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on Monetary Economics |
| By: | Andrew Martinez; Tara Sinclair |
| Abstract: | Recent advances in high-frequency identification of monetary policy shocks reveal that measures are contaminated by information and news effects. We contribute to this literature by incorporating the intermittent release of central bank projections, i.e. the Summary of Economic Projections (SEP). We develop a theoretical framework showing that forecast releases amplify monetary policy surprises by providing additional information beyond what is conveyed through interest rate decisions alone and by anchoring expectations during non-release meetings. We confirm empirically that monetary policy surprises following SEP releases are typically 1.5 to 2 times larger than those without releases. To identify the information channel, we construct novel SEP surprise measures using a Bloomberg survey of market expectations about Federal Reserve projections. SEP surprises explain about 30 percent of the variation in monetary policy surprises during SEP meetings and account for essentially all of the differences between SEP and non-SEP meetings. Finally, to validate that SEP surprises contain economically meaningful information, we show that individual forecasters update their expectations of core PCE inflation in response to both common and their own idiosyncratic SEP surprises. |
| Keywords: | Monetary Policy Shocks; High Frequency Identification; Empirical Monetary Economics |
| JEL: | E52 E58 E31 E32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2025-013 |
| By: | Engin Kara |
| Abstract: | I identify the natural rate of inflation: the threshold where signal-to-noise crosses unity. Extending Lucas (1972), I show that when inflation falls below sectoral volatility, firms cannot distinguish aggregate from idiosyncratic shocks. Sticky-price firms rationally filter out competitor price movements, creating endogenous stability. When inflation exceeds the natural rate, filtering ceases, coordination increases, and inflation becomes self-reinforcing. Using six million UK micro-price observations, I estimatethis threshold at 1.9%. Crossing it triggers a regime shift: price dispersion falls 10%, inflation persistence jumps from near-zero to 0.44, and monetary policy loses traction. These findings validate 2% targets as the limit of self-correction. |
| Keywords: | inflation targeting, strategic pricing, behavioural thresholds, sectoral volatility, monetary policy, price complementarity |
| JEL: | E31 E52 E58 D21 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12306 |
| By: | Emilio Ocampo; Nicolás Cachanosky |
| Abstract: | This paper investigates a puzzle in the behavior of the money supply in Ecuador after it formally adopted the US dollar as its currency in January 2000. Modern open economy macroeconom-ics (MOEM) predicts that in a small open economy under an official dollarization regime, the money supply is endogenous to movements in the balance of payments. However, Ecuador’s monetary and balance of payment statistics suggest otherwise. This incongruity has led some authors to claim that MOEM does not hold in Ecuador. We challenge this claim and argue that three factors can explain the apparent puzzle: a) monetary data misspecification, b) measure-ment errors in foreign trade flows, and c) an exogenous expansion of its balance sheet of the Central Bank of Ecuador’s (CBE) during the period 2009-2014 to finance government deficits. We conclude that Ecuador’s experience under dollarization is consistent with a key prediction of MOEM: inflation convergence. However, it also shows that the constraints that in theory an official dollarization places on fiscal profligacy and monetary activism can be overcome by creative spendthrift politicians. Finally, we highlight the challenge of measuring cash in econo-mies that are dollarized or are part of a currency union and the need to consider the institutional and regulatory framework adopted for the central bank after dollarization to understand the monetary dynamics of an officially dollarized economy. |
| Keywords: | money supply; dollarization |
| JEL: | E42 E59 O54 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:898 |
| By: | Adina-Elena Fudulache (EUROPEAN CENTRAL BANK AND GOETHE UNIVERSITY FRANKFURT); María del Carmen Castillo Lozoya (BANCO DE ESPAÑA) |
| Abstract: | We exploit banks’ early repayments of targeted longer-term refinancing operations (TLTRO) following the program’s recalibration in October 2022 as a laboratory to uncover demand drivers of central bank liquidity. We formulate and estimate a discrete-time hazard model to early exit from TLTRO to identify what bank (country) characteristics drive a sticky, prolonged demand for central bank (long-term) operations as opposed to an early exit from such facilities. We also examine whether the more liquidity-risk exposed banks during the TLTRO phasing out period had a higher probability of becoming “liquidity dependent” on the ECB when exiting (Acharya et al., 2023). Finally, we discuss the policy implications of our findings, particularly in the context of the recent review of the ECB’s operational framework. |
| Keywords: | monetary policy normalisation, TLTRO, demand-driven operational frameworks, discrete-time hazard models |
| JEL: | E52 E58 G21 C41 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2548 |
| By: | boughabi, houssam |
| Abstract: | This research paper looks at the different economic factors that affect foreign investments in Zimbabwe, specifically the interaction between foreign investment and inflation changes. It delves into how central bank policy, in the face of erratic inflation, can affect the duration and the change of investment patterns in a macroeconomic environment full of uncertainties. The model presented in this paper embodies the interaction among inflation thresholds, money supply reactions, and capital inflows, thus depicting the scenarios of macroeconomic fragility due to late policy adjustments to structural shocks. The empirical analysis reveals an optimal inflation threshold of A*=3.02, beyond which real investment begins to decouple from monetary policy, and a neutral policy coefficient of a*=0.0000, indicating the complete erosion of policy traction under hyperinflation. These results suggest that Zimbabwe’s monetary authorities faced a regime in which stabilization efforts were rendered ineffective, emphasizing the importance of credibility restoration for regaining investment responsiveness. The findings pinpoint the issues of achieving a perfect equilibrium between inflation control and investment stimulation in a market environment with price instability. |
| Keywords: | Inflation threshold, Foreign investment, Monetary policy, Economic fragility, Zimbabwe. |
| JEL: | E31 E52 F21 O55 |
| Date: | 2025–11–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126785 |
| By: | Francesco De Sinopoli; Leo Ferraris; Claudia Meroni |
| Abstract: | In an insightful paper entitled Some Unpleasant Monetarist Arithmetic, Sargent and Wallace (1981) have argued that, when monetary and fiscal policy are not coordinated, inflation can get out of control if the monetary authority does not impose discipline on the fiscal authority. This paper shows that discipline can be reciprocal if the policy interaction is repeated and the rationality of the authorities is fully taken into account through the equilibrium concept. |
| Keywords: | Policy coordination, chicken game, forward induction |
| JEL: | C72 E31 E52 E63 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:562 |
| By: | Christian Buelens; Staffan Lindén |
| Abstract: | This paper looks at household inflation attention in the euro area, using the European Commission's Business and Consumer Survey. The main contributions are to measure inflation inattention and its drivers and to illustrate how inflation inattention differs across socio-economic categories (gender, income, education and age). We use two measures: self-reported inflation inattention, corresponding to the share of `don't know' responses and a new index of revealed inflation attention. This index assesses how well consumer inflation perceptions match actual inflation outturns and takes into account biases by survey participants. We find that inflation attention increases with inflation, and accelerates when inflation exceeds a certain level. Our results also show that inflation perceptions and expectations change not only due to revisions in views, but also because individuals switch from having no view to holding a view when inflation is high. We also find that there are structural differences in inflation inattention across socio-economic categories, which are closely related to the overestimation of inflation in these categories. These findings have implications for the interpretation of inflation perceptions and expectations and are relevant for the targeting of policy communication towards specific groups and depending on the inflation environment. |
| JEL: | C81 D83 D84 E31 E7 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:225 |
| By: | Husnu C. Dalgic; Galip Kemal Ozhan |
| Abstract: | This paper argues that currency risk premia are an endogenous outcome of a country’s fundamental trade and financial structures. Empirically, we isolate global risk factors from currency returns and show that a country’s exposure to these factors is jointly determined by its share of dollar invoicing and its net foreign debt position. We then develop a small open-economy model with dominant-currency pricing (DCP) and dollar-denominated liabilites to explain the underlying mechanism. The model demonstrates that empirically plausible risk premia require the interaction of both frictions. High dollar invoicing mutes the expenditure switching channel, while high dollar debt creates a potent, contractionary financial channel. Together, these frictions make currency depreciations recessionary (countercyclical), rendering the currency a poor hedge and "risky" for investors. We show this has a first-order policy consequence: the resulting risk premium raises the economy’s neutral interest rate, leading to structurally high inflation under a standard Taylor rule. Our results show how trade and financial frictions jointly create currency risk and pose a fundamental challenge for monetary policy |
| Keywords: | Currency returns, dominant currency pricing, uncovered interest parity, inflation, dollar debt. |
| JEL: | E44 F32 F41 G15 G21 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_717 |
| By: | Michael Barczay; Mr. Shafik Hebous; Fayçal Sawadogo; Jean-François Wen |
| Abstract: | Mobile money has become a central digital alternative to traditional banking in developing countries, yet several African governments have introduced taxes on mobile money transactions. We develop a model that characterizes how such taxes affect payment choices and generate excess burden. The model predicts that taxation reduces mobile money use, with elasticities shaped by access to substitutes and transaction costs: banked users substitute into formal alternatives, while unbanked users face higher effective costs, making the tax regressive. Taxation also induces substitution into cash, raising informality. We empirically test these predictions using cross-country survey data and novel transaction-level data from Cameroon, the Central African Republic, and Mali. Results show sharp declines in mobile money usage, with stronger responses among the banked. Unbanked and rural users bear a disproportionate burden. We use the empirical estimates to gauge the excess burden of the tax, which we quantify at 35% of revenue—highlighting its significant efficiency cost alongside its regressive impact. |
| Keywords: | Mobile Money Tax; Financial Inclusion; Transaction Taxes |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/255 |
| By: | Chao Gu (University of Missouri); Janet Hua Jiang (Bank of Canada); Liang Wang (University of Hawaii) |
| Abstract: | We construct a New Monetarist model with labor market search and identify two channels that affect the long-run relationship between inflation and unemployment. First, inflation lowers wages through bargaining because unemployed workers rely more heavily on cash transactions and suffer more from inflation than employed workers; this wage-bargaining channel generates a downward-sloping Phillips curve without assuming nominal rigidity. Second, inflation increases firms' financing costs, which discourages job creation and increases unemployment; this cash-financing channel leads to an upward-sloping Phillips curve. We calibrate our model to the U.S. economy. The improvement in firm financing conditions can explain the observation that the slope of the long-run Phillips curve has switched from positive to negative post-2000. |
| Keywords: | Credit Conditions, Inflation, Liquidity, Money, Phillips Curve, Unemployment |
| JEL: | E24 E31 E44 E51 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202503 |
| By: | Marijn A. Bolhuis; Mr. Francesco Grigoli; Marcin Kolasa; Mr. Roland Meeks; Mr. Andrea F Presbitero; Zhao Zhang |
| Abstract: | Emerging markets have shown remarkable resilience during risk-off episodes in recent years. While favorable external conditions—good luck—contributed to this resilience, improvements in policy frameworks—good policies—played a critical role in bolstering the capacity of emerging markets to withstand the adverse consequences of these events. Improvements in monetary policy implementation and credibility have reduced reliance on foreign exchange (FX) interventions and capital flow management measures, and stricter macroprudential regulation also contributed to less FX interventions. Also, central banks have become less sensitive to fiscal interference and hold sway over domestic borrowing conditions. Looking ahead, countries with robust frameworks face easier policy trade-offs and are better positioned to navigate risk-off episodes. In contrast, economies with weaker frameworks risk de-anchoring inflation expectations and larger output losses if monetary tightening is delayed, especially when persistent price pressures emerge. In these settings, FX interventions offer only temporary relief and are less necessary when policy frameworks are sound. |
| Keywords: | Emerging markets; Risk-off shocks; Monetary policy; FX interventions |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/256 |
| By: | Giovanni Sciacovelli |
| Abstract: | This paper studies the role of adjustable-rate mortgages (ARMs) in monetary policy transmission within the Euro Area. Conventional wisdom holds that ARMs are relevant per se. This study finds that the presence of liquidity-constrained households strongly influences their impact. Using Euro Area survey data, I document that transmission is stronger in countries that exhibit both high ARM shares and sizable shares of liquidity-constrained households. To interpret this finding, I develop a heterogeneous-agent model featuring: (i) heterogeneity in marginal propensities to consume (MPCs), (ii) agents making both housing and mortgage choices, and (iii) a fraction of households with ARMs. In the model, MPCs determine the extent to which changes in mortgage payments translate into changes in consumption, making ARMs an important transmission vehicle only when paired with high MPCs. These results highlight that accounting for household heterogeneity in MPCs is essential to assess the strength of transmission through ARMs. |
| Keywords: | Adjustable-rate mortgages; Euro Area; household heterogeneity; marginal propensity to consume; monetary policy |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/257 |
| By: | David Worms |
| Abstract: | I document that high-frequency euro area monetary policy surprises – measured as changes in risk-free rates around the Eurosystem‘s policy announcements – are not exogenous to information regarding macroeconomic news and financial market developments that pre-date the announcements. More specifically, around 20% of the variation of surprises can be explained by pre-dated information. I show that the violation of the exogeneity of conventional surprise measures introduces a considerable bias into estimates on the effects of monetary policy on euro area macroeconomic outcomes. |
| Keywords: | High-Frequency Identification; Macro News; Monetary Policy |
| JEL: | E43 E52 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:850 |
| By: | Matthias Burgert; Matthieu Darracq Pariès; Luigi Durand; Mario Gonzalez; Romanos Priftis; Oke Röhe; Matthias Rottner; Edgar Silgado-Gómez; Nikolai Stähler; Janos Varga |
| Abstract: | This paper presents a novel model comparison to examine the challenges posed by changes in carbon-intensive energy prices for monetary policy. The employed environmental monetary models have a detailed multi-sector structure. The comparison assesses the effects of both a temporary and a permanent energy price increase with a particular focus on the euro area and the United States. Temporary and permanent price shocks are both inflationary. However, the inflationary impact of the permanent shock depends on the underlying model assumptions and monetary policy response. The analysis also establishes that these models share large commonalities in their quantitative and qualitative results, while also pointing out cross-country differences. |
| Keywords: | climate change, monetary policy, multi-sector models, model comparison, DSGE models |
| JEL: | C54 E52 H23 Q43 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1313 |
| By: | Greg Kaplan |
| Abstract: | I summarize insights from heterogeneous-agent New Keynesian (HANK) models on the interaction between fiscal and monetary policy, with a focus on the macroeconomic experience of the early 2020s. I highlight three features of HANK economies—heterogeneous marginal propensities to consume, the failure of Ricardian equivalence, and an upward-sloping steady-state asset supply curve—that alter how fiscal and monetary forces interact relative to representative-agent models. I discuss two domains of policy: the effects of fiscal stimulus on inflation and the price level, and the fiscal consequences of changes in nominal interest rates. I illustrate these mechanisms in the context of the Covid pandemic by presenting simuluations from the calibrated HANK model in Kaplan and Miyahara (2025), which evaluates counterfactual scenarios for the United States for output, inflation, and the price level under alternative policy responses. The analysis underscores that monetary and fiscal policy are inescapably intertwined, and that HANK models provide a useful framework for quantifying these interactions. |
| Keywords: | heterogeneous agents; HANK; monetary policy; fiscal policy; fiscal-monetary interactions; fiscal theory of the price level |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbaacp:acp2025-02 |
| By: | Beatrice Pataracchia; Philipp Pfeiffer; Marco Ratto; Jan Teresiński |
| Abstract: | We estimate a large-scale open-economy DSGE model to assess the role of energy commodity prices in euro area inflation and short-run output dynamics. The model features rich pass-through from energy import prices to consumer and producer prices, distinguishing between natural gas and crude oil and their use in both consumption and production. Transmission is quantified through direct effects on household energy consumption, indirect effects via energy as an intermediate input, and second-round general-equilibrium effects through, for example, wages and markups. Bayesian estimation suggests that in 2022, shocks to energy import prices alone added about 2 percentage points (pps) to inflation. Integrating broader energy measures increases this contribution to over half of the 2021–22 surge (to around 3 pps). Backward-looking indexation, often associated with wage–price spirals, is estimated to be limited. The post-2020 surge leaves substitution elasticities broadly unchanged but points to a steeper Phillips curve and slightly lower real wage rigidity. |
| JEL: | C51 E31 F41 Q43 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:233 |
| By: | Glen Kwende; Erin Nephew |
| Abstract: | This technical note presents a methodological change to the International Monetary Fund’s Currency Composition of Foreign Exchange Reserves (COFER) dataset. Using a combination of stratified mean imputation and carry-forward imputation, IMF staff construct a new COFER timeseries which allocates 100 percent of global foreign exchange reserves across currencies, eliminating the "unallocated" portion of the dataset. This change improves the analytical usefulness of the COFER dataset by providing a more complete and consistent time series, while also strengthening the confidentiality of individual country data. Overall trends in currency composition remain broadly unchanged, but the allocation of previously unallocated reserves leads to modest adjustments in currency shares. |
| Keywords: | Currency composition; Dollar; COFER dataset; IMF Library; analytical usefulness; usefulness of the IMF's COFER Data; IMF staff; views ofthe IMF; Currencies; International reserves; International liquidity; Reserve currencies; Global |
| Date: | 2025–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imftnm:2025/014 |
| By: | Yhlas Sovbetov |
| Abstract: | The empirical literature that covers Phillips Curve analysis during recessionary periods is notably scant. The Great Recession has rekindled a debate on the validity and stability of the Phillips Curve which is still ongoing. The basis for this debate is the observation that real activity dropped sharply without causing a drop in inflation. This paper carries out an empirical analysis for the classical expectation-augmented Phillips curve model across 41 countries from1980-2016 by distinguishing tranquil and recessionary periods separately. Based on the results of the research, the paper finds that dynamics of Phillips Curve changes during recessionary periods and the empirical relationship becomes no longer valid. These findings support the ongoing debate about the missing disinflation and collapse of the Phillips curve, but only during the recessionary periods. In the case of tranquil periods, the empirical relationship still seems to be valid. Moreover, the paper also observes that both backward-looking and forward-looking fractions of inflation gain weight and significance during recessionary periods. However, the paper remains indecisive about which exact fraction gains more weight and significance as the panel model does not incorporate these two fractions of inflation in a single hybrid framework simultaneously. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.01697 |
| By: | Ekaterina Shabalina |
| Abstract: | This paper studies how tax progressivity affects monetary policy. Through the lens of a heterogeneous agent model with nominal rigidities it shows that, firstly, higher tax progressivity increases natural rate due to a lower demand for precautionary savings. Secondly, the effect of tax progressivity on the potency of monetary policy is small with a higher progressivity implying a slightly better inflation-output trade-off. Distributional effects of monetary policy, however, are amplified with a higher tax progressivity. |
| Keywords: | tax progressivity; monetary policy transmission; natural rate of interest; heterogeneous agents |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbaacp:acp2025-03 |
| By: | Emilio Ocampo; Nicolás Cachanosky |
| Abstract: | Exchange rates reflect macroeconomic fundamentals, which in turn are regime dependent. In politically unstable countries, expectations of regime change can have a significant impact on exchange rate dynamics. We exploit Argentina’s unexpected 2019 primary election results as a natural experiment to gauge the impact of a change in such expectations. When populist candidate Alberto Fernández’s victory margin (15.6%) doubled pre-election polling predictions (7.2%), financial markets immediately recalculated the probability of a change in regime. Using parallel market exchange rates, we estimate that the real exchange rate differential between populist and non-populist regimes exceeds 100%. This large gap creates extreme political sensitivity: regime change expectations of 7-16% can trigger 10% exchange rate movements. Our findings help explain persistent exchange rate volatility in emerging economies and highlight the limitations of purely macroeconomic stabilization approaches when political sustainability is uncertain. |
| Keywords: | exchange rates, regime uncertainty, Argentina |
| JEL: | E42 E52 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:908 |
| By: | McWilliams, William N.; Isengildina Massa, Olga; Stewart, Shamar L. |
| Keywords: | Demand and Price Analysis, Agricultural and Food Policy, Risk and Uncertainty |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea24:343923 |
| By: | David Romer |
| Abstract: | This paper begins by reviewing the social insurance perspective on pandemic fiscal policy advocated by Romer and Romer (2022). It goes on to expand on Romer and Romer's discussion of insights from the social insurance perspective into how fiscal policy should respond to other recessions. It then turns to the implications for monetary policy. It shows that in the case of social insurance, the natural baseline is not coordination with fiscal policy, but a hierarchy of decisions: social insurance actions should be chosen first, followed by choices about conventional monetary policy, potentially followed by some combination of unconventional monetary policy and general fiscal stimulus. There are good reasons for monetary policy to not directly support the social insurance role of fiscal policy, but there is room for some exceptions. |
| Keywords: | social insurance; fiscal policy; monetary policy; hazard pay; policy coordination |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbaacp:acp2025-04 |
| By: | Yhlas Sovbetov; Muhittin Kaplan |
| Abstract: | The empirical literature provides mixed results on the relationship between inflation and unemployment, therefore, there is no consensus on validity and stability of the Phillips Curve. It also seems to be closely related with country-specific factors and the examination time periods. Considering the importance of this trade-off for policy-makers, this study aims to examine validity and stability of expectations-augmented Phillips Curve across 41 countries focusing on three different time periods between 1980 and 2016. The study documents several findings both in country-specific and in panel estimation analysis. First, we find that forward-looking characteristic of inflation picks up weight after 1990's which indicates that inflation became more sensitive to the expected prices. Second, we observe that inflation in developed markets is more forward-looking comparing to emerging and frontier markets. This indicates that developed markets dear forward-looking price expectations more than other markets. Third, we find that that both forward- and backward-looking Phillips Curve fails to work in Brazil, Greece, Indonesia, Mexico, South Africa, Romania, and Turkey. We address it to their long history of high and volatile inflation. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.22786 |
| By: | Brand, Claus; Goy, Gavin; Lemke, Wolfgang |
| Abstract: | Using a novel macro-finance model we infer jointly the equilibrium real interest rate r*, trend inflation, interest rate expectations, and bond risk premia for the United States. In the model r* plays a dual macro-finance role: as the benchmark real interest rate that closes the output gap and as the time-varying long-run real interest rate that determines the level of the yield curve. Our estimated r* declines over the last decade, with estimation uncertainty being relatively contained. We show that both macro and financial information is important to infer r*. Accounting for the secular decline in interest rates renders term premia more stable than those based on stationary yield curve models. A previous version of this paper by the same authors entitled “Natural rate chimera and bond pricing reality” has been published as ECB Working Paper No 2612. JEL Classification: E43, C32, E52, C11, G12 |
| Keywords: | arbitrage-free Nelson-Siegel term structure model, Bayesian estimation, equilibrium real rate, natural interest rate, term premia |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253160 |
| By: | José E. Bosca; Javier Ferri; Margarita Rubio |
| Abstract: | We study the macroeconomic and welfare consequences of bond preference convergence within a monetary union. Using a two-country DSGE model calibrated to Germany and Spain, we compare two scenarios: convergence toward Spanish bond preferences and convergence toward German bond preferences. The direction of convergence proves decisive. When preferences shift toward those of Spain, union-wide private debt expands, long-run GDP declines, and macro-financial volatility rises, though inflation volatility falls. Welfare increases for the union as a whole in this scenario, with Germany gaining the most and Spain benefiting more modestly. By contrast, convergence toward German bond preferences reduces union-wide private debt and output volatility, but generates only moderate welfare gains for Germany and significant welfare losses for Spain. These results highlight that financial convergence does not yield uniform benefits. Its consequences depend on both the direction of convergence and its distributional effects across countries and households. The findings also point to a trade-off between welfare and stability, underscoring the need for macroprudential tools and fiscal arrangements to manage the risks associated with deeper convergence in bond preferences. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:fda:fdaddt:2025-12 |
| By: | Biais, Bruno (HEC Paris); Rochet, Jean Charles (University of Geneva); Villeneuve, Stéphane (University of Toulouse 1) |
| Abstract: | In our dynamic general equilibrium model, agents can invest in money and in a production technology exposed to shocks. If the government is non-benevolent and has a monopoly over money issuance it issues too much money, to finance excessive public expenditures. We study the effects of a cryptocurrency in limited supply but with crash risk. If the crash risk is not too large, competition from the cryptocurrency constrains the government's monetary policy. If the government is non-benevolent, this constraint improves citizens welfare, but if the government is rather benevolent competition from the cryptocurrency can lower citizens' welfare. |
| Keywords: | Cryptocurrency; Hyperinflation; Dynamic General Equilibrium; Denationalisation of money |
| JEL: | E42 |
| Date: | 2025–05–18 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1568 |
| By: | John Beirne (Asian Development Bank); Nuobu Renzhi (Capital University of Economics and Business in Beijing) |
| Abstract: | This paper examines the effects of country-specific geopolitical risk on capital flow volatility and asset markets across 29 emerging and advanced economies over the period 2000–2023. Using panel regressions and a panel structural vector autoregression framework, the results show that geopolitical risk raises bond yields and leads to exchange rate depreciation, with stronger and more persistent effects in emerging economies. Asset markets for advanced economies are affected mainly through lower equity prices. The impact on capital flow volatility is slightly higher on average for advanced economies but remains more persistent for emerging economies. Greater financial development, higher central bank independence, and lower public debt mitigate the adverse effects of geopolitical risk on both capital flows and asset markets. These findings highlight the importance of strong macroeconomic fundamentals and institutional frameworks in building resilience against geopolitical shocks. |
| Keywords: | geopolitical risk;capital flow volatility;financial markets |
| JEL: | G15 G41 |
| Date: | 2025–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:021786 |
| By: | Yhlas Sovbetov; Muhittin Kaplan |
| Abstract: | Although empirical literature regarding the Phillips curve is sizeable enough, there is still no wide consensus on its validity and stability. The literature shows that the Phillips relationship is fragile and varies across countries and time periods; a statistical relationship that appears strong during one decade (country) may be weak the next (other). This variability might have some grounds for idiosyncrasy of a country and its economic environment. To address it, this paper scrutinizes the Phillips relationship over 41 countries over the period 1980-2016, paying attention to how inflation dynamics behave during tranquil and recessionary periods. As a result, the paper confirms the variability of the Phillips relationship across countries, as well as time periods. It documents that the relationship holds in the majority of developed countries, while it fails to hold in emerging and frontier economies during tranquil periods. On the other hand, the relationship totally collapses during recessionary periods, even in developed markets. This shows that tranquillity of economic environment is significantly important for the Phillip trade-off to work smoothly. Moreover, both backward- and forward-looking fractions of inflation remarkably increase during recessionary periods as a result of the Phillips coefficient loses its significance within the model. This indicates that markets become more inflation-sensitive during these periods. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.22785 |
| By: | Xiao Ling; Sourav Ray; Daniel Levy |
| Abstract: | Much like small ripples in a stream, which get lost in the larger waves, small changes in retail prices often fly under the radar of public perceptions, while large price changes appear as marketing moves associated with demand and competition. Unnoticed, these could increase consumers’ out-of-pocket expenses. Indeed, retailers could boost their profits by making numerous small price increases or by obfuscating large price increases with numerous small price decreases, thereby bypassing the consumer’s full attention and consideration, and triggering consumer fairness concerns. Yet only a handful of papers study small price changes. Extant results are often based on a single retailer, limited products, short time span, and legacy datasets dating back to the 1980s and 1990s – leaving their current practical relevance questionable. Researchers have also questioned whether the reported observations of small price changes are artifacts of measurement errors driven by data aggregation. In a series of analyses of a large dataset (almost 79 billion weekly price observations from 2006 to 2015, covering 527 products, and about 35, 000 stores across 161 retailers), we find robust evidence of asymmetric pricing in the small (APIS), where small price increases outnumber small price decreases, but no such asymmetry is present in the large. We also document the reverse phenomenon (APIS-R), where small price decreases outnumber small price increases. Our results are robust to several possible measurement issues. Importantly, our findings indicate a greater current relevance and generalizability of such asymmetric pricing practices than the existing literature recognizes. |
| Keywords: | Asymmetric pricing, Asymmetric Price Adjustment, Dynamic pricing, Rational inattention, Consumer inattention, Price rigidity, Price flexibility, Rigid prices, Sticky prices, Small price changes, Small price increases, Small price decreases, Inflation |
| JEL: | E31 L16 L11 D91 M31 M21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:333236 |
| By: | Angelini, Elena; Darracq Pariès, Matthieu; Haertel, Thomas; Lalik, Magdalena; Aldama, Pierre; Brázdik, František; Damjanović, Milan; Fantino, Davide; Sanchez, Pablo Garcia; Guarda, Paolo; Kearney, Ide; Mociunaite, Laura; Saliba, Maria Christine; Sun, Yiqiao; Tóth, Máté Barnabás; Stoevsky, Grigor; Van der Veken, Wouter; Virbickas, Ernestas; Bulligan, Guido; Castro, Gabriela; Feješ, Martin; Grejcz, Kacper; Hertel, Katarzyna; Imbrasas, Darius; Kontny, Markus; Krebs, Bob; Opmane, Ieva; Rapa, Abigail Marie; Sariola, Mikko; Sequeira, Ana; Duarte, Rubén Veiga; Viertola, Hannu; Vondra, Klaus |
| Abstract: | This report provides a comprehensive overview of the models and tools used for macroeconomic projections within the European System of Central Banks (ESCB). These include semi-structural models, dynamic stochastic general equilibrium (DSGE) models, time series models and specialised satellite models tailored to particular questions or country-specific aspects. Each type of model has its own strengths and weaknesses and can help answer different questions. The models should therefore be seen as complementary rather than mutually exclusive. Semi-structural models are commonly used to produce baseline projection exercises, since they offer the flexibility to combine expert judgement with empirical data and have enough complexity and structure to provide a good representation of the economy. DSGE models, valued for their internal consistency and strong theoretical foundations, are another core forecasting tool used by some central banks, particularly to analyse counterfactuals. Time series models tend to be better suited to forecasting the short term, while scenario analysis and special events may require satellite models, extensions of existing models or even the development of new models tailored to the question at hand. The report also addresses the challenges to macroeconomic projections posed by data quality, including revisions and missing data, and describes the methods implemented to mitigate their effects. The report identifies “quick wins” to improve the projection process by enhancing the transparency and comparability of results through standardised reporting frameworks and better measurement of the judgement integrated in forecasts. The findings highlight the fundamental role of macroeconomic models in underpinning the ESCB’s projection exercises and ensuring that the Governing Council’s assessments and deliberations rest on coherent, granular and credible analysis of both demand-side and supply-side dynamics. JEL Classification: C30, C53, C54, E52 |
| Keywords: | economic models, forecasting, macroeconometrics, monetary policy |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2025381 |
| By: | Ryan Niladri Banerjee; Boris Hofmann; Ding Xuan Ng; Gabor Pinter |
| Abstract: | Non-bank financial institutions (NBFIs) have grown significantly in recent years, mainly driven by the growth of investment funds, including hedge funds. These changes reflect the role of bond markets, which have expanded on the back of surging government debt. The rise of NBFIs adds uncertainty to monetary policy transmission, as there could be dampening and amplifying effects. Investment funds appear to strengthen transmission while at the same time making it less stable. Greater uncertainty about transmission due to structural changes in the financial system reinforces the principle of a gradual policy approach while at the same time calling for flexibility in adjusting policy. |
| Date: | 2025–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:116 |
| By: | Yhlas Sovbetov |
| Abstract: | This paper examines factors that influence prices of most common five cryptocurrencies such as Bitcoin, Ethereum, Dash, Litecoin, and Monero over 2010-2018 using weekly data. The study employs ARDL technique and documents several findings. First, cryptomarket-related factors such as market beta, trading volume, and volatility appear to be significant determinant for all five cryptocurrencies both in short- and long-run. Second, attractiveness of cryptocurrencies also matters in terms of their price determination, but only in long-run. This indicates that formation (recognition) of the attractiveness of cryptocurrencies are subjected to time factor. In other words, it travels slowly within the market. Third, SP500 index seems to have weak positive long-run impact on Bitcoin, Ethereum, and Litcoin, while its sign turns to negative losing significance in short-run, except Bitcoin that generates an estimate of -0.20 at 10% significance level. Lastly, error-correction models for Bitcoin, Etherem, Dash, Litcoin, and Monero show that cointegrated series cannot drift too far apart, and converge to a long-run equilibrium at a speed of 23.68%, 12.76%, 10.20%, 22.91%, and 14.27% respectively. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.22782 |
| By: | Karsten Chipeniuk; Marcin Kolasa; Jesper Lindé; Elvis Ludvich; Melanie Quigg |
| Keywords: | quantitative easing; negative policy rates; effective lower bound; open-economy model |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbaacp:acp2025-07 |
| By: | Yang Zhou (Graduate School of Economics, Nagoya City University, JAPAN); Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University, JAPAN) |
| Abstract: | Do geopolitical risks affect the occurrence of "extreme capital flow episodes"? Using a panel of 57 economies from 1986Q1 to 2023Q4, we examine the effects of both global and country-specific geopolitical risks on the occurrence of the four types of extreme capital episodes ("surge", "stop", "flight", and "retrenchment"). We find no association between global geopolitical risks and the occurrence of extreme capital flow episodes for advanced economies and only a weak association for emerging economies. In contrast, country-specific geopolitical risks show no significant association for advanced economies but a significant association for emerging economies. Our results suggest that when country-specific geopolitical risk is high, an emerging economy is more likely to experience stop, flight, and retrenchment episodes and less likely to experience surge episodes, reflecting heightened risk perceptions among both domestic and foreign investors. For each episode, we further identify its key underlying flow type: banking flows for flight, direct investment flows for stop, and banking, debt, and equity flows for retrenchment. We also find that country specific geopolitical risks became a more important driver of these episodes after the global financial crisis. These findings are robust to incorporating additional economic uncertainty indices, to excluding or adding certain control variables, to removing periods of dramatic global geopolitical risk fluctuations, and to employing alternative econometric methodologies. |
| Keywords: | Global geopolitical risk; Country-specific geopolitical Risk; Extreme capital flow episodes; Emerging economies; Flight-to-safety; Flighthome effects |
| JEL: | E44 F32 F51 G28 G32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-32 |