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on Monetary Economics |
| By: | Michael D. Bordo |
| Abstract: | On the fiftieth anniversary of Milton Friedman receiving the Nobel Prize in economics, I reflect on the legacy of monetarism – his revolutionary idea. Friedman developed the modern quantity of money in 1956 as a challenge to the prevailing Keynesian view that “money did not matter.” Friedman’s empirical and historical research made a strong case that changes in the money supply, largely instituted by the monetary authorities, account for much of the macro instability in the twentieth century including the Great Recession 1929-1933 and the Great Inflation 1965 -1982. Friedman’s ideas were at the base of the creation of modern macroeconomics, and of the adoption by many central banks of rules based monetary policy as a guidepost to maintain credibility for low inflation. His emphasis on monetary aggregates as the key monetary policy tool has been superseded by the use of policy interest rates, but the monetary aggregates are still useful as a crosscheck against incipient high inflation. |
| JEL: | E12 E31 E32 E41 E42 E51 E52 E58 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34765 |
| By: | Ece Ozge Emeksiz; Mr. Güneş Kamber; Ms. Julia Otten; Gurnain Kaur Pasricha |
| Abstract: | This paper assesses the transmission of monetary policy using a new state-of-the-art intra-day dataset of monetary policy shocks for 16 advanced economies and emerging markets, the most comprehensive cross-country coverage to date. Using 30-minute windows around policy announcements, we construct target and path factor shocks for a broad sample of countries and assess their transmission to government bond yields, stock prices, and exchange rates. High-frequency identification improves the significance of estimated responses relative to lower-frequency intraday or daily data. Both target and path surprises generate large and consistent effects across asset classes. We find limited evidence of central bank information effects, confirming the validity of high-frequency methods. Post-COVID-19, transmission to yields and equity prices remains stable, but exchange rate responses weaken—likely due to synchronized monetary tightening across countries. The findings underscore the value of high-frequency data for robust identification and cross-country analysis of monetary policy transmission. |
| Keywords: | Monetary Policy; High-Frequency Identification; Asset Prices; Yield Curve; Central Bank Communication; Emerging Markets; Advanced Economies; Quantitative Easing; Post-COVID-19 Inflation; Financial Market Response |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/018 |
| By: | Kristin Forbes; Jongrim Ha; M. Ayhan Kose |
| 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: | E52 E31 E32 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-05 |
| By: | Jonathan Hambur; Qazi Haque |
| Abstract: | We study how professional forecasters perceive a central bank's reaction function and how those perceptions evolve over time, using survey evidence from Australia between 2015 and 2025. Adapting recent survey-based approaches, we recover time-varying perceived policy rules that map expected macroeconomic conditions into expected policy rates. We find that perceived responsiveness to inflation was modest prior to the pandemic, collapsed at the effective lower bound, and rose sharply only after sustained policy tightening began in 2022. Central bank communication about labour market conditions and financial stability shaped perceptions of the reaction function. However, during periods of elevated uncertainty--particularly following COVID--beliefs about the importance of inflation adjusted only after forecasters observed realised policy actions, highlighting the limits of guidance alone. We also show that heterogeneity in long-run beliefs, including views about long-run inflation, plays an important role in shaping interest rate expectations, but can be parsimoniously captured using forecaster fixed effects. |
| Keywords: | perceived monetary policy rules, survey expectations, central bank communication, Reserve Bank of Australia |
| JEL: | E43 E52 E58 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-09 |
| By: | Hanno Kase; Leonardo Melosi; Sebastian Rast; Matthias Rottner |
| Abstract: | When public debt is elevated, the fiscal cost of fighting inflation rises sharply, as interest rate hikes increase government interest expenditures. We formalize this mechanism in a nonlinear New Keynesian model with a state-dependent fiscal constraint on monetary policy. High debt may dampen the monetary response to inflation, generating an inflationary bias even though government debt remains fully fiscally backed. The interaction between high debt and inflationary cost-push shocks makes the fiscal limit more likely to bind, amplifying inflation. In demand-driven downturns, the fiscal constraint may become more restrictive than the zero lower bound, forcing the central bank to either print money to purchase excess debt or accept fiscal dominance. |
| Keywords: | fiscal limits, public debt, monetary policy, inflation, zero lower bound, fiscal space, nonlinear new Keynesian models |
| JEL: | E31 E52 E62 E58 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1328 |
| By: | Jens H. E. Christensen; Daan Steenkamp |
| Abstract: | Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific liquidity risk premia, this paper provides estimates of bond investors’ inflation expectations and associated inflation risk premia in South African sovereign bonds. The results suggest that investors’ long-term inflation expectations have gradually been declining towards the tolerance band adopted by the South African Reserve Bank in 2000. Although volatile, the estimated inflation risk premia have declined significantly since 2021, while a market-based estimate of the natural real rate has remained stable and slightly negative. A related measure of the stance of monetary policy is currently assessed to be mildly restrictive. Leveraging the estimated model’s rich dynamics to assess the outlook for these key variables suggests that expected inflation is likely to gradually fall further, while monetary policy is projected to ease towards neutral in the context of a stable natural real rate. |
| Keywords: | term structure modeling; inflation risk; liquidity risk; financial market frictions; emerging bond markets |
| JEL: | C32 E43 E52 E58 F41 F42 G12 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102406 |
| By: | Heba Y. Hashem (Cairo University); Mahmoud Mohieldin; Mamdouh Abdelmoula M. Abdelsalam |
| Abstract: | This paper investigates the relationship between inflation in and a set of domestic and external factors to provide an assessment of the determinants of inflation dynamics in Egypt. The analysis adopts ordinary least squares (OLS) and quantile regression based on monthly data for headlines and core inflation from 2005 to 2024. A nonlinear auto regressive distributed lag (NARDL) is conducted to explore the asymmetric impacts for determinants in the short run and the long run. Finally, the paper uses forecast analysis within multivariate models to explore the future path of inflation after different shocks in explanatory variables. The results demonstrate that the main significant variables that help explain inflationary pressures are monetary financing, banking sector financing to the government, and the volatility of the exchange rate. There is also an asymmetric effect for exchange rate changes in the short run, where depreciations result in significant increases in inflation. Furthermore, the interest rate tool of monetary policy becomes ineffective at high levels of inflation. This has critical policy implications, shedding light on the role of unconventional monetary policy tools like forward guidance, asset purchases, and term funding facilities in curbing inflation. Priorities for policymaking should include reducing budget deficits, as ensuring a sustainable path of the fiscal deficit would curb the rising inflation. Finally, given the significance of monetary financing and banking sector financing to the government in explaining inflationary pressures, effective implementation of inflation targeting as a framework for monetary policy can contribute to stabilizing inflation rates, as it implies freedom from fiscal dominance and limiting excessive monetary growth. |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1779 |
| By: | Matthew Fink; Jonathan Hambur |
| Abstract: | The sharp rise in inflation following the COVID-19 pandemic has renewed interest in how firms adjust prices in response to large economic shocks and what this means for modelling inflation dynamics and setting monetary policy. Using a large dataset of web-scraped Australian retail prices, we document a decline in price rigidity and increase in the rate of price changes in 2022 and 2023, coinciding with a period of strong goods price inflation. We incorporate these microdata-based estimates of price-setting frequency into the RBA’s DSGE model to assess their macroeconomic implications. We find that failing to account for the increase in the rate of price changes during the high inflation period could have led forecasters to underpredict inflation by up to 1.5 percentage points, even if they knew exactly which shocks were hitting the economy at the time. Moreover, lower price rigidity significantly steepened the Phillips curve, reducing the policy trade-off between inflation and output. Under these conditions, policymakers with the same preferences would tend to raise rates more aggressively (by up to around 40 basis points), compared to the case where rigidity did not change. Our findings highlight the importance of considering the implications of shifts in price-setting behaviour when analysing inflation outcomes and designing monetary policy. |
| Keywords: | inflation, price setting |
| JEL: | E31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-07 |
| By: | Chadha, J. S.; Macchiarelli, C.; Goel, S.; Hantzsche, A.; Mellina, S. |
| Abstract: | The effective transmission of monetary policy can be hampered by geopolitical uncertainty, at times necessitating central banks to adapt their tools and communication strategy in order to anchor market expectations. The UK 2016 referendum on EU membership is a prominent example of geopolitical uncertainty, manifested as an historic event. Accordingly, this paper examines how the Bank of England (BoE) adjusted their response, including through conventional, unconventional monetary policy measures and communications. We use text-based analysis of Monetary Policy Committee (MPC) summaries and minutes to measure the stance of policy, QE-related news and geopolitical uncertainty. To investigate the impact of central bank communication, we then decompose long-dated yields into a risk-neutral and term premium component and analyse the dynamic response to MPC communications. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded to the result of the referendum by lowering Bank Rate and expanding QE, and helped lower the term premium that might otherwise have risen in response to this example of geopolitical uncertainty. |
| Keywords: | UK Referendum, Geopolitical Uncertainty, Risk Premium, Monetary Policy, Central Bank Communication, Text Mining |
| JEL: | E32 E43 E44 E52 |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2606 |
| By: | Gautier, Erwan; Conflitti, Cristina; Fadejeva, Ludmila; Grimaud, Alex; Jouvanceau, Valentin; Menz, Jan-Oliver; Paulus, Alari; Petroulas, Pavlos; Roldan-Blanco, Pau; Wieland, Elisabeth; Enderle, Daniel; Gutiérrez, Eduardo |
| 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 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. JEL Classification: E31, E52, F33, L11 |
| Keywords: | euro area, inflation surge, micro price data, price rigidity |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263181 |
| By: | Magali Marx; Christoph Grosse Steffen; Moaz Elsayed |
| Abstract: | We identify two global supply shocks that generate tensions in supply chains: shocks to transportation services and shocks to the production of highly specific intermediate inputs. Using a structural vector autoregression identified with sign, narrative, and boundary restrictions, we exploit their distinct implications for transportation costs. Transportation shocks raise shipping costs, while input production shocks lower equilibrium transportation prices by reducing output and demand for complementary services. Complementing the analysis with a global demand shock, we construct structurally interpretable, monthly indices for supply-side tensions and demand-induced congestion along global supply chains from 1969 to 2024. Both global supply shocks generate recessionary and inflationary effects in U.S. data but differ markedly in persistence and magnitude. Input production shocks produce large and persistent effects and elicit partial monetary policy accommodation, whereas transportation shocks are transitory and largely looked through. |
| Keywords: | Supply Chains, Input Shortages, Transport Shocks, Structural Vector Autoregressions, Inflation, Monetary Policy, Demand-Induced Congestion. |
| JEL: | C32 E31 E52 F60 R40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1026 |
| By: | Alexander Mihailov; Giovanni Razzu; Zhe Wang |
| Abstract: | This paper examines the gendered effects of monetary policy shocks on key labour market outcomes in the Euro Area spanned by the 11 original member states from 2000 to 2016. Using a quarterly panel dataset and an identification strategy based on high-frequency financial surprises, we isolate exogenous monetary policy shocks from central bank information effects and trace their transmission across labour market outcomes for men and women. We provide new evidence on the distributional consequences of the common monetary policy shocks originating at the European Central Bank. A contractionary shock significantly increases unemployment for both genders, with systematically larger effects for men. At the same time, women exhibit a stronger rise in labour force participation, consistent with household labour supply adjustments. Gender differences in unemployment and participation are primarily driven by individuals aged 25–55 and are most pronounced among those with basic and intermediate education. Finally, labour market institutions shape the magnitude of these effects, either mitigating or amplifying gender disparities. |
| Keywords: | gender gaps, labour market outcomes, monetary policy shocks, labour market institutions, Euro Area |
| JEL: | E24 E32 E52 F45 J16 J24 |
| Date: | 2026–02–08 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2026-01 |
| 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: | U.S. Treasury securities; Monetary policy transmission; Capital requirements; Asset purchase operations |
| JEL: | E52 F42 F44 G21 |
| Date: | 2026–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102399 |
| By: | Consolo, Agostino; Foroni, Claudia; Hjelm, Linnéa |
| Abstract: | Unlike past high-inflation episodes, the euro area labour market remained surprisingly resilient during the inflation surge of the early 2020s. This paper investigates the drivers of this resilience by combining long-span euro area macroeconomic data (1970–2025) with a structural VAR analysis that disentangles the roles of aggregate demand and supply, monetary policy, and factor-substitution shocks. Our findings show that, in contrast to the 1970s and 1980s, the decline in real wages has supported labour demand and, more broadly, the labour market, thereby helping to explain the decoupling between output and employment. We also find that monetary policy shocks have had a stronger impact on output than on employment, further amplifying the pro-cyclicality of labour productivity. JEL Classification: E24, E32, C32 |
| Keywords: | Bayesian VAR, labour markets, monetary policy, real wages |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263180 |
| By: | Chaimae Lazzarou (Bank Al-Maghrib – Central Bank of Morocco) |
| Abstract: | This paper estimates Morocco's natural interest rate (NIR) using two approaches: a standard HLW-type framework and an augmented specification that incorporates external factors, namely imported inflation, and movements in the real effective exchange rate. The results point to a downward trend in the natural rate following the Global Financial Crisis and an increase during the post pandemic inflationary episode. The REER-augmented model delivers higher estimates than the baseline, particularly in periods of inflationary pressures. On average, the natural interest rate is estimated to stand at around 2.6 percent over the sample period, implying a negative interest rate gap relative to the policy rate. |
| Keywords: | Natural interest rate; Monetary policy; Small open economy; Bayesian estimation |
| JEL: | E43 E52 F41 C11 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp01-2026 |
| By: | Efrem Castelnuovo (University of Padova, CESifo, and CAMA); Giovanni Pellegrino (University of Padova and Aarhus University Author-Name: Laust L. Særkjær; Aarhus University) |
| Abstract: | We study how uncertainty shocks affect the macroeconomy across the inflation cycle using a nonlinear stochastic volatility-in-mean VAR. When inflation is high, uncertainty shocks raise inflation and depress real activity more sharply. A nonlinear New Keynesian model with second- moment shocks and trend inflation explains this via an "inflation-uncertainty amplifier": the interaction between high trend inflation and firms’ upward price bias magnifies the effects of uncertainty by increasing price dispersion. An aggressive policy response can replicate the allocation achieved under standard policy when trend inflation is low. |
| Keywords: | : Uncertainty, trend inflation, nonlinear VAR model, new Keynesian model, monetary policy. |
| URL: | https://d.repec.org/n?u=RePEc:pad:wpaper:0321 |
| By: | Christopher D. Cotton; Anna Durall; Vaishali Garga |
| Abstract: | Each year from 2023 through 2025, monthly inflation, as measured by the US Bureau of Labor Statistics consumer price index, was generally higher in January compared with the rest of the year. This brief presents three reasons that collectively may explain why inflation has been especially elevated at the beginning of recent calendar years. |
| Keywords: | residual seasonality; January inflation; Frequency of price changes |
| JEL: | E31 E32 E52 |
| Date: | 2026–02–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbcq:102401 |
| By: | Trinh Phuc Hung; Aleksandar Vasilevv |
| Abstract: | This research aimed to identify existence of a New Keynesian Phillips Curve in Vietnam. The examined period was 2012Q2 – 2025Q2, using secondary macroeconomics data and the Generalised Moments Method at 95% level of confidence. The dependent variables were price inflation and wage inflation, while the independent variables were the expected future inflation, three proxies of real marginal cost (the output gap, unit labour cost and labour income share), and the long-short interest rate spread. Findings from the research confirmed the existence of the traditional NKPC in Vietnam, with inflation positively influenced by the real marginal cost. Among the proxies, the conventional output gap is not totally outdated, having a positive, weak but statistically significant impact on wage inflation. Still, proxies related to the labour market were much stronger, positive determinants of both price and wage inflations. The inclusion of the interest rate spread made the effects of the proxies (on inflation) slightly stronger. A positive relationship was also found between current and expected future inflation, and inflation persistence in Vietnam was witnessed. Compared to some other emerging, open economies in the world, the Phillips curve in Vietnam in the period was flatter. The research wrapped up with some implications for academic researchers and Vietnam’s central bank, specifically regarding the cautious application of the structural NKPC model to explain short-run inflation dynamics in monetary decisions in Vietnam. |
| Keywords: | New Keynesian Phillips Curve (NKPC), price inflation, wage inflation, output gap, unit labour cost, labour income share, Generalised Moments Method (GMM). |
| JEL: | E31 J31 J33 |
| Date: | 2026–01–02 |
| URL: | https://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2026_02 |
| By: | Sriya Anbil; Alyssa G. Anderson; Benjamin Eyal |
| Abstract: | The Global Financial Crisis (GFC) and the Federal Reserve's (Fed) large-scale asset purchases fundamentally reshaped the U.S. monetary policy implementation framework. Before 2008, the Fed operated under a scarce-reserves regime, steering the federal funds rate through daily open market operations. |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102397 |
| By: | Kohei Asao; Raju Huidrom |
| Abstract: | This paper presents a comprehensive analysis of inflation in Timor-Leste—a post-conflict, low-income economy and small developing state that is fully dollarized. We find that Timorese inflation was high until about mid-2010 and was strongly influenced by swings in global food prices given its high share of food in the CPI basket and heavy reliance on food imports. But inflation has been relatively low and stable in the past decade relative to peers—a period that also broadly coincided with moderate global food prices. We develop an empirical model for Timorese inflation that distills the role of these underlying drivers, and which can be deployed for forecasting inflation. |
| Keywords: | Inflation; Phillips curve; Low-Income Country; Fragile and Conflict State; Dollarization; Timor-Leste |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/024 |
| By: | Nocciola, Luca |
| Abstract: | We document empirically the money demand by European non-financial corporations by exploiting a unique and brand-new survey on their cash usage in a stress period. We also assess: (i) the relation between cash held and firm size; and (ii) estimate point values of cash holdings and carry out statistical comparisons along the sectoral and country dimensions. First, we find that cash holdings are inversely related to firm size, providing additional evidence that Small and Medium Enterprises (SMEs) tend to store more cash relative to their larger peers. Second, we find that cash-intensive sectors and” cash-friendly” countries display right-shifted distributions of cash holdings with statistically-significant larger average holdings. We argue that in a low interest rate and low inflation environment cash holdings serve as a store of value for European firms, in particular for SMEs which are more likely to be financially constrained, especially in crisis times. JEL Classification: D22, D25, E41, G01, G32 |
| Keywords: | cash demand, financial crisis, monetary economics, precautionary savings, store of value |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263182 |
| By: | Efrem Castelnuovo (University of Padua); Giovanni Pellegrino (University of Padua); Laust L. Saerkjaer (Aarhus University) |
| 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 sup- port 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. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:pad:wpaper:0328 |
| By: | Matthew C. Johnson; Matteo Luciani; Minzhengxiong Zhang; Kenichiro McAlinn |
| Abstract: | Central banks rely on density forecasts from professional surveys to assess inflation risks and communicate uncertainty. A central challenge in using these surveys is irregular participation: forecasters enter and exit, skip rounds, and reappear after long gaps. In the European Central Bank's Survey of Professional Forecasters, turnover and missingness vary substantially over time, causing the set of submitted predictions to change from quarter to quarter. Standard aggregation rules -- such as equal-weight pooling, renormalization after dropping missing forecasters, or ad hoc imputation -- can generate artificial jumps in combined predictions driven by panel composition rather than economic information, complicating real-time interpretation and obscuring forecaster performance. We develop coherent Bayesian updating rules for forecast combination under sporadic participation that maintain a well-defined latent predictive state for each forecaster even when their forecast is unobserved. Rather than relying on renormalization or imputation, the combined predictive distribution is updated through the implied conditional structure of the panel. This approach isolates genuine performance differences from mechanical participation effects and yields interpretable dynamics in forecaster influence. In the ECB survey, it improves predictive accuracy relative to equal-weight benchmarks and delivers smoother and better-calibrated inflation density forecasts, particularly during periods of high turnover. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.05226 |
| By: | Bardóczy, Bence (Federal Reserve Board); Savoia, Ettore (Research Department, Central Bank of Sweden); Vel´asquez-Giraldo, Mateo (Federal Reserve Board) |
| Abstract: | We study the transmission and distributional effects of monetary policy in an environment where consumption-saving choices reflect both precautionary motives and life-cycle considerations. Age emerges as a key state variable linking multiple dimensions of heterogeneity: young households have low wealth, high marginal propensities to consume, and strongly procyclical hours. In a quantitative model matching these facts, monetary policy operates primarily by stimulating investment and boosting labor demand for young workers. Wealthy retirees are affected through asset repricing and lower future returns, but the consumption and welfare effects for most retirees are small because they hold little financial wealth. |
| Keywords: | HANK; Heterogeneous Agents; Life-Cycle Dynamics; Monetary Policy; Redistribution. |
| JEL: | D31 D91 E21 E32 E52 |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0461 |
| By: | M.Jahangir Alam; Shane Boyle; Huiyu Li; Tatevik Sekhposyan |
| Abstract: | Recent research suggests that generic large language models (LLMs) can match the accuracy of traditional methods when forecasting macroeconomic variables in pseudo out-of-sample settings generated via prompts. This paper assesses the out-of-sample forecasting accuracy of LLMs by eliciting real-time forecasts of U.S. inflation from ChatGPT. We find that out-of-sample predictions are largely inaccurate and stale, even though forecasts generated in pseudo out-of-sample environments are comparable to existing benchmarks. Our results underscore the importance of out-of-sample benchmarking for LLM predictions. |
| Keywords: | large language models; generative AI; inflation forecasting |
| JEL: | C45 E31 E37 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102407 |
| By: | Schmidt, Sebastian |
| Abstract: | I study price level determination in a currency union when some member countries’ government securities earn a convenience yield. These ”convenience assets” generate fiscal seigniorage revenues that, given appropriate fiscal and monetary policies, back the union’s price level, much like primary surpluses and monetary seigniorage do. An exogenous drop in the private-sector demand for convenience assets reduces seigniorage revenues and raises the price level. It also results in a wealth transfer across countries owing to the heterogeneity in convenience yields. JEL Classification: E31, E63, F45 |
| Keywords: | convenience yield, cross-country heterogeneity, currency union, fiscal theory of the price level |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263183 |
| By: | Mitrovic, Aleksandar; Steenkamp, Daan |
| Abstract: | E‐commerce data enable economists to study a range of economic phenomena, ranging from price dynamics, market structure and product entry and innovation, consumer demand and behaviour, and pass‐through of input costs to final retail prices. In this paper we compare developments in e‐commerce prices to official estimates of consumer good inflation in South Africa. We highlight measurement challenges and differences between online list prices and officially surveyed statistics from discounting, product changes and product availability over time. We also evaluate online discounting behaviour for specific products and product categories, especially during Black Friday sales, and quantify online price persistence in South Africa. We show that e‐commerce prices experience changes at a broadly similar frequency as our estimates imply for official measures of consumer prices. Our analysis suggests real‐time alternative data are important, not just for forecasting, but also for understanding the nature of price dynamics in South Africa. |
| Keywords: | E‐commerce, big data, real‐time data |
| JEL: | E31 C81 L81 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esrepo:336211 |
| By: | Kardelen Cicek; Julieth C Pico-Mejia; Mr. Marcos Poplawski Ribeiro; Alberto Tumino |
| Abstract: | This paper analyzes the redistributive effects of inflation across 18 European economies from 2021:Q3 to 2022:Q2, using unique micro-datasets for this country sample. We estimate inflation’s impact on household welfare through the consumption basket, income, and wealth channels. Our main contribution is incorporating real assets into the wealth channel and accounting for behavioral responses to inflation in both the income and wealth channels. These factors significantly alter inflation’s distributional effects compared to previous literature. The inflation shock is estimated to have caused an average welfare loss equivalent to 18.5 percent of annual household income across our sample, with households in the poorest income quintiles suffering the largest losses. Cross-country differences also widen when real assets are incorporated, with a few economies even showing welfare gains for some or all quintiles because house prices rose faster than inflation. |
| Keywords: | Distribution; Inflation; Wealth Effects; Real Assets; Behavioral Effects |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/022 |
| 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. |
| Keywords: | bank failures; bank runs; liquidity; solvency; banking regulation; supervision |
| JEL: | G01 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102433 |
| By: | Bruno Albuquerque; Mr. Eugenio M Cerutti; Melih Firat; Benedikt Kagerer |
| Abstract: | We study how banking groups adjust corporate credit supply in response to tighter macroprudential policies. Using granular data on syndicated corporate loans, we show that banking groups reallocate lending from bank subsidiaries toward affiliated nonbank financial institutions (NBFIs) following regulatory tightening. Relative to bank subsidiaries within the same group, NBFI subsidiaries expand lending, and their credit supply also increases in absolute terms. We estimate that by ‘banking on’ their nonbanks, banking groups offset, on average, more than half of the contraction in bank lending induced by macroprudential tightening. Our findings highlight an important intra-group reallocation channel through which banking groups can partially offset regulatory constraints and result in greater bank–nonbank interconnectedness. |
| Keywords: | Banking groups; Nonbank subsidiaries; Macroprudential policies; Cross-border lending; Syndicated loans |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/023 |
| By: | Wenjie Li |
| Abstract: | This paper introduces the FinOpen index, a novel measure of capital flow management for 193 countries from 1996 to 2022. Using information from the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), the index is constructed by estimating the level of openness annually and updating it daily by incorporating changes in capital flow management measures (CFMs). Therefore, this index goes beyond the traditional indexes that rely on binary labels that only distinguish between full capital openness and any control. Within the range of [0, 1], the FinOpen index quantifies granular policy intensity and allows comparisons across countries (with higher values indicate greater capital openness). In addition, the dataset extends back to 1960 for 42 emerging and developing countries, and the methodology can be applied to construct long-term series for other countries. |
| Keywords: | Capital flows management measures; Capital Control; Capital Openness |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/021 |
| By: | Mario A. Ramos-Veloza; Sara Naranjo-Saldarriaga; José Pulido |
| Abstract: | We extend the semi-structural model for monetary policy analysis and forecasting in Colombia, the 4GM model (González et al., 2020), by integrating labor market dynamics into its specification. We incorporate four key mechanisms: (1) wage-price feedback and its effects on marginal costs; (2) the impact of the NAIRU on potential output; (3) Okun’s law to connect cyclical unemployment to the output gap; and (4) the impact of real wages and unemployment on aggregate demand. Our model adds to the baseline 4GM model interactions between goods and labor markets, which affect the transmission of the monetary policy. Focusing on Colombia, a country with a labor market characterized by rigidities and persistently high unemployment, we demonstrate how wage dynamics and labor market tightness amplify inflationary pressures and delay adjustment. Our model aids in disentangling supply and demand shocks, particularly during crises (e.g., the pandemic), when labor market idiosyncrasies distort wage and inflation trends. *****RESUMEN: Extendemos el modelo semi-estructural para el análisis y pronóstico de la política monetaria en Colombia, el modelo 4GM (González et al, 2020), integrando la dinámica del mercado laboral en su especificación. Incorporamos cuatro mecanismos clave: (1) la retroalimentación salario-precio y sus efectos en los costos marginales; (2) el impacto de la NAIRU (tasa de desempleo no aceleradora de la inflación) sobre el producto potencial; (3) la ley de Okun para conectar el desempleo cíclico con la brecha del producto; y (4) el impacto de los salarios reales y el desempleo sobre la demanda agregada. Nuestro modelo añade a la línea base del 4GM las interacciones entre los mercados de bienes y de trabajo, las cuales afectan la transmisión de la política monetaria. Centrándonos en Colombia, un país con un mercado laboral caracterizado por rigideces y un desempleo persistentemente alto, demostramos cómo la dinámica salarial y la tensión en el mercado laboral amplifican las presiones inflacionarias y retrasan el ajuste. Nuestro modelo ayuda a distinguir entre choques de oferta y demanda, particularmente durante crisis (por ejemplo, la pandemia), cuando las idiosincrasias del mercado laboral distorsionan las tendencias salariales e inflacionarias. |
| Keywords: | Unemployment, Wages, Inflation, Monetary policy model, Desempleo, Salarios, Inflación, Modelo de política monetaria |
| JEL: | E24 E52 J64 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1341 |
| By: | Shengwei You; Aditya Joshi; Andrey Kuehlkamp; Jarek Nabrzyski |
| Abstract: | Algorithmic stablecoins promise decentralized monetary stability by maintaining a target peg through programmatic reserve management. Yet, their reserve controllers remain vulnerable to regime-blind optimization, calibrating risk parameters on fair-weather data while ignoring tail events that precipitate cascading failures. The March 2020 Black Thursday collapse, wherein MakerDAO's collateral auctions yielded $8.3M in losses and a 15% peg deviation, exposed a critical gap: existing models like SAS systematically omit extreme volatility regimes from covariance estimates, producing allocations optimal in expectation but catastrophic under adversarial stress. We present MVF-Composer, a trust-weighted Mean-Variance Frontier reserve controller incorporating a novel Stress Harness for risk-state estimation. Our key insight is deploying multi-agent simulations as adversarial stress-testers: heterogeneous agents (traders, liquidity providers, attackers) execute protocol actions under crisis scenarios, exposing reserve vulnerabilities before they manifest on-chain. We formalize a trust-scoring mechanism T: A -> [0, 1] that down-weights signals from agents exhibiting manipulative behavior, ensuring the risk-state estimator remains robust to signal injection and Sybil attacks. Across 1, 200 randomized scenarios with injected Black-Swan shocks (10% collateral drawdown, 50% sentiment collapse, coordinated redemption attacks), MVF-Composer reduces peak peg deviation by 57% and mean recovery time by 3.1x relative to SAS baselines. Ablation studies confirm the trust layer accounts for 23% of stability gains under adversarial conditions, achieving 72% adversarial agent detection. Our system runs on commodity hardware, requires no on-chain oracles beyond standard price feeds, and provides a reproducible framework for stress-testing DeFi reserve policies. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.22168 |
| By: | Philippe Bacchetta; Kenza Benhima; Yannick Kalantzis; Maxime Phillot |
| Abstract: | We build a two-country heterogenous-agent non-Ricardian model featuring asset scarcity and financial frictions in international capital markets. Due to the non-Ricardian nature of our framework, a demand for liquidity emerges and the supply of bonds matters. We show that shocks affecting the supply or demand of assets have very different international spillovers for an economy in a liquidity trap. A decrease in the supply of assets issued abroad leads to an asset shortage domestically. In normal times, the nominal interest rate decreases, stimulating investment and output. In a liquidity trap, deflation hits instead and the currency appreciates, which may cause a recession. |
| Keywords: | International Spillovers, Zero Lower Bound, Liquidity Trap, Asset Scarcity |
| JEL: | E40 E22 F32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1032 |