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on Monetary Economics |
| By: | Abdelkader Aguir (ESPI - Ecole Supérieure des Professions Immobilières); Nesrine Dardouri (USO - جامعة سوسة = Université de Sousse = University of Sousse) |
| Abstract: | Interest in empirical studies of monetary policy has grown over the past decade, and particularly since the post COVID-19 pandemic period characterized by a surge in inflation rates in every corner of the globe. Against this backdrop, central banks' traditional inflation forecast framework has been challenged, leading to renewed analysis of the monetary policy transmission mechanism. Focusing on Tunisia, an emerging small open economy subjected to external shocks, this study focuses on the role played by the monetary authority in the conduct of Tunisia's monetary policy over the period from 2000 to 2024. This period is characterized by a deceleration of growth and an increase in inflation and unemployment. This work shows also how a VAR model with long-run restrictions justified by economic theory can be usefully applied in the analysis of monetary policy; the effects of the money market rate and other shocks; the relationship between prices and the nominal effective exchange rate; and the relationship between inflation and the output gap. |
| Keywords: | vector autoregressions, H5, I31, COVID-19, political revolution, monetary policy, monetary policy political revolution COVID-19 vector autoregressions Tunisia JEL Classification: C01 H5 I31 Z18 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05290329 |
| By: | Hyeongwoo Kim; Shuwei Zhang |
| Abstract: | This paper investigates the design of optimal monetary policy responses to technology shocks in a two-country model framework featuring sticky prices and local currency pricing, where technology shocks propagate internationally. We demonstrate that technology shocks originating in the tradable sector, regardless of their country of origin, elicit monetary policy responses that are symmetric and closely aligned across countries, thereby providing a rationale for a fixed exchange rate regime. In contrast, technology shocks in the nontradable sector generate asymmetric policy reactions and weaken the source country's currency, supporting the case for exchange rate flexibility. In addition, the international transmission of technology shocks amplifies real-sector dynamics through news effects, prompting central banks to adopt contractionary policies, starkly contrasting with the findings of previous literature. |
| Keywords: | Sticky Price; Local Currency Pricing; Exchange Rate Regimes; Technology Diffusion; Interest Rate Rules |
| JEL: | F31 F41 O0 E52 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:abn:wpaper:auwp2025-11 |
| By: | Rodrigo Sekkel; Henry Stern; Xu Zhang |
| Abstract: | We provide novel insights into how foreign and domestic monetary policy communications, beyond rate announcements, affect the financial markets of open economies. We construct a high-frequency dataset that documents the impact of Federal Reserve (Fed) and Bank of Canada (BoC) rate announcements, speeches, press conferences and minutes releases to Canadian financial markets between 1997 and 2023. We find that non-rate announcements are a significant source of domestic monetary policy surprises and international spillovers. Across event types, Fed communications are particularly influential for long-term interest rates and stock futures while BoC communications matter more to short-term interest rates. Since BoC communications have little effect on U.S. interest rates, Canadian announcements have a greater impact on the CAD/USD exchange rate by inducing larger changes in the cross-country interest rate differential. |
| Keywords: | Asset pricing; Central bank research; Exchange rates; Financial markets; Interest rates; International financial markets; Monetary policy |
| JEL: | E52 F31 G15 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-33 |
| By: | Santiago Alvarez-Blaser; Raphael Auer; Sarah M. Lein; Andrei A. Levchenko; Raphael A. Auer; Sarah Marit Lein |
| Abstract: | This paper uses barcode-level price data for 16 advanced and emerging market countries over the period 2005–2022 to investigate the role of individual firms and product categories in aggregate inflation. We decompose inflation into the component due to macroeconomic shocks and the granular residuals capturing the impact of individual firms and product categories, respectively. In advanced economies, the firm granular residual accounts for 41% of the variance of overall inflation, while the product category granular residual accounts for another 15%. Most of the variation in the firm granular residual is due to idiosyncratic shocks rather than to higher sensitivity of larger firms to common shocks. In the cross-section of countries, granular residuals are less important in economies with less concentrated market shares and higher inflation, such as emerging markets. Granular forces also contributed to the post-COVID inflation surge, with the firm-level component explaining roughly one-third of the 2021–2022 inflation in advanced economies. Finally, granularities are associated with a more sluggish response of inflation to monetary policy shocks, suggesting that market concentration can influence monetary non-neutrality. |
| Keywords: | inflation, price setting, firm-level shocks, granular fluctuations, large firms |
| JEL: | E31 E32 L11 L16 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12262 |
| By: | Richard Dennis; Pelin Ilbas |
| Abstract: | We examine a framework in which fiscal, monetary, and macroprudential policies interact. We study a range of settings in which policy is conducted optimally, allowing for cooperative, non-cooperative and leadership policy frameworks. We find that there are important interactions between the three policies such that (full) cooperation involving all three policymakers offers substantial advantages over non-cooperation. Importantly, we find that much of the gain to full cooperation can be achieved through a partial cooperation setting whereby monetary policy and macroprudential policy cooperate while remaining independent of fiscal policy. This finding supports institutional frameworks in which macroprudential policy is conducted by central banks or from within central banks. Partial cooperation involving fiscal policy and macroprudential policy performs poorly, leading to worse outcomes than non-cooperation. Our findings are robust to a range of alternative settings involving different assignment of objectives. For our model, we find little or no advantage to policy leadership. |
| Keywords: | Monetary policy, macroprudential policy, fiscal policy, policy interaction, policy coordination |
| JEL: | E42 E44 E52 E58 E61 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-64 |
| By: | Dominik Hecker; Maik Wolters; Maik H. Wolters |
| Abstract: | We estimate a New Keynesian model that allows endogenous transitions between a target equilibrium, with inflation fluctuating around the central bank’s target and interest rates typically positive, and a low-inflation equilibrium, where the effective lower bound binds and de-anchored expectations keep inflation persistently below target. The model is estimated using Bayesian methods, employing an ensemble MCMC sampler with a particle filter to handle nonlinearities. We find that the United States remained in the target equilibrium after the global financial crisis, the euro area transitioned to the low-inflation equilibrium in 2015, with the subsequent inflation surge initiating a return to the target equilibrium in 2021, and Japan entered the low-inflation equilibrium in the early 2000s. Bayes factors strongly favor the equilibrium-transition model over an alternative specification in which the lower bound binds only occasionally and expectations remain anchored. |
| Keywords: | multiple equilibria, nonlinear estimation, particle filter, deflation, zero lower bound, natural interest rate, inflation expectations |
| JEL: | C51 E31 E43 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12280 |
| By: | Yun Young Gwak |
| Abstract: | Distinguishing between sector-specific and aggregate shocks and assessing their contributions to inflation are vital for informed policy. This paper quantifies cross-sectoral spillovers in U.S. consumer price inflation using a factor-adjusted network approach that jointly models aggregate factors and sectoral network propagation. Using disaggregated personal consumption expenditure data across 26 sectors from 1959-2024, the model employs Lasso nuclear-norm regularization to estimate high-dimensional VARs while controlling for aggregate influences. Cross-sectoral spillovers account for roughly two-fifths of total price variation--more than twice the share attributable to aggregate factors--and are systematically mismeasured in conventional models: factor models understate spillovers by absorbing network transmission into common components, while VARs without factors overstate them by conflating comovement with propagation. The spillover structure is highly granular, dominated by large consumer-facing sectors such as food, furnishings, and services, with gasoline exerting more moderate but persistent effects. Spillovers propagate mainly through backward production linkages and scale with sector size, indicating that large downstream sectors play a disproportionate role in transmitting sector-specific shocks across the price network. The findings underscore the need for integrating sectoral networks and aggregate factors in modeling inflation dynamics and policy design. |
| Keywords: | sectoral spillovers, network connectedness, inflation, cross-sectoral transmission |
| JEL: | C32 C38 E31 E32 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-63 |
| By: | Giuliana, Raffaele; Panfilo, Matteo; Peltonen, Tuomas |
| Abstract: | This study sheds light on the impact of digitalisation and social media on deposit flows and rates of euro area banks during the recent period of monetary tightening. Drawing on difference-in-differences analysis of confidential monthly data (12/2019 –10/2023) of deposit flows and rates as well as measures of bank digitalisation and social media exposure through Twitter sentiment, the study offers two novel sets of findings. First, banks with a higher degree of digitalisation exhibit larger fluctuations in deposits, with higher inflows from mid-2020 to early 2022 but greater outflows in response to the tightening. Digitalisation is also correlated with higher sensitivity of banks’ NFC deposit rates to policy rates. Second, a negative Twitter sentiment reduces deposit inflows, even after accounting for traditional news’ sentiment and a comprehensive set of bank-specific factors, including asset prices and performance indicators. JEL Classification: G21 |
| Keywords: | deposit franchise, deposits, digitalisation, monetary tightening, social media |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2025153 |
| By: | Efrem Castelnuovo; Giovanni Pellegrino; Laust L. Sarkjar |
| Abstract: | Imposing restrictions on policy rule coefficients in vector autoregressive (VAR) models enhances the identification of monetary policy shocks obtained with sign and narrative restrictions. Monte Carlo simulations and empirical analyses for the United States and the Euro area support this result. For the U.S., adding policy coefficient restrictions yields a larger and more precise short-run output response and more stable Phillips multiplier estimates. Heterogeneity in output responses reflects variation in systematic policy reactions to output. In the Euro area, policy coefficient restrictions sharpen the identification of corporate bond spread responses to monetary policy shocks. |
| Keywords: | monetary policy shocks, narrative restrictions, policy coefficient restrictions, vector autoregressive models, Monte Carlo simulations, DSGE models |
| JEL: | C32 E32 E52 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-62 |
| By: | J. Scott Davis; Kevin X. D. Huang; Zheng Liu; Mark M. Spiegel |
| Abstract: | We document evidence of a U-shaped relationship between financial development and the adjustments of foreign exchange (FX) reserve holdings in response to a U.S. interest rate increase. Countries with intermediate levels of financial development sell reserves aggressively, while those with low or high development adjust little. Domestic interest rate responses are not systematically related to financial development. A model with borrowing constraints and foreign-currency debt rationalizes these findings: the associated pecuniary externality is maximized at intermediate levels of financial development. Calibrated to match the observed leverage and currency composition, the model reproduces the empirical U-shaped relationship under optimal FX reserve policy, and this relation is robust under a range of conventional interest-rate policy regimes. |
| Keywords: | Foreign reserves; financial development; capital flows; optimal policy. |
| JEL: | F32 F38 E52 |
| Date: | 2025–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102100 |
| By: | Bonam, Dennis; Checherita-Westphal, Cristina; Pacheco, Mariana Montserrat Cerra |
| Abstract: | We estimate the contribution of discretionary fiscal policy measures to euro area inflation in the post-pandemic era using an extension of Bernanke and Blanchard (2024b)’s semi-structural model. Since the pandemic, aggregate discretionary fiscal measures had a modest yet progressively increasing positive contribution to inflation that partly worked through an indirect effect on wage growth and inflation expectations. However, net indirect taxes helped to contain inflationary pressures, both during the pandemic and energy crises. Fiscal policy, therefore, can be a powerful tool to smooth the inflationary effects of adverse supply shocks, yet may also increase inflation persistence if fiscal stimulus is not timely withdrawn. JEL Classification: C5, E32, E47, E62 |
| Keywords: | fiscal policy, inflation, semi-structural model |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253153 |
| By: | Kozo Ueda; Kota Watanabe |
| Abstract: | Measuring service prices remains particularly challenging due to their inherent heterogeneity and lack of standardization, unlike goods whose prices are easily captured through scanner data. This study exploits newly available scanner data from approximately 1, 000 Japanese restaurants covering the period 2018-2025, which record detailed information on every order. We construct indices for prices, quantities, and sales, and analyze the frequency and magnitude of price changes. Even though restaurant items are highly heterogeneous and less standardized than goods, price indices remain stable across different formulas. The indices exhibit only minimal biases from intratemporal (cross-sectional) and intertemporal substitution. Moreover, scanner-based restaurant prices align closely with CPI measures. |
| Keywords: | consumer price index, price stickiness, measurement |
| JEL: | E31 C43 E52 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-61 |
| By: | Lebotsa Daniel Metsileng (North-West University); Johannes Tshepiso Tsoku (North-West University) |
| Abstract: | This study investigates the performance of the South African inflation rate using Box-Jenkins ARIMA models. Several competing ARIMA specifications were identified through ACF, PACF, and EACF analyses, including ARIMA(1, 1, 0), ARIMA(2, 1, 0), ARIMA(1, 1, 1), and ARIMA(2, 1, 1). All models were estimated using the maximum likelihood method, with results indicating statistical significance and low standard errors across the board, suggesting strong model fit. The optimal model, ARIMA(1, 1, 1), was selected based on the Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC), aligning with findings by Mondal et al. (2014). Diagnostic tests, including the Ljung-Box test and residual analysis, confirmed that the ARIMA(1, 1, 1) model is robust and reliable for modelling inflation dynamics in South Africa. The study highlights the usefulness of ARIMA models in forecasting inflation, a crucial task for policymakers and the South African Reserve Bank in managing inflation expectations and guiding monetary policy. While the linear ARIMA model performed well, the study also recognises its limitations in capturing complex macroeconomic behaviours, suggesting future exploration of nonlinear models such as GARCH. Though the findings are specific to South Africa, the approach provides a replicable framework for other macroeconomic applications and geographical contexts. |
| Keywords: | Accuracy measures, ARIMA, Inflation rate, Linearity, South Africa |
| JEL: | C10 C52 E31 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15316783 |
| By: | Helmut Elsinger; Helmut Stix; Martin Summer |
| Abstract: | This paper examines consumers' intended adoption of a digital euro in Austria using a discrete choice experiment. We estimate a mixed logit model to quantify the role of key attributes such as privacy, offline functionality, security against financial loss, monetary incentives, and payment form factors. Our findings indicate that security and financial incentives are the strongest drivers of adoption, while respondents do not report strong preferences among the privacy options that are laid out in the experiment. We identify significant heterogeneity in adoption likelihood across socio-demographic groups. Simulations suggest that under realistic design assumptions, approximately 45% of individuals are found to have an intention to adopt a digital euro. |
| Keywords: | central bank digital currency (CBDC), consumer adoption, discrete choice experiment, payment preferences |
| JEL: | E42 D12 G21 C35 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1302 |
| By: | Gourinchas, Pierre-Olivier; Ray, Walker; Vayanos, Dimitri |
| Abstract: | We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by arbitrageurs with limited capital. Risk premia in our model are time-varying, connected across markets, and consistent with the empirical violations of uncovered interest parity and expectations hypothesis. Through risk premia, large-scale bond purchases lower domestic and foreign bond yields and depreciate the currency, and short-rate cuts lower foreign yields, with smaller effects than bond purchases. Currency returns are disconnected from long-maturity bond returns, and yet the currency market is instrumental in transmitting bond demand shocks across countries. |
| JEL: | E43 E44 E52 F31 G12 G15 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127783 |
| By: | Jannik Schumann (University of Finance and Administration (V?FS)) |
| Abstract: | This paper examines how rising inflation affected household saving behavior in Germany between 2015 and 2022. Using longitudinal microdata from the Socio-Economic Panel (SOEP) and a two-way fixed-effects design, we estimate the impact of monthly year-over-year inflation on different types of saving rates?retirement-specific, wealth-building, and overall savings?while controlling for household heterogeneity and common macro shocks. The results indicate that moderate inflation fluctuations before 2020 had negligible effects on savings. During the 2021?22 inflation surge, however, saving rates declined as households used savings to buffer higher living costs. Heterogeneity is notable: younger households slightly increased retirement contributions when inflation rose, whereas older households showed no adjustment. No significant effect was found for wealth-building savings. Regional analysis reveals that the modest positive response among young households was driven by West Germans, while East German households?facing lower incomes?experienced a sharper decline in overall saving. These findings highlight that inflation primarily erodes saving capacity rather than triggering major portfolio shifts. Policy implications include strengthening financial literacy, ensuring adequate pension indexation, and targeting relief to vulnerable groups, particularly in East Germany, to prevent long-term financial insecurity. |
| Keywords: | Inflation; Young adults; Household finance; Saving behavior; Retirement saving; Wealth accumulation; Panel data; Germany; SOEP |
| JEL: | E31 D14 E21 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iacpro:15116506 |
| By: | Bareith, Tibor |
| Abstract: | This study investigates the dynamics of food price inflation convergence among the EU27 Member States over the period 2005–2024, with a focus on the effects of structural breaks, external shocks, and regional heterogeneity. Using panel unit root tests, structural break analysis, and the Phillips and Sul club convergence methodology, the research identifies distinct patterns of convergence and divergence in food price inflation across the region. The findings reveal a lack of overall convergence, driven by persistent economic and institutional disparities among Member States. Instead, the analysis uncovers multiple convergence ‘clubs, ’ highlighting clusters of countries with similar inflationary trajectories shaped by shared market structures, policy frameworks, and levels of integration. The study further identifies structural breaks corresponding to major global disruptions, such as the financial crisis, the European debt crisis, and the COVID-19 pandemic, which have exacerbated inflation disparities among Member States. While temporary alignment in inflation rates is observed during periods of acute shock, long-term convergence remains constrained by structural differences and divergent national responses. The results have significant policy implications, underscoring the need for tailored interventions to address the specific vulnerabilities of divergent groups while enhancing the coordination of fiscal and agricultural policies at the EU level. This research contributes to the literature on food price dynamics and regional integration, offering insights for policymakers who aim to foster greater market cohesion and price stability in the face of ongoing and future challenges. |
| Keywords: | Agribusiness, Agricultural Finance, Demand and Price Analysis |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356730 |
| By: | Laura Alfaro; Julian Caballero; Bryan Hardy |
| Abstract: | This paper examines optimal foreign currency (FX) hedging by non-financial corporations globally. Using a cross-country, firm-level dataset, we first document key patterns of FX borrowing across advanced (AEs) and emerging market economies (EMEs). We find that while FX debt is prevalent in both groups, its intensity varies considerably. We assess the optimality of firms' exchange rate exposures using a risk-management framework where hedging serves to minimize the impact of cash flow volatility on firm value. Our results indicate that most firms hedge optimally, as exposures from FX debt are largely offset by other exposures, like foreign revenues and assets. While the distribution of exchange rate risk is broadly similar between AE and EME firms, the EME distribution has thicker tails, revealing a larger concentration of firms with significant, unhedged depreciation risk. |
| Keywords: | foreign currency debt, currency risk, currency hedging |
| JEL: | F31 F34 G30 G32 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1303 |
| By: | Adrián Carro (BANCO DE ESPAÑA); Jorge E. Galán (BANCO DE ESPAÑA); Enric Martorell (BANCO DE ESPAÑA); Raquel Vegas (BANCO DE ESPAÑA) |
| Abstract: | This paper presents a comprehensive literature review on the effects of borrower-based macroprudential measures (BBMs)—such as loan-to-value (LTV), debt-to-income (DTI) and debt-service-to-income (DSTI) limits—with a particular focus on their effectiveness in mitigating systemic risks in housing markets. The review synthesizes findings from both empirical and theoretical studies. The evidence shows that BBMs are effective tools for addressing systemic risks arising from household over-indebtedness and real estate market imbalances. Empirical studies indicate that stricter mortgage lending standards significantly reduce the probability of default, moderate credit growth during expansionary phases and enhance the resilience of the financial system. Theoretical models further suggest that BBMs help stabilize credit cycles, lower the likelihood of financial crises and mitigate adverse welfare effects during downturns. However, they also highlight potential redistributive consequences. Overall, the evidence supports the inclusion of BBMs as core instruments within the macroprudential policy framework, while underscoring the need for flexible design and ongoing evaluation based on granular data and advanced modeling to ensure their effectiveness and minimize unintended effects. |
| Keywords: | borrower-based measures, credit growth, defaults, house prices, macroprudential policy, models and mortgages |
| JEL: | C83 E44 E58 G21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2524e |
| By: | Bro de Comères, Quentin (Central Bank of Ireland); Mugrabi, Farah (Central Bank of Ireland & Université catholique de Louvain); Lyons, Paul (Central Bank of Ireland) |
| Abstract: | We develop a Quick Stress Testing (QST) methodology to provide high-frequency assessments of the resilience of the Irish banking system under different adverse macro-financial outlooks. The framework accommodates both internally generated scenarios—whose severity depends on the credit cycle—and externally provided ones. We estimate the capital depletion banks would face under such scenarios by interacting them with bank balance-sheet sensitivities to macroeconomic outcomes, derived from European Banking Authority (EBA) data. Through Monte Carlo simulations, we then ensure we are considering severe enough yet plausible scenarios. A key advantage of our streamlined methodology is that it can be applied more frequently than conventional stress-testing exercises. |
| Keywords: | Stress Test, State-Dependent Local Projections, Macroprudential Policy, Credit Cycle, Bank Resilience. |
| JEL: | E58 G01 E32 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:17/rt/25 |