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on Monetary Economics |
| By: | Itay Goldstein; Ming Yang; Yao Zeng |
| Abstract: | We study competition between monies that provide separate payment and non-payment (e.g., store-of-value) functions. Our central insight is that payment adoption is governed not by absolute payment superiority, but by comparative advantage between payment and non-payment roles. A money that is “too good” as a store of value may circulate less as a payment instrument, even if it is technologically superior, because agents prefer to hoard it rather than spend it. The model delivers equilibria in which monies either specialize into distinct roles or coexist as payment instruments with one emerging as dominant. These mechanisms provide a unified microfoundation for classic monetary phenomena such as Gresham’s law and the big problem of small change, and offer a new perspective on modern debates over stablecoins and central bank digital currencies (CBDCs). Contrary to the common view that interest-bearing digital currencies necessarily threaten bank deposits, we show that higher yields can weaken payment adoption by raising the opportunity cost of spending. As a result, traditional bank deposits may coexist with, and even retain dominance over, technologically superior digital alternatives. |
| JEL: | E41 E42 E58 F33 G21 G23 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34865 |
| By: | forbes, Kristin; Ha, JONGRIM; Kose, M. Ayhan |
| Abstract: | Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through” their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks—particularly global supply shocks—have significant implications for modeling monetary policy and designing central bank frameworks. |
| Keywords: | Demand shocks; supply shocks; geopolitical risk; oil prices; supply-chain disruptions; global uncertainty, central banks, Federal Reserve; European Central Bank |
| JEL: | E31 E32 E52 Q43 |
| Date: | 2026–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127928 |
| By: | Erwan Gautier (BANQUE DE FRANCE AND UNIVERSITÉ PARIS-DAUPHINE); Cristina Conflitti (BANCA D’ITALIA); Daniel Enderle (OESTERREICHISCHE NATIONALBANK AND VIENNA UNIVERSITY OF ECONOMICS AND BUSINESS); Ludmila Fadejeva (LATVIJAS BANKA); Alex Grimaud (OESTERREICHISCHE NATIONALBANK AND TU WIEN); Eduardo Gutiérrez (BANCO DE ESPAÑA); Valentin Jouvanceau (ECB AND LIETUVOS BANKAS); Jan-Oliver Menz (DEUTSCHE BUNDESBANK); Alari Paulus (EESTI PANK); Pavlos Petroulas (BANK OF GREECE); Pau Roldan-Blanco (UNIVERSITAT AUTÒNOMA DE BARCELONA, BARCELONA SCHOOL OF ECONOMICS AND CEPR); Elisabeth Wieland (ECB AND DEUTSCHE BUNDESBANK) |
| Abstract: | We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010–2019, roughly a four percentage point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and non-energy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost one percentage point lower had the frequency not responded to the inflation surge. |
| Keywords: | price rigidity, euro area, inflation surge, micro price data |
| JEL: | E31 E52 F33 L11 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2608 |
| By: | Ahmet Degerli; Jing Wang |
| Abstract: | We provide evidence that banks use loan covenants to prepare for future monetary policy tightening, thereby facilitating the bank lending channel of monetary policy transmission. Specifically, banks with greater monetary policy exposure—those whose lending capacity contracts more as the federal funds rate increases—include stricter financial covenants in loan contracts, granting them flexibility to reduce existing loan commitments during monetary policy tightening when firms breach covenants. The resulting credit reductions to covenant violators by high-exposure banks account for over one-third of the total decline in credit during recent federal funds rate hikes. |
| Keywords: | Monetary policy transmission; Federal funds rate; Monetary policy; Loans |
| JEL: | G21 E52 M41 G32 |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102441 |
| By: | Erwan Gautier (Banque de France; Universite Paris-Dauphine); Cristina Conflitti (Banca d'Italia); Daniel Enderle (Oesterreichische Nationalbank); Ludmila Fadejeva (Latvijas Banka); Alex Grimaud (Oesterreichische Nationalbank; TU Wien); Eduardo Gutierrez (Banco de Espana); Valentin Jouvanceau (ECB; Lietuvos Bankas); Jan-Oliver Menz (Deutsche Bundesbank); Alari Paulus (Eesti Pank); Pavlos Petroulas (Bank of Greece); Pau Roldan-Blanco (Universitat Autonoma de Barcelona; Barcelona School of Economics); Elisabeth Wieland (ECB; Deutsche Bundesbank) |
| Abstract: | We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010-2019, roughly a fourpercentage-point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and nonenergy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost 1 percentage point lower if the frequency had not responded to the inflation surge. |
| Keywords: | price rigidity, euro area, inflation surge, micro price data |
| JEL: | E31 E52 F33 L11 |
| Date: | 2026–02–16 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202601 |
| By: | Sackey, Lawrence; Nortah-Ocansey, Derick A.; Mensah, Daniel |
| Abstract: | The Cash Reserve Ratio (CRR) has long served as a vital monetary policy instrument for the Bank of Ghana (BoG), playing a central role in liquidity management, money supply and the stabilization of the financial sector and general price level. Over time, the CRR has been modified in response to shifting economic landscape and emerging challenges. In more recent years, the CRR has been adjusted to tackle inflation and liquidity challenges. In September 2022, the BoG announced a phased increase from 12% to 15%, executed in three stages: 13% in September, 14% in October, and 15% in November. However, in December 2022, the CRR was reduced to 12% as part of measures to cushion banks during the domestic debt exchange program. By April 2023, the BoG reset the CRR to 14% to manage excess liquidity while supporting economic recovery. The key objective for the increase in the CRR was to mop-up excess liquidity within the banking system by deploying it as an inflation targeting tool. Over the period of its implementation, inflationary pressures have persisted, and the targeted inflation rate was missed by a wide margin. The policy does not do much to mop up liquidity in the informal sector, hence the failure to significantly impact inflation. (...) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabpbs:336966 |
| By: | Martín Almuzara; Geert Mesters |
| Abstract: | Data releases for inflation have been scarce over the past four months due to the government shutdown. As a result, until January 22 no personal consumer expenditures (PCE) data were available beyond September and the consumer price index (CPI) had many missing entries for the one-month changes for October and November. In this post, we use an extended version of the New York Fed’s Multivariate Core Trend (MCT) inflation model to examine changes in underlying inflation over this period. The MCT model is well-suited to do so because it decomposes sectoral inflation rates into a trend (“persistent”) and a transitory component. In contrast to core (ex-food and energy) inflation, its aim is to remove all transitory factors, thus identifying the underlying trend. In addition, since the model can handle missing data—like for October—it can produce values for trend inflation for months where little or no data were released. Our findings suggest caution: while the fragmented data from November initially signaled a deceleration in price pressures, the integration of December data indicates that these reductions were largely transitory. Once the full data set is used, the aggregate trend for December stands at 2.83 percent, an increase from 2.55 percent in September. |
| Keywords: | Shutdown; inflation; trend; Multivariate Core Trend (MCT) |
| JEL: | C32 E31 |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:102453 |
| By: | Marco Graziano; Marius Koechlin; Andreas Tischbirek |
| Abstract: | We study the spillovers of large-scale asset purchases (LSAPs) in the U.S. on financial intermediation in the euro area using bank-level supervisory data and high-frequency identified policy surprises. Our detailed panel data permit us to trace the impact of LSAPs through bank balance sheets. We find that the Federal Reserve affects credit provision in the euro area through a channel that we refer to as the "international bank capital channel" of unconventional monetary policy. In response to an LSAP shock that leads to a steepening of the U.S. Treasury yield curve, the Treasury positions of euro area banks shrink, capital ratios worsen, and banks that are less well capitalized contract their lending relative to banks that are better capitalized. Our results are consistent with an important role of revaluation effects, imperfect risk hedging, and credit as an adjustment margin for banks in the proximity of regulatory capital constraints. |
| Keywords: | large-scale asset purchases, international spillovers, global financial cycle, credit channel of monetary policy, U.S. treasury yield curve, exchange rates |
| JEL: | E52 F42 F44 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12409 |
| By: | Ko Adachi (Bank of Japan); Yoshiyuki Kurachi (Bank of Japan); Masato Okamoto (Bank of Japan); Tomohiro Sugo (Bank of Japan); Akitoshi Toyoda (Bank of Japan) |
| Abstract: | This paper analyzes the impact of supply constraints on inflation dynamics and its mechanisms from both empirical and theoretical perspectives. It also examines recent changes in the relationship between supply constraints and inflation dynamics, as well as measures to mitigate the effects of supply constraints on inflation. The analysis shows that the recent intensification of supply constraints affected Japan's inflation dynamics through the following channels. First, the intensification of labor and material supply constraints had a persistent impact on the inflation rate through mechanisms such as factor price increases. Second, the intensification of labor supply constraints contributed to the recent increase in inflation through nonlinear effects which amplify the demand elasticity of prices. The results also suggest that persistent supply constraints, under accommodative financial conditions, led to a recent rise in inflation expectations. Furthermore, the analysis implies that inflationary pressures arising from intensifying supply constraints have become more frequent and significant in recent years. The further intensification of labor supply constraints could have a nonlinearly strengthening effect on inflationary pressures in the future. Promoting technological progress through firm-based initiatives and government policies-such as the adoption of AI-and facilitating labor mobility across industries and firms, will be important for easing supply constraints in Japan. |
| Keywords: | Supply Constraints; Inflation; Nonlinearity; Technological Progress |
| JEL: | E23 E24 E31 E37 |
| Date: | 2026–02–26 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp26e03 |
| By: | Manuel Adelino; Miguel A. Ferreira; Sujiao Zhao |
| Abstract: | Adjustable-rate mortgages (ARMs) transmit monetary policy less directly than often assumed. We exploit quasi-experimental variation in ARM rate reset timing in Portugal—where over 92% of mortgages are indexed to Euribor—around the ECB’s 2022–2023 tightening cycle to estimate responses to mortgage payment shocks. After reset dates, mortgage renegotiations increase by 10 percentage points, lender switching by 4, partial prepayments by 5, and full prepayments by 3, offsetting about 17% of the payment increase implied by policy rates. Responses occur only immediately after resets, consistent with selective inattention, and are largest among younger, more educated, and higher-balance borrowers. Supply-side factors amplify these effects: as rates rise and bank competition intensifies, households at more flexible banks renegotiate, switch lenders, and prepay more, while greater broker presence further increases lender switching. Our findings suggest that monetary policy pass-through in ARM-dominated markets depends on borrower behavior, market frictions, and sticky deposit rates. |
| JEL: | D14 E44 E52 G21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34824 |
| By: | Juan Michelsen |
| Abstract: | This paper studies the macroeconomic effects of global risk shocks (GRS) in a small open economy and their implications for the identification of monetary policy shocks. I construct a novel proxy for GRS based on unexpected daily innovations in the VIX and employ it as an external instrument in a proxy-SVAR for Canada. The advantage of this proxy is that, by exploiting the safe-haven role of the U.S. dollar, it identifies the effects of GRS using only domestic endogenous variables, without imposing restrictions or relying on global aggregates or narratively selected events. GRS that depreciate the Canadian dollar, tighten financial conditions, reduce asset prices, output, and prices, inducing an expansionary monetary policy response. I provide evidence that high-frequency (HF) monetary policy surprises partly reflect endogenous, risk-driven deviations between policy actions and market expectations. Ignoring GRS can lead to an overestimation of monetary policy effects obtained using HF identification. |
| Keywords: | global risk shocks, small open economy, proxy-SVAR, monetary policy surprises |
| JEL: | E52 F41 F42 F44 |
| Date: | 2026–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0093 |
| By: | Sackey, Lawrence; Nortah-Ocansey, Derick A.; Mensah, Daniel |
| Abstract: | Ghana's banking sector navigated one of its most challenging macro-financial periods between 2020 and 2025, a phase defined by rapid inflation, sharp exchange rate swings, tight fiscal conditions, and elevated interest rates. Despite these pressures, the sector remained functional, resilient, and systemically stable, continuing to provide essential financial intermediation while protecting depositors' funds. Profitability indicators were generally stable in the early years but declined sharply during the height of macroeconomic pressures, particularly when inflation accelerated, cedi weakened significantly together with the huge impairment losses from the domestic debt exchange programme(DDEP), before restoring and stabilizing later in 2023. Credit risk followed an upward trend, with Non-Performing Loans rising as households and firms struggled under increasing costs and reduced real incomes. Capital Adequacy though weakened along the way remained within regulatory requirements and recovered gradually as banks strengthened their balance sheets. Liquidity indicators remained consistently strong throughout, serving as a stable cushion that supported depositor confidence even in the midst of significant macroeconomic volatility. These trends occurred against a backdrop of high inflation, tight monetary policy, elevated interest rates, rapid currency depreciation, domestic debt exchange programme and depleting net international reserves, all of which amplified stress across bank balance sheets. As external reserves improved and inflation moderated from 2024 onwards, overall bankingsector performance strengthened. The experience reinforces a key message: macroeconomic stability is fundamental to banking stability. Banks should continue strengthening creditrisk assessment systems, investing in cost-efficient digital processes, and maintaining strong capitalplanning frameworks that incorporate stress-testing for inflation, interest-rate, and exchange-rate shocks. Policymakers, on their part, must safeguard stability through disciplined fiscal management, credible inflation control, and rebuilding of external buffers to support confidence and reduce systemic risk. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabpbs:336969 |
| By: | Akinlade, Femi |
| Abstract: | This paper provides a comprehensive meta-analysis of advances in the New Keynesian Phillips Curve (NKPC) literature, synthesizing theoretical developments, empirical findings, and methodological innovations over the past three decades. Rather than aggregating coefficients mechanically, the study adopts a structured qualitative–quantitative meta-analytic approach to evaluate how inflation dynamics vary across economic regimes, institutional settings, and model specifications. The analysis reveals that apparent instability and flattening of the Phillips Curve largely reflect regime dependence, expectation anchoring, and openness to global cost pressures rather than a breakdown of the underlying NKPC mechanism. Evidence across advanced, emerging, and transition economies indicates that forward-looking inflation behavior strengthens in tranquil macroeconomic environments with credible monetary frameworks, while backward-looking inertia dominates during recessions and in economies with histories of volatile inflation. Hybrid and sticky-information NKPC formulations consistently outperform purely forward-looking specifications in capturing inflation persistence, particularly during periods of heightened uncertainty. Recent methodological contributions, including time-varying, Bayesian, frequency-domain, and machine learning approaches, further demonstrate that the Phillips relationship is nonlinear, state-dependent, and horizon-specific. Overall, the findings suggest that the NKPC remains a valid but conditional framework for understanding inflation dynamics, with its empirical performance critically shaped by expectations regimes, institutional credibility, and global integration. |
| Keywords: | Phillips Curve; Inflation Dynamics; New Keynesian Phillips Curve; Unemployment |
| JEL: | E12 E3 E31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127682 |
| By: | Chenning Xu |
| Abstract: | This paper examines how monetary tightening transmits to bank credit supply through deposit funding conditions during the 2022-23 cycle. Using a quarterly panel of more than 3, 800 US commercial banks, it constructs predetermined exposure indices measuring depositor sophistication, branch intensity, and local deposit-market concentration, and interacts these exposures with cumulative changes in the federal funds rate to form bank-level shift-share instruments. These interactions are employed in a two-stage least-squares framework to instrument for cumulative changes in effective deposit rates and, in parallel specifications, deposit quantities. The exposure indices explain substantial cross-bank heterogeneity in deposit-rate pass-through with signs consistent with canonical predictions, and jointly provide a strong instrument for cumulative change in effective deposit rates. By contrast, the corresponding results for deposit quantities are weaker and less intuitive. In the second stage, a larger policy-induced increase in a bank’s effective deposit rate is associated with a statistically and economically significant deceleration in the growth of loans not held for sale, consistent with a funding-cost channel through which tightening reduces credit supply. Quantity-based specifications that instrument for deposit growth, however, yield either weak identification or coefficients of the opposite sign, consistent with deposit volumes being endogenous to deposit pricing and with banks' capacity to substitute across liability classes as core deposits run off. Overall, the evidence supports a deposit channel that operates primarily through funding costs and depositor-composition–driven pricing behavior rather than through a mechanical balance-sheet constraint tied to deposit quantities. |
| Keywords: | Monetary Policy Transmission; Deposit Channel; Bank Funding Shocks; Credit Supply; Instrumental Variables |
| JEL: | E52 G21 E44 E51 C36 C23 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1106 |
| By: | Harold Glenn A. Valera (BSP Research Academy, Bangko Sentral ng Pilipinas); Cymon Kayle Lubangco (Bangko Sentral ng Pilipinas); Mark J. Holmes (University of Waikato) |
| Abstract: | We propose a new measure of revisions to consumer inflation expectations using repeated cross-sections rather than requiring panel data. We calculate the value of group average expectations in a prior period as a proxy for what an individual’s expectations might have been using micro data in the Philippines for Q1 2010 to Q2 2024. In contrast to existing mixed evidence, the resulting revisions show sensitivity to price changes in 14 food and energy goods. The equivalence testing finds that the group-based coefficients are valid, as they are: (a) different from an overall sample average-based revision results with Philippine data, and (b) similar to rotating panel-based revision results using data from the Michigan Survey of U.S. households. Using Philippine data, we also provide new evidence of significant effects of a firm’s frequency of price changes on expectation revisions. |
| Keywords: | inflation expectations; forecast revision; repeated cross-section; rotating panel; food and energy prices; equivalence testing; rational inattention; sticky information |
| JEL: | C53 D84 E31 |
| Date: | 2026–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:wai:econwp:26/03 |
| By: | Lovisa Reiche; Gabriele Galati; Richhild Moessner; Maarten van Rooij |
| Abstract: | We study how consumers form and revise inflation expectations using a unique, highly balanced monthly panel of Dutch households. We develop a Bayesian framework that nests Full-Information Rational Expectations (FIRE) alongside common forecasting heuristics and test it by recovering person-specific belief-updating rules from individual time-series regressions. Our novel individual-level design reveals substantial heterogeneity in how households process information over time. On average, consumers systematically overreact to current inflation, echoing patterns found for professional forecasters. Only 2.5 percent, predominantly wealthier, more educated men, behave consistently with FIRE. Most consumers rely on simple heuristics, especially adaptive expectations. Our results show that heuristic learning, not FIRE, characterizes expectation formation for the vast majority of households. Crucially, heterogeneity in belief updating is both large and systematic. |
| Keywords: | household inflation expectations, FIRE, heuristic learning |
| JEL: | E31 E37 E70 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12450 |
| By: | Sangyup Choi (Yonsei University); Kyung Woong Koh (Johns Hopkins University) |
| Abstract: | Does government spending raise prices? While standard models predict an inflationary effect, empirical findings are mixed-a puzzle known as the "fiscal price puzzle." We argue that this puzzle reflects differences in aggregation rather than a failure of standard demand transmission. Using newly constructed U.S. MSA-level federal procurement data from 1989-2023 and a shift-share IV strategy, we show that regional fiscal shocks raise local consumer prices when aggregate forces are absorbed through time fixed effects. When aggregate conditions are allowed to respond endogenously, however, the same shocks generate attenuated or even negative price responses. To interpret these findings, we develop a two-region New Keynesian model with centralized monetary policy. Local fiscal expansions increase regional prices but induce union-wide monetary responses that dampen aggregate inflation. Extending the model to consumption and investment sectors, we show that government consumption shocks raise regional and sectoral prices more than investment shocks, yet can produce smaller aggregate price effects due to stronger monetary feedback. Our results highlight how general equilibrium mechanisms and spending composition jointly shape fiscal inflation dynamics. |
| Keywords: | Fiscal price puzzle; Government spending; Spending composition; Military procurement; Monetary union; Shift-share instrument |
| JEL: | E31 E52 E58 E62 F33 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-280 |
| By: | Sackey, Lawrence |
| Abstract: | This study examines the short-run dynamics between interest rates and non-performing loans (NPLs) in Ghana's banking sector, with particular emphasis on how fluctuations in lending rates influence credit risk and financial stability. Using quarterly data spanning 2008 to 2023, the study applies time-series econometric techniques, including unit root tests and a dynamic autoregressive distributed lag (ARDL) framework, to capture lagged responses and adjustment behaviour in NPLs. The findings reveal a statistically significant short-run relationship between interest rates and NPLs, with increases in lending rates leading to higher credit risk after a lag. Inflation is found to mitigate NPLs in the short term, while credit expansion initially improves loan performance but subsequently contributes to higher default levels, suggesting that NPL dynamics are driven primarily by short-run adjustments rather than persistent long-run relationships. By providing updated empirical evidence on the short-run monetary policy-credit risk nexus in an emerging market context using an extended Ghanaian dataset, the study contributes to the literature on monetary transmission and financial stability. The results highlight the need for monetary authorities to balance inflation control with credit market stability and underscore the importance of coordinated macroeconomic and prudential policies in sustaining credit access, protecting borrower viability, and strengthening the resilience of Ghana's financial system. |
| Keywords: | Interest rate, Non-Performing Loans, Inflation, credit risk, Financial Stability, ARDL |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabwps:336970 |
| By: | Benjamin Eyal; Dave Na; Arsenios Skaperdas |
| Abstract: | Since the Global Financial Crisis, central banks have used the size and composition of their balance sheets to influence financial conditions and economic activity when policy rates are constrained by the effective lower bound. A common measure of the size of the Federal Reserve's balance sheet is the System Open Market Account (SOMA) securities holdings expressed as a share of nominal gross domestic product (NGDP). |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102443 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Bank failures can stem from runs on otherwise solvent banks or from losses that render banks insolvent, regardless of withdrawals. Disentangling the relative importance of liquidity and solvency in explaining bank failures is central to understanding financial crises and designing effective financial stability policies. This paper reviews evidence on the causes of bank failures. Bank failures---both with and without runs---are almost always related to poor fundamentals. Low recovery rates in failure suggest that most failed banks that experienced runs were likely fundamentally insolvent. Examiners' postmortem assessments also emphasize the primacy of poor asset quality and solvency problems. Before deposit insurance, runs commonly triggered the failure of insolvent banks. However, runs rarely caused the failure of strong banks, as such runs were typically resolved through other mechanisms, including interbank cooperation, equity injections, public signals of strength, or suspension of convertibility. We discuss the policy implications of these findings and outline directions for future research. |
| JEL: | G01 G2 G21 N20 N21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34853 |
| By: | Mark A. Carlson |
| Abstract: | Prior to the establishment of the Federal Reserve, commercial banks issued "bank notes" that circulated as a privately issued form of money. In addition to being backed by the issuing bank, these notes were backed by various types of collateral, including state government bonds and U.S. government bonds. |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102444 |
| By: | Sackey, Lawrence; Nortah-Ocansey, Derick A.; Mensah, Daniel |
| Abstract: | Ghana's macro-financial story from 2020 to 2025 shows a clear and direct link between inflation and the cost of credit. When inflation went up, lending rates went up too, and when inflation went down, lending rates went down. The lessons from this period are straightforward; when inflation becomes unanchored, the policy rate, the Ghana reference rate and market rates rise sharply, making credit expensive. Conversely, when inflation stabilizes, financing conditions improve and credit becomes more affordable. Creating an affordable credit market and sustaining its positive turns therefore requires deliberate action from both the banking sector and policymakers. It is therefore crucial for banks to strengthen their riskbased pricing frameworks, enhance credit assessments, and extend more lending toward productive sectors such as agriculture and manufacturing, especially now that inflation and interest rates are cooling. For the managers of the economy, the priority must be to maintain macroeconomic stability without compromise. Disciplined fiscal management, credible inflation targeting, and consistent exchange-rate stability are essential to preventing another 2022-style spike in inflation and borrowing costs. Together, these actions will ensure that the ongoing decline in inflation translates into sustained reductions in the cost of credit, a healthier banking system, and a more resilient macro-financial environment for Ghana. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabpbs:336968 |
| By: | Andreas Fuster; Virginia Gianinazzi; Andreas Hackethal; Philip Schnorpfeil; Michael Weber; Michael Weber |
| Abstract: | How borrowers respond to future changes in the interest rate on their debt matters for the transmission of monetary policy and for household financial stability. Combining bank data, a letter RCT, and a survey, we study this question in the context of the German mortgage market, where since 2022 borrowers have faced high interest rates when their rate fixation period ends. We find that borrower actions substantially reduce the impact of higher rates on monthly payments. Survey responses corroborate high informedness and a strong propensity to prepare for rate changes. The letter intervention does not affect rate beliefs but increases awareness of available options and refinancing among borrowers close to expiration of their rate fixation. |
| Keywords: | mortgages, refinancing, interest rates, survey, RCT |
| JEL: | C93 D14 E52 G21 G41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12417 |
| By: | Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Faradina Alifia Maizar; Difa Fitriani; Mervin Goklas Hamonangan; Hardy Salim; Alif Ihsan A Fahta (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)) |
| Abstract: | Headline inflation rose to 1.95% (y.o.y.) in April 2025, returning to Bank Indonesia’s target range of 1.5–3.5%, up from 1.03% in March. This increase followed the expiry of the 50% electricity tariff discount for households with a power capacity of up to 2, 200 VA. Core inflation also accelerated, driven by higher gold and car prices. Despite uncertainty over President Trump's tariff policies, between mid-April and mid-May, Rupiah appreciated by 1.70%, from IDR16, 795 to IDR16, 510 per US dollar, supported by easing trade tensions and Bank Indonesia’s intervention to stabilise the exchange rate. These actions contributed to a USD4.6 billion decline in foreign exchange reserves, the steepest monthly drop in two years. The recent inflation figure and currency stability suggest some room for monetary easing. However, it remains unclear whether this stability will be sustained. Given lingering external risks, Bank Indonesia should keep BI Rate at 5.75% and remain cautious until global conditions become more predictable. |
| Keywords: | gdp — economic — economic outlook — inflation — macroeconomics — interest rate |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:lpe:gomeet:202505 |
| By: | Yang Jiao; Ting Lan; Yang Liu; Xinrui Zhao |
| Abstract: | This paper examines the inflationary effects of shipping delays. We construct a novel measure of port-to-port shipping time using real-time AIS maritime data and link it with granular port-level trade and item-level price data. We document substantial heterogeneity in goods imports across ports and regions, variation in exposure to delays, and aggregate price responses to congestion shocks. Exploiting cross-product variations in exposure, we estimate both the average and dynamic effects of shipping delays on consumer prices, finding that a 100-hour delay raises inflation by roughly 0.5 percentage points at its five-month peak. |
| Keywords: | Supply Chain Disruption; Port Congestion; Inflation; Price Dynamics |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/026 |
| By: | Verma, Radheshyam; Nath, Siddhartha; Bhowmick, Chaitali; Yadav, Swastik |
| Abstract: | This study revisits the Balassa-Samuelson (B-S) hypothesis for 16 inflation-targeting emerging market and developing economies (EMDEs) to test whether their inflation differential with the advanced economies (AEs) could be explained through the productivity channel. The study finds positive and significant impact of total factor productivity (TFP) and labour productivity (LP) growth differentials on inflation differentials between AEs and inflation targeting EMDEs. The B-S effect is estimated in the range 1.6-2.5 percentage points for India. The average B-S effect for the inflation targeting EMDEs, however, is found at a lower level at 0.5-0.8 percentage points. This difference in the B-S effect between India and EMDEs arises from India’s higher TFP growth (vis-à-vis AEs) compared to the EMDEs. The sectoral level analysis also corroborates these findings. Our findings provide an empirical support to the role of productivity growth differential in explaining the inflation differential between AEs and major EMDEs in the medium term. |
| Keywords: | TFP, Inflation targeting, Balassa-Samuelson, productivity differential, traded-non-traded sector |
| JEL: | C23 D24 E31 E58 F14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127546 |
| By: | Mustapha Abderrahim; Riad Mansouri; Fatma Zohra Ouail; Sara Abadi; Kenza Elkrim; Mohamed-Fariz Zidane; Mr. Philippe D Karam; Mr. Gyorgy Molnar; Karel Musil; Valeriu Nalban |
| Abstract: | The paper describes QMPM, the Quarterly Projection Model for the Bank of Algeria that underpins the Bank’s Forecasting and Policy Analysis System. The model is designed to capture the key features of the economy, including the importance of the hydrocarbon sector, sizable fiscal policy impacts, monetary-fiscal interactions, a monetary aggregate targeting policy framework, and a managed exchange rate regime. Model-based analytical exercises demonstrate that AMPM displays both theoretical consistency and a robust data fit, confirming its practicality for conducting real-time policy analysis, forecasts, and risk scenarios in support of the Bank of Algeria’s policy processes. |
| Keywords: | Algeria; Forecasting and Policy Analysis; Quarterly Projection Model; Monetary Policy; Fiscal Policy; Transmission Mechanism |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/025 |
| By: | Markus Pasche (Friedrich Schiller University Jena) |
| Abstract: | It is shown that staggered and sticky price adjustment is possible without ad hoc frictions, and without suspending full price flexibility. I consider an oligopoly with n price-setting firms which can strategically choose the timing of price decisions and thus the stage in a n-stage Stackelberg oligopoly game. After a shock, firms can credibly signal to delay their price adjustment for some time to (re-)establish a leader-follower structure. From the calculus behind this decision, it is derived which firm will adjust at which time and henceforth stage of the game. The delays are in general asymmetric with respect to direction and size of the shock, and they depend on market power, making the model consistent with a variety of empirical observations. Strategically delayed adjustment of firm prices implies also inertia in aggregated price level adjustment which plays a key role in macroeconomics. |
| Keywords: | oligopoly, leader-follower structures, price dispersion, delayed price adjustment, cost shock, aggregated price dynamics, inflation |
| JEL: | D21 D43 L11 L16 E31 |
| Date: | 2026–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:jrp:jrpwrp:2026-002 |
| By: | Alessandro Ferrari; Andreas Freitag; Eric Kammerlander; Sarah Lein; Frank Pisch |
| Abstract: | We study exchange-rate pass-through and currency choice in international transactions, focusing on bilateral bargaining power in relationships between domestic buyers and foreign suppliers. Using detailed transaction-level data on Swiss imports from 2014-2023 identifying buyers and suppliers, we show that exchange rate pass-through is lower for economically important suppliers within a buyer's network. This pattern is explained by a higher likelihood of invoicing in the buyer's currency, consistent with a bilateral bargaining model of price setting and endogenous currency choice. Our results imply that bilateral bargaining power shapes how foreign shocks affect prices and external adjustment, making policy transmission network dependent. |
| Keywords: | international economics, trade, finance, markets, manufacturing |
| Date: | 2026–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2154 |
| By: | Sackey, Lawrence; Nortah-Ocansey, Derick A.; Mensah, Daniel |
| Abstract: | Macroeconomic imbalances as manifested through persistent inflationary pressures, exchange-rate volatility, and sustained fiscal stress, have become a defining feature of Ghana's macroeconomic environment over the past decade. While these imbalances intensified globally following the 2007-2008 financial crisis, their effects have been particularly pronounced in emerging and developing economies, where financial systems are bank-dominated and highly sensitive to macroeconomic shocks. In Ghana, the period since 2019 has been marked by severe macroeconomic disruptions that have fundamentally reshaped banking sector behavior and private-sector credit dynamics as the banking industry constitute more than 76% of the total asset base of the financial subsector with very high interconnectedness with the insurance subsector and others. This policy brief examines the effect of macroeconomic imbalances on bank lending in Ghana, with particular emphasis on exchange-rate movements, inflation, and fiscal conditions. Bank lending behavior is analyzed through loans and advances to customers, asset quality, and banks' risk posture. Using a panel dataset covering 18 universal banks over the period 2015-2024, the study applies fixed effects and dynamic System Generalized Method of Moments (GMM) estimation techniques to account for persistence in lending behavior, endogeneity, and unobserved bank-specific heterogeneity. The findings show that bank lending in Ghana is highly persistent and strongly constrained by deteriorating asset quality, as reflected in elevated non-performing loans. Exchange-rate movements exert a significant influence on lending, largely through nominal and valuation effects associated with currency depreciation. Inflation and fiscal stress primarily affect lending indirectly, operating through tighter monetary conditions, higher interest rates, and heightened risk aversion. Persistent Fiscal imbalances as captured by weak primary balances and rising public debt are found to suppress bank lending by increasing macroeconomic uncertainty and reinforcing crowding-out effects. Overall, the results indicate that macroeconomic imbalances shape bank lending in Ghana more through risk management, pricing behavior, and balance-sheet adjustments than through sustained real credit expansion. The study highlights the importance of credible macroeconomic policies, fiscal discipline, and forward guidance in restoring confidence, strengthening bank risk appetite, and supporting sustainable private-sector credit growth. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabpbs:336967 |
| By: | Guerini, Mattia; Marin, Giovanni; Vona, Francesco |
| Abstract: | This paper studies how monetary policy can shape firm-level carbon emissions and energy efficiency. It also looks at the heterogeneity of these effects by firm size, the underlying transmission channels and interaction with climate policies. The authors draw on administrative and survey data on French manufacturing firms for the period 2000–2019, including emissions, energy use, financial conditions, environmental protection investments and productivity. They examine the effect of credit easing following a variation to interest rate policy made by the European Central Bank in July 2012. They find that financially constrained firms cut emissions by about 9.4% more than unconstrained ones. This effect primarily stems from improvements in energy efficiency, reduced carbon intensity of energy, and general productivity improvements associated with capital deepening that outweighed modest scale effects. The results are driven by small and medium-sized firms. Large firms including those regulated by the EU emissions trading system (ETS) showed no significant response. On average, emissions fell by 3.3% per year, summing up to 5.3 million tonnes of CO2 saved (comparable to the savings from the EU ETS), highlighting the untargeted nature of the policy. |
| Keywords: | carbon intensity; credit; EU ETS; European Central Bank; firms; France; interest rates; manufacturing; SMEs |
| JEL: | Q48 Q52 |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137115 |
| By: | Alina Kristin Bartscher; Georg Duernecker; Johannes Goensch; Nils Wehrhöfer |
| Abstract: | We study firms' financial and real decisions after an exogenous change in their interest rate beliefs induced by a survey experiment with an information treatment. Firms revise their expectations downward after learning about the European Central Bank's policy rate. Moreover, we find a reduction in interest rate uncertainty. We link the survey to credit register data and find that treated firms both increase their loan amounts and shift their loan structure toward longer-term, fixed-rate credit with lower interest rates. Using balance sheet data, we also show that treated firms invest more following the RCT. These effects are driven by small firms. We rationalize our findings in a stylized model of firms with imperfect information about the interest rate. |
| Keywords: | survey experiment, administrative data, firm expectations, incomplete information |
| JEL: | D14 D15 G51 E21 J26 J32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12442 |
| By: | Friedrich Heinemann; Jan Kemper |
| Abstract: | We examine the changing attention that ECB Governing Council members pay to different policy objectives by analysing more than 4, 600 speeches given between the establishment of the ECB and the summer of 2024. Alongside the primary objective of price stability, we consider the following potential secondary objectives: financial stability, stability of the government bond market, sustainable public debt, climate protection and distribution. On the methodological side, we take advantage of LLMs to identify the speeches’ coverage of each of these objectives and the associated support. We conduct a series of validation tests to verify our AI-based scores, including a conventional dictionary approach. We use two-way fixed effects regressions to search for a link between a country's level of public debt and the objective function of its representatives. The results suggest that objectives have become more diverse in recent years. An increase in the public debt-to-GDP ratio in a governor’s home country is associated with a shift in focus away from the primary objective and towards a growing coverage and support for secondary objectives. This general pattern is particularly robust for the distribution objective. These results can only be partly explained by governor selection. Therefore, in their communication, individual governors indicate shifts in their objective function in response to changes in the fiscal situation of their home country. |
| Keywords: | fiscal dominance, green monetary policy, large language model, text analysis |
| JEL: | E58 E52 H63 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12493 |
| By: | Núria Rodríguez-Planas; Kerstin Westergren |
| Abstract: | This study investigates the impact of inflation on human capital investment decisions. Using a specially designed survey we estimate the causal effect of recent price level increases on the graduation plans of over 1, 200 U.S. university students. We find that inflation caused over half of the respondents to alter their plans, with nearly 60 percent of these opting to accumulate less human capital and the remainder increasing their human capital by taking additional courses or pursuing double majors or advanced degrees. A comparison of empirical treatment estimates to predictions derived from our theoretical framework reveals that inflation-driven higher direct costs reduced human capital investments, particularly among those for whom inflation had reduced their ability to pay bills. Conversely, while some students merely postponed graduation because they believed inflation would not persist, higher inflation-induced uncertainty in the post-graduation labor market generally caused greater human capital accumulation, especially among economically vulnerable students and those whose confidence in finding a job after graduation had declined. The study concludes with policy implications, contributing new insights into how macroeconomic shocks affect educational choices. |
| Keywords: | human capital investments, inflation, survey data, expected and actual outcomes |
| JEL: | I22 I23 I24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12473 |