-study evidence on how Brazilian markets and forecasters respond to COPOM announcement surprises. |
| Keywords: | monetary policy shock; inflation; yield curve; inflation expectation, information channel. |
| JEL: | E43 E52 C54 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cdp:texdis:td705 |
| By: | Carli, Marco; Diluiso, Francesca; Hoffmann, Mathias |
| 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 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:344219 |
| By: | Romero, Paola; Castaneda, Juan |
| Abstract: | Independent central banks must be effectively accountable, particularly when they engage in discretionary policies during a crisis. We argue that ex post assessment of central bank performance is insufficient for proper accountability. Using the inflationary episode that followed the Covid-19 pandemic, we show that a central bank explicitly committed to an inflation-targeting rule can deviate substantially from its target, with the extent of the deviation being identified only once it is already too late to correct it. We propose ‘procedural accountability’, a comprehensive framework for monetary policymaking. Drawing on the gold standard experience and existing rule-based proposals, we specify the minimal formal architecture any such regime must satisfy. |
| Keywords: | accountability;central banks;discretion;inflation targeting;monetary policy |
| JEL: | E42 E58 E61 |
| Date: | 2026–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140780 |
| By: | Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent |
| Abstract: | We investigate the existence of calendar effects in the interest rate pass-through in the euro area by examining how changes in the money market rate are transmitted to bank lending rates within quarters. Using monthly data on the interest rates of new loans for a large sample of euro area banks from January 2010 to April 2024, we find that this short-term pass-through to non-financial corporation and consumption lending rates is weaker in the fourth quarter of the year during periods of policy tightening. We obtain limited evidence that the pass-through is stronger in the fourth quarter for housing and consumption loans during periods of policy easing. We interpret these findings as consistent with trade loading behavior, whereby banks inflate their loan volumes at the end of the year to meet annual targets. Our work highlights the importance of considering seasonal effects when assessing interest rate pass-through in the euro area. |
| Keywords: | bank, monetary policy, monetary transmission mechanism, calendar effects, euro area |
| JEL: | E52 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:344221 |
| By: | Naveed Javed; Nicolas Groshenny |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tep:teppwp:wp26-11 |
| By: | De Grauwe, Paul; Ji, Yuemei |
| Abstract: | We show first that the dominance of the dollar as the world currency is bound to decline. Second, there is no other currency today capable of taking over the dollar. The euro is handicapped by a fast decline of the economic importance of the euro area countries in the world. Even a Capital Markets Union will not compensate this, because a Capital Markets Union by itself does not create a safe asset. The latter is necessary as a benchmark to price the myriad of financial assets that make capital markets interesting for investors. Only a political union in which a federal European government has the authority to issue a common debt can achieve this. The most likely scenario, therefore, is that the world monetary system develops into a multi-polar currency system, where a limited number of currencies achieve a strong regional importance without any of them achieving the status of the dominant currency, in a way that the dollar has done in the post-war period. That seems to be the future for the euro, a future that can become a reality faster by developing a euro payment system alternative to the dollar and by creating a full-fledged digital euro. |
| Keywords: | global currency;international payment systems;euro;capital markets union;rule of law |
| JEL: | J1 F3 G3 |
| Date: | 2026–10–26 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141657 |
| By: | Amina Enkhbold; Serdar Kabaca |
| Abstract: | Canadian housing imbalances have elevated shelter inflation as a driver of CPI, fueled by high house prices, mortgage costs, rents, supply constraints, and leverage. This note uses a model with housing supply and extrapolative expectations to assess whether monetary policy should incorporate or look through shelter inflation under demand and supply shocks. |
| Keywords: | Financial system; Household and business credit; Monetary policy; Monetary policy framework and transmission |
| JEL: | E E5 E52 G G2 G21 R R2 R21 R3 R31 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-53 |
| By: | Tiziana Assenza (Toulouse School of Economics); Stefanie Huber (University of Bonn); Anna Mogilevskaja (University of Bonn); Tobias Schmidt (Deutsche Bundesbank, Research Center) |
| Abstract: | We use an experimental module in the Bundesbank Online Panel Households to show that the estimated link between inflation expectations and household consumption changes significantly depending on survey wording. This finding reconciles prior contradictory results and has direct implications for central bank survey design. Our experiment systematically varies elicitation framing of consumption questions along three dimensions: the reference unit (individual vs. household), the time horizon (past one, 3, or 12 months), and the question type (attitudinal, planned, qualitative and quantitative recall-based). We find that mainly question type significantly influences the estimated relationship between inflation expectations and durable consumption. While the average association is weak, its sign and magnitude vary strongly with question design. Planned spending and attitudinal questions, such as whether it is a good time to buy, produce very similar negative associations, suggesting that respondents interpret the former as a proxy for future intentions. In contrast, quantitative recall-based questions on past spending yield a modestly positive or insignificant link. These results highlight the critical role of survey design in shaping behavioral measurements, offering a novel explanation for mixed findings in the literature and guidance for both research and policy. |
| Keywords: | Inflation expectations; household consumption; survey design; question wording; framing effects; measurement |
| JEL: | C83 D84 D12 E21 E31 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:437 |
| By: | Stéphane Surprenant |
| Abstract: | We examine the effects of monetary policy shocks on the Canadian housing market. Using high-frequency surprises around fixed announcement dates as an instrument in a Bayesian VAR, we estimate the responses of house prices, housing starts, building permits, resales, inventories, and mortgage purchases to a contractionary monetary policy shock. An increase in the policy rate leads to a substantial and persistent decline in average house prices. Housing starts and building permits fall, but their implied effects on the future housing stock are both slow and modest. Interpreted through the lens of market equilibrium, these results are most consistent with a stronger response of housing demand than housing supply. Mortgage purchases provide additional evidence in support of this interpretation. |
| Keywords: | Monetary policy; Monetary policy framework and transmission |
| JEL: | C C3 C32 E E5 E52 R R3 R31 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-52 |
| By: | Marine Charlotte André (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Meixing Dai (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | This paper studies, in a new Keynesian model with a positive optimal output gap, how to design linear inflation contracts to shape the central bank's incentive structure when private expectations are based on adaptive learning. In this model, under rational expectations, inflation contracts could only partially deal with the time-inconsistency problem arising from incentives for the central bank to exploit the inflation-output trade-off induced by an "overambitious" output-gap target. This is true even if the government incurs no cost related to such contracts, unlike in the Barro–Gordon framework. When agents are learning, their design should reflect the intertemporal trade-off due to learning such that the optimal inflation penalty rate decreases from the high-level set under optimal discretion and rational expectations and then approaches gradually, but does not equal, the low-level set under optimal limited commitment and rational expectations as the learning gain tends to unity. |
| Keywords: | Optimal monetary policy, Monetary policy delegation, Inflation contract, Inflation bias, Adaptive learning |
| Date: | 2025–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05777899 |
| By: | Ina Hajdini; Edward S. Knotek; James Mitchell; Mathieu Pedemonte; Taylor Shiroff |
| Abstract: | Using a five-year survey of over 170, 000 US consumers, we provide a novel direct measure of attention to monetary policy and show that the data strongly support the predictions of a rational inattention model. First, attention is incentive-driven: consumers with "skin in the game"—those planning major purchases like homes or cars—are significantly more attentive to monetary policy news. Second, attention varies systematically with interest rate volatility and news supply, exhibiting cyclical patterns around FOMC meetings. Third, marginal effects of volatility and news supply decline with "skin in the game, " implying external factors primarily affect low-skin-in-the-game consumers. These findings imply that, when communication is costly and attention is endogenous, optimal central bank communications in our model target consumers who bear the largest welfare losses from information frictions. This targeted communication approach increases aggregate attention to monetary policy, leading to an amplified response of consumption to interest rate changes. |
| Keywords: | monetary policy; rational inattention; communication |
| JEL: | D8 E5 |
| Date: | 2026–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:103975 |
| By: | Silvia Sgherri |
| Abstract: | A global digital liability is a contract with three clauses that can be written separately at issuance: denomination, which governs what the liability pays and how well it insures its holders; the unit of account, which governs pass-through into prices; and backing, the government bonds held against it, which governs the yield privilege and the issuer’s currency exposure. Dollar stablecoins set all three to the dollar; multilateral proposals would move them to a basket. In a three-country New Keynesian model with currency-disaster risk in the periphery, a convenience yield on reserve assets, and original sin, we show that, however it is written, the contract cannot remove peripheral currency risk, only decide who bears it. Insuring against the peripherys currency creates an open position for the issuer. With fixed capital, that exposure places a limit on the scale at which the liability can be supplied credibly: a new Triffin dilemma that can be overcome by capital that grows with the open position. The mechanism behind the old dilemma reappears in general equilibrium: the country whose bonds back the liability runs a permanent trade deficit financed by the world’s demand for them, and the yield privilege it draws exceeds the interest it saves, as its terms of trade improve. |
| Keywords: | stablecoins, digital dollarization, unit of account, convenience yield, original sin, portfolio balance, international monetary system, Triffin dilemma |
| JEL: | F31 F33 F41 E42 E44 G23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2026-015 |
| By: | Shahdah Hanif; Wali Ullah |
| Abstract: | Households do not form inflation expectations with information alone; emotions matter too. This paper introduces an affective channel into the limited-attention model of expectation formation. A household’s economic mood—the emotional component of consumer sentiment that macroeconomic fundamentals cannot explain—shapes how firmly it holds on to its past inflation beliefs. Attention to new information works as in the benchmark. We estimate the model on Michigan Survey microdata from 1978 to 2025. A more positive mood weakens belief persistence in both income groups. Low-income households, however, are about two and a half times as sensitive as high- income households. The affective channel substantially improves the fit of the model and lowers long-run expected inflation below the limited-attention benchmark. The results are robust across estimators, measures of mood and demographic groups, and in an extension where mood also shapes how current inflation is read. For monetary policy, the households most exposed to inflation are also those whose expectations are most sensitive to their emotional state. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:toh:dssraa:155 |
| By: | Severin Joho; Enzo Rossi |
| Abstract: | We compiled and processed a novel, comprehensive dataset of 1, 063 speeches delivered by high-ranking Swiss National Bank officials between 1928 and 2024. Beyond tracking their quantitative evolution, we conducted an in-depth analysis of the length, readability and thematic content. To ensure robust results, we benchmarked traditional Python-based NLP text mining against generative artificial intelligence using ChatGPT. Our findings highlight four primary policy insights. First, the frequency of annual speeches has followed an upward trajectory since the mid-1950s, accelerating notably after the transition to flexible exchange rates. Second, a clear shift toward brevity is evident. Third, the language has become increasingly accessible since the 1960s. Fourth, inflation has moved to the forefront of the thematic discourse in the era of flexible exchange rates, while cyclical economic development and unemployment have received less emphasis. Finally, we outline key methodological lessons for deploying LLMs to analyze central bank communication, emphasizing the complementary relationship between probabilistic language models and deterministic Python frameworks, while addressing inherent algorithmic pitfalls and identifying critical open questions for future research. |
| Keywords: | Central bank speeches, Linguistic Analysis, Natural Language Processing (NLP), ChatGPT |
| JEL: | E52 E58 D83 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2026-13 |
| By: | R. Anton Braun; Daisuke Ikeda |
| Abstract: | Routine variation in household labor supply, consumption, saving, and portfolio choice decisions over the lifecycle influences aggregate economic activity in an aging society because the size of different age groups changes. In rapidly aging societies such as Japan, this mechanism produces an aging trap. The inflation rate is low or negative. Real interest rates and per capita output are also persistently low. Unlike inflation, they resist monetary and fiscal stimulus. Monetary policy can offset the decline in the inflation rate, but neither aggressive central bank interest rate policies nor large increases in the public debt–output ratio offset the persistent declines in real interest rates and output. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-019e |
| By: | Louphou Coulibaly; Charles Engel |
| Abstract: | We examine optimal non-cooperative monetary policy in a two-country New Keynesian setting with complete financial markets and pricing to market for goods. In contrast to the case in which the law of one price holds for goods, currency misalignments are an important consideration even for self-oriented policymakers. Financial markets are critical in the analysis. Under “full” commitment, the optimal policy considers the effects on asset values and hence wealth distribution across countries. Optimal policy under full commitment differs from the “partial” commitment case in which the policy commitment is not made until after asset markets clear. Surprisingly, the optimal targeting rule under strategic policy with full commitment is the same as under cooperative policy. In this setting, changes in state-contingent claim prices offset the wealth a self-oriented policymaker might seek through terms-of-trade manipulation, and we show that there are no gains from cooperation. Although a policy chosen under partial commitment may be desirable from a country’s perspective, the resulting Nash equilibrium yields lower welfare. |
| JEL: | E44 E52 F31 F41 F42 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35928 |
| By: | Yiru Chen; Muhammad Ali Nasir; Xingjie Wei |
| Abstract: | Given the important role of the Federal Reserve Chair, their communications may generate substantial cross-border effects on international financial markets. Building on this perspective, this article investigates whether emotional signals conveyed by the Fed Chair during FOMC post-meeting press conferences generate emotional spillovers to global financial markets. Using press conferences held between 2011 and 2025, we construct multimodal emotional indices from textual, vocal, and facial cues using machine learning techniques, and examine their high-frequency effects on exchange rates and equity markets across six major economies. Using local projection methods with minute-level event windows, the results show that Fed Chair emotional signals have immediate and economically significant impacts on global financial markets. Among different modalities, facial and textual emotions exhibit stronger and more robust effects than vocal signals. In particular, positive emotional cues are generally associated with increases in equity ETF returns, while exchange rate responses display substantial cross-country heterogeneity, with emerging market currencies tending to appreciate. We also provide evidence that the effects of emotional cues are non-additive and depend on cross-modal interactions, with vocal signals conditioning the impact of textual and facial emotions. Moreover, the findings show that the transmission of emotional spillovers is shaped by macro-financial vulnerability and global risk conditions. On the one hand, economies with higher vulnerability exhibit stronger responses to emotional shocks, indicating that macro-financial vulnerability acts as a moderating mechanism. However, the effects of emotional signals, especially facial and textual emotion, are amplified during periods of higher global uncertainty. Our main findings remain robust across several robustness checks. In particular, for vocal and facial emotions, coefficient equality is not rejected in 85.8% and 78.3% of the market horizon comparisons, respectively, indicating that the main findings are not systematically driven by the choice of emotion extraction algorithms. |
| Keywords: | central bank communication, multimodal signals, emotional spillover, high-frequency identification, machine learning, facial emotion analysis |
| JEL: | E44 E52 E58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-86 |
| By: | Udaibir S. Das (Official Monetary and Financial Institutions Forum; Observer Research Foundation America); David A. Grigorian (Mossavar-Rahmani Center for Business and Government, John F. Kennedy School of Government, Harvard University; Center for Global Development) |
| Abstract: | Domestic debt restructuring (DDR) in emerging markets and developing economies is a monetary and financial event as much as a fiscal one. DDR reallocates losses across three interconnected balance sheets—the sovereign, the central bank, and domestic financial institutions—impairing monetary policy through four channels: the central bank balance sheet, government securities markets, bank credit, and policy credibility. Cross-country evidence from 17 DDR episodes shows that the money multiplier falls below its pre-restructuring level in most episodes, with the compression concentrated in multi-year restructurings, and that banks’ discretionary reserve buffers thin around the restructuring year. Three recent cases—Jamaica (2010), Barbados (2018–19), and Ghana (2022–24)—show that vulnerability to monetary impairment is shaped, among other factors, by the pre-DDR monetary framework and the degree of prior fiscal dominance, and that recovery of monetary transmission is the most uncertain post-DDR outcome. The design lesson is that DDR is constrained optimization: success requires not only reducing debt service but preserving the monetary and financial system capable of supporting economic recovery. |
| Keywords: | domestic debt restructuring, monetary policy, central bank recapitalization, Jamaica, Barbados, Ghana |
| Date: | 2026–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:wpaper:759 |
| By: | Christian Conrad; Julius Schoelkopf; Michael Weber; Frank Brueckbauer |
| Abstract: | Professional forecasters' heterogeneous narratives about how inflation affects stock markets in 2023 rationalize their high disagreement regarding quantitative expectations for 12-month-ahead inflation and stock returns in December 2022. Professional forecasters causally update their return expectations in heterogeneous directions in response to information about the inflation outlook, depending on the narrative they entertain. Moreover, the narratives also affect their asset allocation in a hypothetical portfolio-choice experiment. Providing common signals does not necessarily lead to convergence of beliefs if agents subscribe to different narratives. |
| Keywords: | narratives, expectation formation, inflation, beliefs, monetary policy, subjective models, RCT, inflation expectations, return expectations |
| JEL: | D83 D84 E31 E44 E52 E71 G11 G12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13076 |
| By: | Corey Feldman; Thomas B. King |
| Abstract: | We quantify the effects of uncertainty about the conduct of monetary policy on asset prices. Nominal yields, real yields, stock returns, and implied volatilities all vary more on days with FOMC communication than on FOMC “blackout” days, consistent with policy communication being a source of risk. Furthermore, these asset prices all respond significantly to changes in interest-rate uncertainty around FOMC announcements, consistent with that risk being priced. A New Keynesian model with stochastic variation in the policy rule quantitatively matches this evidence. Our model shows that monetary-policy risk contributes to excess returns on equities and nominal bonds and accounts for much of the risk premium on inflation-indexed bonds. Transitory increases in monetary-policy risk lower stock and bond prices, reduce inflation-risk premia, and generate macroeconomic weakness similar to that produced by aggregate-demand shocks. The effective lower bound on interest rates reduces the size of monetary-policy risk in the model but magnifies its asset-pricing consequences, consistent with the data. We use our model to assess the effects of the increase in monetary-policy risk that occurred following the rapid tightening of policy in 2022. |
| Keywords: | monetary policy risk; Monetary policy uncertainty; Asset pricing; Risk premia; interest rate volatility; Monetary policy communication |
| JEL: | E43 E44 E52 E58 G12 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103966 |
| By: | Étienne Farvaque; Alexander Mihailov; Piotr Stanek |
| Abstract: | This paper examines whether the National Bank of Ukraine’s policy remained rule-like through institutional reform, external constraints, and war. Using monthly data for 2009–2026, we estimate dynamic open-economy Taylor-type rules with inflation, economic activity, exchange-rate, and regime-interaction terms. Policy-rate persistence is strong, while the estimated inflation response changes across regimes and is largest during the full-scale war. The largest rule deviations occur during the 2015 currency crisis, the initial 2022 policy-rate freeze, and the June 2022 tightening. Descriptive event accounting links these episodes to institutional and geopolitical constraints. The evidence is consistent with state-contingent adaptation rather than a wholesale suspension of rules, with implications for monetary credibility and Ukraine’s prospective European integration. Cette étude examine dans quelle mesure la politique monétaire de la Banque nationale d’Ukraine est demeurée fondée sur des règles malgré les réformes institutionnelles, les contraintes extérieures et la guerre. À partir de données mensuelles couvrant la période de 2009 à 2026, les auteurs estiment des règles de politique monétaire dynamiques de type Taylor, adaptées à une économie ouverte, qui intègrent l’inflation, l’activité économique, le taux de change ainsi que des termes d’interaction liés aux différents régimes. Les résultats révèlent une forte persistance du taux directeur, tandis que la réaction estimée de la politique monétaire à l’inflation varie selon les régimes et atteint son niveau le plus élevé durant la guerre à grande échelle. Les écarts les plus importants par rapport aux règles sont observés lors de la crise de change de 2015, du gel initial du taux directeur en 2022 et du resserrement monétaire de juin 2022. Une analyse descriptive des événements permet de mettre ces épisodes en relation avec les contraintes institutionnelles et géopolitiques. Les résultats sont compatibles avec une adaptation de la politique monétaire aux circonstances plutôt qu’avec un abandon généralisé des règles, ce qui soulève des enjeux importants pour la crédibilité de la politique monétaire et les perspectives d’intégration européenne de l’Ukraine. |
| Keywords: | Taylor-type rules, Ukraine, exchange-rate stabilization, inflation targeting, geopolitical risk, wartime monetary policy, National Bank of Ukraine, règles de type Taylor, Ukraine, stabilisation du taux de change, ciblage de l’inflation, risque géopolitique, politique monétaire en temps de guerre, Banque nationale d’Ukraine |
| JEL: | E52 E58 F31 F41 O52 P34 |
| Date: | 2026–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:cir:cirwor:2026s-19 |
| By: | Alessandro Villa |
| Abstract: | An AI productivity boom can warrant lower nominal rates even when most gains are anticipated. I derive analytical representations of optimal rates under commitment and discretion in an economy with sticky prices and wages and hand-to-mouth households. Holding the realized productivity path fixed, I vary expectations. Anticipated gains raise the natural rate, but below-target inflation supports real wages and keeps nominal rates lower. Surprises leave the natural rate unchanged, calling for cuts. After surprises, expected redistribution toward hand-to-mouth households calls for deeper rate cuts to sustain savers’ spending. Raising rates requires more anticipation when wages are stickier relative to prices. |
| Keywords: | Optimal monetary policy; Sticky-prices; Hand to mouth |
| JEL: | D84 E25 E31 E52 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103965 |
| By: | Schmitz, Luca |
| Abstract: | This paper develops a High-Dimensional Distributional Vector Autoregression (HiDVAR), a real-time, data-rich framework for forecasting the joint predictive distribution of GDP growth, inflation, and unemployment without imposing a parametric density shape. The motivation is policy risk monitoring: standard quantile-to-density pipelines can compress one-sided inflation risks in turbulent periods, especially when they rely on restrictive distributional modeling or forecast anchors. HiDVAR combines distribution regression (many binary threshold models), local projections, elastic-net shrinkage, and factor-based information extraction from an augmented real-time FRED-QD panel, and then constructs coherent multivariate, path-consistent scenarios using a triangular factorization and copula-based simulation. In real-time out-of-sample evaluation (February 2013-June 2025), HiDVAR improves probabilistic forecast accuracy relative to the FRBNY Outlook-at-Risk framework and standard benchmarks, with the largest gains concentrated in inflation tail-risk assessment. Relative to the FRBNY model, HiDVAR reduces CPI inflation CRPS by 28% and the multivariate Energy Score by 22%, with a weakly significant Energy Score improvement in Diebold-Mariano tests. During the post-pandemic inflation surge, HiDVAR assigns substantially more probability mass to persistent high-inflation outcomes and produces earlier, better-calibrated upper-tail risk signals. A policy application maps the predictive distributions into risk-scenario probabilities and rule-implied policy-rate distributions, illustrating the value of flexible density forecasting for macro risk monitoring. |
| Keywords: | Inflation, Forecasting and Simulation: Models and Applications, Central Banks and their policies, Nonparametric methods, Time-Series Models, Forecasting, Large Data Sets |
| JEL: | E31 E37 E58 C14 C32 C53 C55 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:344237 |
| By: | Masao Fukui; Masayuki Yagasaki |
| Abstract: | We trace the impact of central bank stock purchases by exploiting discontinuities in the Bank of Japan's policy rule, which triggers purchases when stock market index movements fall below a threshold. In normal times, the purchases raise the long-term interest rate while leaving no detectable impact on stock prices. After the introduction of yield curve control, which pegs the long-term yield at 0%, interest rates stop responding and stock prices rise robustly following the purchases. Although these results are inconsistent with the inelastic market hypothesis in its original form, general equilibrium extensions with endogenous interest rates explain our findings. |
| JEL: | E0 G0 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35886 |
| By: | Farina, Tatiana; Franke, Günter; Konow, Felix-Julius; Krahnen, Jan Pieter; Langenbucher, Katja; Lindner, Vincent; Lüders, Erik; Straka, Max; v. der Decken, Jasper |
| Abstract: | The review of the Markets in Crypto-Assets Regulation (MiCAR) takes place in European policy environment shaped by competitiveness and a global payment landscape shaped by geoeconomic competition. This paper contributes to the ongoing political discussion on stablecoins with a number of recommendations. First, it advocates for alignment of reserve-requirements of MiCAR-compliant stablecoins with rules similar to the US-GENIUS Act, thereby replacing the need to hold reserves in bank deposits with high-quality liquid assets (HQLAs). Second, it calls for an equivalence and recognition regime to mitigate the financial stability risk arising from multi-issuance; third, it emphasizes that stablecoins and the digital euro are not mutually exclusive. The digital euro remains an important tool to prevent dollarisation and to achieve strategic payments autonomy. Finally, it proposes to shift supervision of crypto-asset service providers (CASPs) to the European Securities and Markets Authority (ESMA) as stress-testing and reliable data collection can be undertaken more efficiently at Union level. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:344247 |
| By: | Jiaqi Li |
| Abstract: | How costly are cross-border payments for firms? Using proprietary FXC Intelligence data on quoted prices for Canadian business-to-business cross-border payments, this note documents three empirical facts. First, cross-border payment costs for firms are costly: banks charge senders a total margin of around 2–3.5% of transaction value, with foreign exchange margins accounting for the majority of these costs relative to transaction fees. Second, payment costs for vehicle currencies tend to be lower. Third, for the same corridor and transfer amount, prices differ substantially across banks, and the size of this dispersion is corridor-specific. |
| Keywords: | Money and payments; Payment and financial market infrastructures; Retail payments |
| JEL: | E E4 E42 F F2 F29 Y Y1 Y10 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-49 |
| By: | Sriya Anbil; Sebastian Infante; Zeynep Senyuz |
| Abstract: | When the Federal Reserve shifted to an ample-reserves framework, many observers started to question the relevance of the fed funds market. With reserves ample or abundant and rates anchored by administered floors, interbank borrowing declined sharply, and the market appeared to serve mainly as an arbitrage venue for non-bank institutions. |
| Date: | 2026–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103969 |
| By: | Oliver Pfäuti; Edson Wu |
| Abstract: | How do high public debt and fiscal uncertainty interact to shape inflation? We develop a model in which firms face uncertainty about both marginal costs and fiscal policy and choose how much information to acquire before setting prices. Higher debt raises steady-state taxes, affecting attention through two opposing forces. While these taxes reduce the profit stakes of mispricing, they make desired prices more sensitive to tax fluctuations, increasing the value of information. The interaction generates a U-shaped relationship between public debt and attention, and therefore between debt and inflation volatility. Using euro-area firm-level expectations data, we document that the passthrough of expected input-cost growth into expected selling-price growth rises systematically with a country's debt-to-GDP ratio, consistent with the model. In the calibrated general-equilibrium model, an increase in debt from 100% to 175% of GDP raises inflation volatility by about 20%, mainly because firms reallocate attention toward fiscal shocks. |
| Keywords: | inattention; price setting; fiscal policy; inflation; uncertainty |
| JEL: | D83 E31 E52 E62 E70 |
| Date: | 2026–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103954 |
| By: | Bohou Cai; Liugang Sheng; Hongyan Zhao |
| Abstract: | We study how news shocks affect inflation in open economies, using large oil and gas discoveries with realized production lags of at least five years as observable news about future output. Panel local projections show that discoveries raise core consumer prices over the subsequent decade, with about half the increase occurring prior to extraction. The response is driven by nontradables, while tradable and producer prices barely respond. The real exchange rate appreciates persistently and real activity expands ahead of extraction, while the current account first deteriorates and then improves as new oil comes online. The inflationary response is concentrated under inflexible exchange-rate regimes but muted under flexible ones. A three-sector New Keynesian small open economy model rationalizes these findings through competing demand and exchange rate channels, with exchange-rate policy determining which force dominates. |
| Keywords: | news shocks, inflation, oil discoveries, New Keynesian model, small open economy, exchange-rate regimes |
| JEL: | E31 E32 E52 F41 Q32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1389 |
| By: | Ali Hortaçsu; Younggeun Yoo |
| Abstract: | We study institutional cash management by constructing a novel dataset that records the specific money market funds (MMFs) held by each mutual fund in each month from 2010 to 2024. We document remarkably high inertia: more than half of mutual funds never switched their MMF choice throughout the sample period, despite non-negligible yield dispersion. To decompose the sources of this inertia, we develop a two-stage structural model that separately identifies the determinants of portfolio managers’ attentiveness (“waking up”) and their conditional preferences once attentive. We estimate the model using a methodology that combines BLP-style contraction mapping with maximum likelihood. We establish three main findings. First, MMFs with less attentive investor bases engage in greater liquidity transformation while offering lower yields. As a result, they earn higher profits and exhibit significantly higher survival rates, especially during periods of low interest rates. Second, we find that aggregate flows appear more yield-sensitive during low interest rate periods (the well-documented “reaching for yield” phenomenon) not because individual investors become more yield-seeking, but because a larger fraction of investors becomes attentive—a composition effect rather than a preference shift. Third, counterfactual analysis reveals a potential tension between market efficiency and financial stability if AI-driven automation reduces investor inattention. In the absence of inattention, fees fall by approximately half, yield dispersion collapses to near zero, and market concentration declines by roughly 20%, but monthly fund flows increase by about three times and the incidence of fund-months in which redemptions exceed a fund’s weekly liquid assets rises by about six times, raising the risk of fire sales and MMF runs. |
| JEL: | G11 G23 L10 O33 D83 E52 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35954 |
| By: | Lavender, S. |
| Abstract: | This paper shows how the design of fiscal policy and the characteristics of government debt can drive significant differences in monetary transmission within and across countries with different fiscal contexts, and across models with different fiscal specifications. Using a tractable HANK model, I derive analytical expressions for the effects of fiscal policy on monetary transmission as the sum of three channels: a debt service channel, a debt composition channel, and a fiscal cyclicality channel. The magnitudes and directions of these channels are strongly context dependent, being determined by the interactions between the size and composition of government debt, the choice of fiscal rule, the progressivity of the marginal fiscal instrument, and the distribution of government debt ownership. For a given fiscal block used in a theoretical model, or for a given fiscal context observed in the data, the framework explains when the fiscal channels are large or small, and why they amplify or dampen monetary policy. |
| Keywords: | Monetary-Fiscal Interactions, HANK Models, Government Debt |
| JEL: | E52 E62 E63 |
| Date: | 2026–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2683 |
| By: | Angelos Athanasopoulos (Central Bank of Ireland); Nicolo Fraccaroli (World Bank and Brown University); Andreas Kern (Georgetown University); Davide Romelli (Department of Economics, Trinity College Dublin) |
| Abstract: | We study how reforms that tighten statutory limits on central‐bank lending to government affect sovereign borrowing in 155 countries over 1972‐2023. Using instrumental‐variable local projections, we estimate their effects on public debt and real effective implicit interest rates. We find that in developing economies tighter constraints raise debt‐to‐GDP while reducing real borrowing costs. A median‐sized reform temporarily increases debt‐to‐GDP by about 12 percentage points at its two‐year peak, and lowers the real effective implicit interest rate by roughly 6 percentage points after five years, an effect that persists over the ten‐year horizon. Foreign‐held external public debt also rises persistently. Advanced economies show a smaller debt response of the opposite sign and no decline in borrowing costs. The real‐rate decline persists under alternative debt denominators and relative to the United States. State‐dependent estimates show that lower borrowing costs are strongest in high‐inflation developing economies, consistent with statutory lending constraints improving sovereign borrowing conditions where credibility gains are greatest. |
| Keywords: | central bank independence; government debt; interest rate; sovereign lending; central bank governance |
| JEL: | E58 G28 N20 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep2226 |
| By: | Evans, Alexander |
| Abstract: | This paper explores whether the US dollar’s dominance in global finance – long a pillar of American geopolitical influence – is being quietly eroded. While the dollar remains the world’s primary reserve currency, its centrality in international payments is increasingly contested. The weaponisation of the dollar, particularly through sanctions and the extraterritorial reach of the New York banking licence, has prompted strategic responses from states such as China, Russia, and India. These strategic responses include the development of alternative payment systems, local currency trade settlements, and digital infrastructure. The paper argues that a ‘hollowing’ of the dollar’s infrastructural dominance is underway – (perhaps very) gradual, partial, but geopolitically significant. This shift may not end dollar supremacy, but it could fragment the global financial system, weaken US sanctions leverage, and diminish the centrality of New York and London as financial hubs. The implications for global order are subtle but potentially profound. A less dollar-dependent system may facilitate a more multipolar world yet diminish liberal democratic power. |
| JEL: | F3 G3 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141656 |
| By: | Gabriele Galati; Fulvia Marotta; Richhild Moessner; Maarten van Rooij |
| Abstract: | This paper studies how views on climate change shape household inflation expectations. Us-ing a new representative survey of Dutch households, we elicit perceptions of climate change, the green transition and climate policies, and their expected effects on long-run inflation. House-holds expect climate change, the green transition and three types of climate policies – carbon pricing, support for the green transition and support for green innovation – to raise inflation and inflation volatility over the next ten years. Climate change is expected to have the largest effect, while support policies are expected to have the smallest. These results suggest that climate-related beliefs are linked to the anchoring of inflation expectations and that support policies for the green transition and green innovation may facilitate the net-zero transition while keeping in-flation expectations relatively well anchored. We also document significant heterogeneity across households. Expected inflationary effects of climate change are larger among respondents who anticipate more severe global warming and extreme weather. Climate-related inflation concerns are widespread across demographic groups. |
| Keywords: | climate change; green transition; climate policy; inflation; household expectations. |
| JEL: | E31 E58 Q48 Q54 Q55 Q58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:875 |
| By: | Sebastian Doerr; Gaston Gelos; Vesa Pursiainen |
| Abstract: | We study the role of bank liquidity regulation in the growth of private credit. Following the introduction of the liquidity coverage ratio (LCR), private credit increases significantly more in U.S. counties with a larger footprint of banks subject to the LCR or of LCR banks with greater initial liquidity shortfalls. Our estimated effect of the LCR on private credit growth is comparable in economic magnitude to that of the increased capital requirements from the 2012 CCAR stress tests. Consistent with loan supply effects, the relationship between banks’ LCR footprint and private credit is stronger in industries that are more reliant on credit. |
| Keywords: | private credit, liquidity regulation, liquidity coverage ratio, nonbank lending |
| JEL: | G21 G23 G28 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1388 |