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on Monetary Economics |
| By: | Elizaveta Lukmanova (Central Bank of Ireland); Katrin Rabitsch (Vienna University of Economics (WU), Department of Economics) |
| Abstract: | In light of recent evidence on the significant contribution of persistent monetary shocks to inflation dynamics in the U.S., we study their international transmission. In contrast to standard temporary nominal interest rate shocks, persistent shocks increase long-run inflation and the nominal rate while decreasing the real rate. We find that it leads to non-negligible international spillovers and dollar depreciation. We further show that when it comes to understanding the international spillover effects of U.S. monetary policy, persistent monetary policy shocks rather than temporary nominal interest rate shocks have the potential to explain long-run co-movements of macroeconomic variables across advanced countries. |
| Keywords: | Monetary Policy, International spillovers, Long-run Inflation, Neo-Fisher effect |
| JEL: | E12 F31 E52 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp394 |
| By: | Acosta, Miguel; Ajello, Andrea; Bauer, Michael D.; Loria, Francesca; Miranda-Agrippino, Silvia |
| Abstract: | This paper introduces the U.S. Monetary Policy Event-Study Database (USMPD), a novel, public, and regularly updated dataset of financial market data around Federal Open Market Committee (FOMC) policy announcements, press conferences, and minutes releases. Using the rich high-frequency data in the USMPD, we document several new empirical findings. Large monetary policy surprises have made a comeback in recent years, and post-meeting press conferences have become the most important source of policy news. Monetary policy surprises have pronounced negative effects on breakeven inflation based on Treasury yields. Risk assets, including dividend derivatives, also respond strongly and negatively to monetary policy surprises, consistent with conventional channels of monetary transmission. Press conferences have stronger effects than FOMC statements on most asset prices. Finally, the term structure evidence shows peak effects on market-based inflation and dividend expectations at horizons of several years. |
| Keywords: | Federal Reserve, monetary policy surprises, high-frequency event studies |
| JEL: | E43 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:334479 |
| By: | Hilscher, Jens; Raviv, Alon; Reis, Ricardo |
| Abstract: | Long-dated inflation swap contracts provide widely used estimates of expected inflation. We develop methods to estimate complementary tail probabilities for persistently very high or low inflation using inflation options prices. We show that three new adjustments to conventional methods are crucial: inflation, horizon, and risk. We find that: (a) U.S. deflation risk in 2011–2014 has been overstated, (b) ECB unconventional policies lowered deflation disaster probabilities, (c) inflation expectations deanchored in 2021–2022, (d) reanchored as policy tightened, (e) but the 2021–2024 disaster left scars, and (f) U.S. expectations are less sensitive to inflation realizations than in the eurozone. |
| Keywords: | option prices; inflation derivatives; Arrow-Debreu securities |
| JEL: | E31 E44 E52 G13 |
| Date: | 2025–11–16 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127063 |
| By: | Reimers, Paul; Michaelis, Henrike |
| Abstract: | Compared to 2021, the aggregate bank lending rate to firms in the euro area in- creased strongly during the monetary tightening and easing cycle of 2022-25. However, it rose up to 1.5 percentage points less than the rise in policy and money market rates. We approach this gap using granular credit registry data, revealing how changes in the composition and pricing of credit translate into developments of the aggregate rate. The tool we use is standard in labor economics, but scarcely used outside that context: the Oaxaca-Blinder decomposition. We are the first to apply it to analyze the development of an aggregate variable over time in the loan pricing literature. We find that changes in the pricing of credit compared to 2021 were the main reason why a gap opened up. Compositional shifts in firm and credit characteristics and changes in banks' market shares had minor effects. Our micro-level insights have implications for policy makers, bankers and debtors, as they help understand what shapes aggregate pass-through patterns and the strength of monetary policy transmission. Moreover, our approach opens up promising new applications in the loan supply literature. |
| Keywords: | Credit pricing, euro area, monetary policy transmission, interest ratepass-through |
| JEL: | E52 E43 E44 E58 G20 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:334533 |
| By: | Eric Vansteenberghe |
| Abstract: | This paper investigates how dispersion in banks’ subjective inflation forecasts is a channel of the transmission of monetary policy to credit supply. We extend the Monti--Klein model of monopolistic banking by incorporating risk aversion, subjective beliefs, and ambiguity aversion. The model predicts that greater inflation uncertainty or asymmetry in beliefs raises equilibrium loan rates and amplifies credit rationing. Using AnaCredit loan-level data for France, we estimate finite-mixture density regressions that allow for latent heterogeneity in loan pricing. Empirically, we find that higher subjective uncertainty and asymmetry both increase average lending rates and skew their distribution, disproportionately affecting financially constrained firms in the right tail. Quantitatively, moving from the 25th to the 75th percentile of our indicators raises average borrowing costs by more than 10 basis points, which translates into roughly 0.5 billion euros of additional annual interest expenses for non-financial corporations. By contrast, forecast disagreement has a weaker and less systematic effect. Taken together, these results show that uncertainty and asymmetry in inflation expectations are independent and powerful drivers of credit conditions, underscoring their importance for understanding monetary policy transmission through the banking sector. |
| Keywords: | Monetary Policy Transmission, Inflation Uncertainty, Bank Lending |
| JEL: | D84 E52 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1025 |
| By: | Gillman, Max; Cevik, Emrah Ismail; Dibooglu, Sel |
| Abstract: | This paper examines the dynamic relationship between real oil prices and U.S. monetary policy instruments over more than fifty years. Using symmetric and asymmetric time-varying Granger predictability tests alongside time-varying local projections with stochastic volatility, the study assesses how U.S. monetary aggregates and interest rates predict real oil prices—and how oil prices, in turn, predict monetary variables. The results show that both narrow and broad monetary aggregates, as well as short- and long-term interest rates, Granger predict real oil prices to varying degrees since the 1970s, with notable differences between symmetric and asymmetric specifications. Predictability is bidirectional, yet oil price responses vary substantially over time. Local projections show that interest rates shock real oil prices with high magnitude during early conventional times, especially the 1973 and 1979 oil shocks plus some in the 1980s, but diminish markedly thereafter. In contrast, monetary aggregate shocks dominate in magnitude after 2008, as unconventional monetary policy became manifest. Money supply shocks strongly influence oil prices during the global financial crisis, the 2015–2019 normalization period, the COVID-19 episode, and the 2021–2023 inflation surge. Findings highlight historical time-varying asymmetry in how monetary policy interacts with oil markets, providing implications for policy. |
| Keywords: | real oil prices, time-varying Granger predictability, time-varying local projections with stochastic volatility, U.S. money supply aggregates, U.S. interest rates |
| JEL: | E43 E44 Q41 Q43 |
| Date: | 2025–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:cvh:coecwp:2025/04 |
| By: | Benjamin Born; Nora Lamersdorf; Jana-Lynn Schuster; Sascha Steffen |
| Abstract: | Using modern natural language processing, we construct a high-frequency inflation expectations index from German-language tweets. This index closely tracks realized inflation and aligns even more closely with household survey expectations. It also improves short-run forecasts relative to standard benchmarks. In response to monetary policy tightening, the index declines within about a week, with the effects concentrated in tweets by private individuals and during the recent period of elevated inflation. Using 117 million online transactions from German retailers, we show that higher inflation expectations are followed by lower household spending on discretionary goods. By linking these shifts in demand to stock returns, we find that, during periods of elevated inflation, firms operating in discretionary sectors experience significantly lower stock returns when inflation expectations rise. Thus, our Twitter-based index provides market participants and policymakers with a timely tool to monitor inflation sentiment and its economic consequences. |
| Keywords: | Inflation expectations, social media (Twitter/X), large language models (LLMs), NLP, household consumption, stock returns, monetary policy |
| JEL: | E31 D84 E58 C45 C81 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_724 |
| By: | Sami Alpanda; Serdar Kabaca; Kostas Mavromatis |
| Abstract: | This paper examines the optimal coordination of conventional and unconventional mone-tary policy tools in an environment characterized by household heterogeneity and mortgage debt. We develop a dynamic stochastic general equilibrium (DSGE) model with three types of households—savers, borrowers, and renters—and incorporate housing investment, fixed-rate long-term mortgages, and a housing production sector. The central bank controls both the short-term interest rate and the long-term rate via the relative supply of long-term bonds. We show that household heterogeneity significantly alters the optimal policy response to macroeconomic shocks. In particular, following a cost-push shock, the optimal policy involves raising the short-term rate to combat inflation while lowering the long-term rate to alleviate financial burdens on indebted households and renters. This policy mix accelerates investment recovery but increases consumption inequality. In contrast, in a representative-agent economy, both rates are raised. Our findings highlight the importance of accounting for distributional effects in monetary policy design and suggest that yield curve control can be a valuable tool in heterogeneous economies. |
| Keywords: | Monetary policy, household heterogeneity, yield curve control |
| JEL: | E40 E43 E52 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:853 |
| By: | Milda Valentinaite; Egle Ceponyte; Ingars Zustrups |
| Abstract: | The shift in monetary policy has different repercussions on bank profits depending on the prevalence of fixed or floating interest rates charged on loans. The Baltic states provide a case study of the impact of monetary tightening on profits in predominantly floating interest rates setup amid high liquidity. This paper examines the drivers of the profit surge following 2022-2023 tightening cycle, reviews the fiscal policy responses chosen by Lithuania, Latvia and Estonia, and draws tentative lessons on the design and effectiveness of sector-specific windfall taxation. |
| Keywords: | Monetary policy, Interest rates, Fiscal policy, fiscal rules, inflation, Baltic countries. |
| JEL: | H25 E43 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:euf:ecobri:086 |
| By: | Rezk Ernesto; Moneta Pizarro Adrian; Martos Vocos María del Rosario; Masih Basel Abdel; Cabido Pilar; López Juan Manuel |
| Abstract: | Soon after leaving Convertibility, Argentina started to experience a long period of chronic inflation characterised by inflation rates resilient to decline, despite policymakers’ attempt to restoring stability. Particularly during the sub-period (2010-2023), stabilising policies either based on control of monetary aggregates, inflation targeting, or including the monetary authority’s rates of interest did not succeed in checking inflation. Two reasons mainly accounted for stabilisation policies failing to achieve results; first, fiscal policies not aligned with stabilisation goals, and second, an exchange anchor based on a not credible crawling-peg mechanism, plus restrictions upon exchange market operations, causing an informal exchange rate to appear and forcing devaluations of the national currency (individuals’ self-fulfilled prophecies). In contrast, the government elected for the period (2023-2027), resorted to a complete different stabilising policy approach privileging an orderly fiscal policy based on the control of the monetary base, the reduction of public spending and the elimination of fiscal deficits which soon achieved gradual contractions of inflation rates of single digits. However, policy makers face now new challenges as high interest rates used to absorb liquidity and to ease pressure upon dollar favour recession impacting in turn upon the levels of economic activity, investment and employment. |
| JEL: | C60 H63 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4834 |
| By: | Wolswijk, Guido |
| Abstract: | This paper examines how fiscal policy in the euro area reacts to monetary policy, by estimating fiscal policy reaction functions for the period 1999-2019. Inclusion of the monetary policy stance in the fiscal reaction function, approximated by a shadow interest rate, is a relatively novel aspect in this type of analysis. The findings suggest that fiscal policy acts in a substitutive manner, its stance moving in the opposite direction of monetary policy, though this effect may have ceased operating during ECB’s quantitative easing. Using local projections, the substitutive effect is found to increase over time before turning broadly neutral. Analysing the fiscal response to other monetary policy relevant variables - government debt and the output gap -, outcomes suggests that budget balances react positively to government debt, supporting fiscal sustainability, and that fiscal policy acts countercyclically in recessions. JEL Classification: E61, H11, H62 |
| Keywords: | debt sustainability, monetary policy transmission, policy interactions, reaction function |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263172 |
| By: | Sophia Chen; Ms. Deniz O Igan; Ms. Leila Aghabarari; Bernardus Van Doornik |
| Abstract: | We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs. |
| Keywords: | Monetary policy; government banks; government direct credit; earmarked credit; SME; emerging market; Brazil |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/004 |
| By: | Cooper Howes; Marc Dordal i Carreras; Olivier Coibion; Yuriy Gorodnichenko |
| Abstract: | We construct a new dataset of FOMC meeting transcripts from 1966 to 1990 to analyze the sources of heterogeneity in individual monetary policy preferences and study how this heterogeneity shapes policy decisions. Using these detailed discussions, we manually quantify and characterize each FOMC participants’ preferred policies along with their reasoning and justification. We show that participants' beliefs about the effects of monetary policy—specifically, their perceived slope of the Phillips Curve—play a central role. Participants who believe monetary policy has stronger effects on real activity are more likely to cite output as a justification for easing, while those perceiving stronger price effects emphasize inflation as a reason for tightening. We then show that the Chair plays a unique and powerful role in reconciling these views, not just in setting policy rates, but also in minimizing dissent. The latter occurs because dissenters find their ability to influence policy in subsequent meetings is significantly curtailed. |
| JEL: | E03 E4 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34632 |
| By: | Ozili, Peterson |
| Abstract: | This study investigates the effect of inflation on the accessibility dimension of financial inclusion across 61 countries. The consumer price index and the GDP implicit price deflator are used as measures of inflation. Four accessibility indicators of financial inclusion are used which are the composite financial inclusion index, the number of bank depositors, ATM penetration and the number of bank branches. Using the median quantile regression and the two-stage least squares regression methods, the findings reveal that inflation has a positive effect on financial inclusion in European countriaes. A one percent increase in inflation leads to at least a 0.05 percent increase in financial inclusion in Europe. A negative but insignificant effect was found in African, Asian and the Americas countries. The moderation analysis shows that banking sector stability does not weaken the adverse effect of inflation on financial inclusion in African countries, but a high loan-to-deposit ratio in the banking sector weakens the adverse effect of inflation on financial inclusion and accelerates financial inclusion in a high inflation environment in African countries. In the individual mechanism analysis, we find that inflation decreases the number of bank depositors in the Americas and increases the number of bank depositors in European countries. High inflation decreases financial inclusion through a decrease in the number of bank branches in African and European countries. The implication of the findings is that inflation adversely affect financial inclusion, and the effect depend on the financial access indicator being examined. Policymakers need to identify the financial access indicators that are worst hit by rising inflation, and they should explore how monetary policy tools can reduce inflation persistence without decreasing the level of financial inclusion. |
| Keywords: | inflation, financial inclusion, quantile regression, bank stability, efficiency, loan-to-deposit ratio, financial inclusion index. |
| JEL: | E31 E51 E52 E58 G21 G23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127369 |
| By: | Bujunoori, Raja Reddy; Mannil, Nithin; Tantri, Prasanna |
| Abstract: | We ask whether the presence of contract workers influences the sensitivity of firm output to monetary policy shocks. We use a judgment of the Supreme Court of India that facilitated the hiring of contract workers as a setting that exogenously increased their presence, especially in states with stringent labor laws. Difference-in-differences and triple-difference tests show that the sensitivity of output to monetary policy shocks moderates due to the presence of contract workers. The relative flexibility of contract workers’ wages and not the relative ease of hiring/firing is the mechanism. Additional analysis shows that the moderation in output sensitivity is stronger during monetary contractions. |
| Keywords: | contract workers; monetary policy transmission; wage rigidity |
| JEL: | J31 J53 L24 |
| Date: | 2024–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:121576 |
| By: | Chuan Du; Ria Sonawane; Cy Watsky |
| Abstract: | Stablecoins are crypto-assets designed to maintain a stable value against a reference asset, typically the U.S. Dollar. The peg to the dollar is supported by the assets that back the stablecoin. Stablecoins perform dollar-like functions in decentralized finance (DeFi) and represent a run-able liability for their issuers. |
| Date: | 2025–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-12-17-2 |
| By: | Weiyang ZHAI; Yushi YOSHIDA |
| Abstract: | Inflation expectation is one of the essential components of monetary policy decisions. Upon examining Japanese inflation expectations between 1991:Q4 and 2025:Q1, we propose a modified empirical model that includes a forecast trend term in addition to the forecast revision term. We found that the forecast trend term affects the forecast errors. The full sample results indicate that people in Japan form non-rational expectations with information rigidity. However, this holds only in the recent episode of inflation following the post-COVID period. During the zero-inflation periods, people formed full-information rational expectations. In addition, we find evidence that consumption tax hikes affect the forecast errors, partly due to the uncertainty about future implementation. In both periods, the possibility of deviating from rational expectations cannot be ruled out. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:26004 |
| By: | Matthias Burgert (SWISS NATIONAL BANK); Matthieu Darracq Pariès (EUROPEAN CENTAL BANK); Luigi Durand (BANK OF CHILE); Mario González (CENTRAL BANK OF CHILE); Romanos Priftis (EUROPEAN CENTRAL BANK); Oke Röhe (DEUTSCHE BUNDESBANK); Matthias Rottner (BIS AND DEUTSCHE BUNDESBANK); Edgar Silgado-Gómez (BANCO DE ESPAÑA); Nikolai Stähler (DEUTSCHE BUNDESBANK); Janos Varga (EUROPEAN COMMISSION) |
| Abstract: | This paper presents a novel model comparison to examine the challenges for monetary policy posed by changes in carbon-intensive energy prices. The environmental monetary models employed have a detailed multi-sector structure. The comparison assesses the effects of both a temporary and a permanent energy price increase, with a particular focus on the euro area and the United States. The temporary and permanent price shocks are both inflationary. However, the inflationary impact of the permanent shock depends on the underlying model assumptions and monetary policy response. In addition, the analysis establishes that these models share significant commonalities in their quantitative and qualitative results, while also revealing cross-country differences. |
| Keywords: | climate change, monetary policy, multi-sector models, model comparison, DSGE models |
| JEL: | C54 E52 H23 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2550 |
| By: | Swapan-Kumar Pradhan; Eswar S. Prasad; Judit Temesvary |
| Abstract: | We investigate how the U.S. dollar's prominence in the denomination of international debt securities has evolved in recent decades, using a comprehensive global dataset with far more extensive coverage than datasets used in prior literature. We find no monotonic dollarization or de-dollarization trend; instead, the dollar's share exhibits a wavelike pattern. We document three dollarization waves since the 1960s. The last wave, following the global financial crisis, lifted the dollar's share nearly back to its level at the euro's launch in 2000. Our findings are robust to composition and currency valuation effects as well as alternative data definitions. |
| Keywords: | International debt securities; Currency denomination; Nationality and residence basis; Reserve currencies; Banks; Nonbank financial institutions; Nonfinancial corporations |
| JEL: | F30 F41 G15 |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1429 |
| By: | Nicolas Laurence (UGA - Université Grenoble Alpes, PACTE - Pacte, Laboratoire de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - IEPG - Sciences Po Grenoble-UGA - Institut d'études politiques de Grenoble - UGA - Université Grenoble Alpes) |
| Abstract: | This article examines whether French convertible local currencies (CLCs) can operationalise strong sustainability. Drawing on a national survey (53 associations, 431 professionals, 786 users) and a case study of the Eusko, multivariate analysis shows that participatory governance—not territorial scope—is the key organisational predictor of ecological selectivity, including supplier screening and environmental charter adoption. Qualitative evidence clarifies that mixed commissions and collective reserve allocation embed sufficiency criteria in daily practice. However, mandatory one-to-one euro convertibility constrain aggregate impact by linking local money supply to national liquidity cycles and limiting public-sector use. The findings indicate that CLCs can foster sufficiency-oriented innovation where subsidiarity is matched by deliberative capacity, but broader systemic influence depends on regulatory reforms to expand fiscal subsidiarity and green refinancing options. The study contributes empirical evidence to debates on monetary plurality and sustainable provisioning. |
| Keywords: | Ecological economics, Polycentric governance, Strong sustainability, Monetary subsidiarity, Local Currency |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05446720 |
| By: | Gafarov, Bulat; Hasbany, James; Hilscher, Jens |
| Abstract: | We present new estimates of diesel fuel price pass-through into milk prices. We use Nielsen IQ scanner data from 2006 to 2023 to estimate average diesel pass-through to milk prices in California. We estimate monthly impulse response estimates using panel local projection, and controlling for core CPI inflation. This approach is unique as it delivers pass-through statistics down to the consumer level. We find that the pass-through is significantly different for organic milk (lower), conventional milk, and private label milk (higher). Transmission effects peak at 23% and 10% for private label and national brand conventional milk respectively. The effect of diesel price changes on organic milk are not statistically different from zero, suggesting a low share of transportation costs in the overall prices of high-markup milk varieties. The high pass through measurements show that the diesel price surge of 2022 significantly affected milk prices and thus contributed to the recent food inflation and cost of living crisis. |
| Keywords: | Industrial Organization, Demand and Price Analysis |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:360962 |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Melanie Guldi (University of Central Florida, Orlando, FL) |
| Abstract: | We revisit the exchange-rate predictability puzzle by asking whether standard, widely used machine-learning (ML) algorithms convincingly improve exchange rate forecasting once evaluation is disciplined and implementation is made robust. Using monthly data from January 1986 to February 2025, we study US dollar to British pound as the baseline case (in both levels and monthly percent changes). We compare five ML methods -- random forests, neural networks, LASSO, gradient boosting, and linear support-vector classification -- against canonical benchmarks (random walk and ARIMA) in a rolling one-step-ahead out-of-sample forecasting design. To mitigate sensitivity to stochastic estimation, we average forecasts across multiple random seeds and assess performance using RMSE and Diebold-Mariano tests. We find that ML does not improve level forecasts and typically underperforms ARIMA. For exchange-rate changes, ML methods consistently outperform the random-walk benchmark, but only neural networks -- under a specific design -- reliably beat ARIMA. A theory-based UIP/PPP filtering approach improves accuracy for both ML and univariate methods, yet does not change the overall ranking. Extensive robustness checks across windows, currencies, frequencies, and tuning choices confirm that ML’s advantages are limited and fragile relative to conventional univariate benchmarks. |
| Keywords: | Machine learning, exchange rates, forecasting, theoretical filtering, random walk, ARIMA. |
| JEL: | C53 F31 F37 G17 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cfl:wpaper:2026-01ua |
| By: | Waldman Joaquin; Trombetta Martin; Souto Lautaro; Verina Tobias Ricardo |
| Abstract: | This paper studies the effect of inflation on poverty in a large cross-country panel dataset of 155 countries observed from 1970 to 2024. We estimate two-way fixed effects models that control for economic growth and estimate the sensitivity of the poverty headcount ratio (measured using different poverty lines) to the inflation rate. Our results point to a statistically significant impact of inflation on poverty, but only when relatively high poverty lines are used. Heterogeneity analysis reveals that the size of this effect is positively associated with country income level, while a substantial statistically significant effect is also found among low-income countries when lower poverty lines are used. Furthermore, unconditional quantile regressions show that the effect is actually largest in the third quartile of the poverty distribution, which suggests the link is particularly strong for upper-middle income countries. These results contribute to the relevant ongoing debate on the consequences of inflation and suggest a rationale for the political popularity boost usually associated with successful disinflations. |
| JEL: | E31 I32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4845 |
| By: | Giuzio, Margherita; Kahraman, Bige; Knyphausen, Jasper |
| Abstract: | This paper examines the relevance of banks’ exposure to climate transition risk in the interbank lending market. Using transaction-level data on repo agreements, we first establish that banks with higher exposure to transition risk face significantly higher borrowing costs. This premium is a combination of a risk premium, compensating lenders for increased credit risk, and an inconvenience premium, reflecting the sustainability preferences of key dealer banks. We also find that the transition risk premium intensifies during periods of financial stress, indicating that climate-induced risks amplify existing vulnerabilities in financial markets. Furthermore, the rate segmentation caused by transition risk premium has implications for the transmission of monetary policy. Transition risk is an important factor in financial stability and policy design. JEL Classification: Q54, G21, G32, Q58 |
| Keywords: | climate finance, financial stability, repo markets, risk premium, transition risk |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263168 |
| By: | Wiersema, Garbrand; Kemp, Esti; Farmer, J. Doyne |
| Abstract: | The financial crisis of 2007-2008 highlighted the risks that liquidity spirals pose to financial stability. We introduce a novel method for studying liquidity spirals and use this method to identify spirals before stock prices plummet and funding markets lock up. We show that liquidity spirals may be underestimated or completely overlooked when interactions between different types of contagion channels or institutions are ignored. We also find that financial stability is greatly affected by how institutions choose to respond to liquidity shocks, with some strategies yielding a “robust-yet-fragile" system. To demonstrate the method, we apply it to a highly granular data set on the South African banking sector and investment fund sector. We find that the risk of a liquidity spiral emerging increases when the pool of institutions' most liquid assets is reduced, while a liquidity injection by the central bank can dampen the spiral. We further show that a liquidity spiral may be due to the banking and fund sectors' collective dynamics, but can also be driven by an individual sector under some market conditions. The approach developed here canbe used to formulate interventions that specifically target the sector(s) causing the liquidity spiral. JEL Classification: G01, G17, G21, G23, G28 |
| Keywords: | financial contagion, liquidity risk, non-banks financial institutions (NBFIs), system-wide stress test, systemic risk |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263169 |
| By: | Kenechukwu E. Anadu; Patrick E. McCabe; JP Perez-Sangimino; Nathan Swem |
| Abstract: | New money-like products, such as tokenized money market funds (MMFs), money market exchange-traded funds (MMETFs), and stablecoins, could be transformative for finance. These products may offer significant benefits, but like other money-like assets, they also have certain vulnerabilities. We introduce a framework to analyze the vulnerabilities of new products by comparing their features to those that contribute to vulnerabilities in MMFs. Specifically, we examine the extent to which each product engages in liquidity transformation, is subject to threshold effects, serves as a money-like asset, poses contagion risks, and has reactive investors. Our framework is useful for assessing the potential effects of novel cash-like products on the overall resilience of the financial system and how such an assessment may change as these products’ uses evolve. |
| Keywords: | stablecoins; money market funds; exchange-traded funds; financial stability; liquidity transformation; contagion |
| JEL: | E50 G1 G23 |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbqu:102319 |
| By: | Katharina Bergant; Andrés Fernández; Ken Teoh; Martín Uribe |
| Abstract: | Employing large language models to analyze official documents, we construct a comprehensive record of daily changes in de jure restrictions on cross-border flows worldwide since the 1950s. Our analysis uncovers the wide array of instruments used to regulate cross-border financial flows and documents their evolving prevalence over the past seven decades. The fine granularity of the new measures allows us to characterize cross-country and time-series variation across eight categories of restrictions, further distinguishing by flow, direction, instrument type, and overall policy stance. We exploit the high frequency nature of the new data to document novel patterns in the use of these restrictions, as well as their relationship to crises, and political economy determinants. We validate our measures against established indicators of capital account regulation and show that our LLM-based classifications both replicate and substantially extend these benchmarks along multiple dimensions. Finally, we examine policymakers’ stated motivations for adopting these restrictions and account for the intensive margin of these policy actions. |
| JEL: | F32 F38 F41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34615 |
| By: | Jessie Jiaxu Wang |
| Abstract: | The rapid growth of stablecoins, accelerated by regulatory frameworks like the Genius Act, has raised important questions about their impact on traditional banking. As these digital tokens gain mainstream acceptance, they could fundamentally reshape the structure and functions of banking and influence the established intermediation role of banks. |
| Date: | 2025–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-12-17-1 |
| By: | Ihlas Sovbetov |
| Abstract: | Decentralized finance (DeFi) lacks centralized oversight, often resulting in heightened volatility. In contrast, centralized finance (CeFi) offers a more stable environment with institutional safeguards. Institutional backing can play a stabilizing role in a hybrid structure (HyFi), enhancing transparency, governance, and market discipline. This study investigates whether HyFi-like cryptocurrencies, those backed by institutions, exhibit lower price risk than fully decentralized counterparts. Using daily data for 18 major cryptocurrencies from January 2020 to November 2024, we estimate panel EGLS models with fixed, random, and dynamic specifications. Results show that HyFi-like assets consistently experience lower price risk, with this effect intensifying during periods of elevated market volatility. The negative interaction between HyFi status and market-wide volatility confirms their stabilizing role. Conversely, greater decentralization is strongly associated with increased volatility, particularly during periods of market stress. Robustness checks using quantile regressions and pre-/post-Terra Luna subsamples reinforce these findings, with stronger effects observed in high-volatility quantiles and post-crisis conditions. These results highlight the importance of institutional architecture in enhancing the resilience of digital asset markets. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.19251 |
| By: | McCann, Fergal (Central Bank of Ireland); Riva, Luca (Central Bank of Ireland) |
| Abstract: | After borrower-based measures (BBM) were introduced in Ireland in 2015, average house price growth expectations fell upon impact and remained stable over the following four to five years, even as price growth accelerated The right tail of extreme growth expectations also dropped immediately upon policy introduction and stabilised until 2019, consistent with credit limits playing a role in stabilising more extreme or optimistic expectations that can be particularly important in credit bubble formation. Our findings suggest macroprudential policies act as a "guardrail" that shifts forward-looking beliefs and contributes to macro-financial stability beyond the direct effects of these policies on the volume and riskiness of lending. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:stafin:12/si/25 |