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on Monetary Economics |
| By: | Daudignon, Sandra; Tristani, Oreste |
| Abstract: | Empirical analyses find that the long-run natural rate, or the real rate prevailing over a long-run equilibrium where nominal rigidities are absent, is subject to permanent shocks. How should monetary policy react to such shocks? Our paper answers this question in a variant of the new Keynesian model. Because of the zero lower bound (ZLB) on nominal interest rates, the mere possibility of future movements towards zero of the long-run natural rate imparts a downward bias on inflation expectations. To offset this bias, a central bank optimizing under commitment should not only rely on forward guidance at the ZLB, as recommended by the existing literature, but also adopt an expansionary bias away from the ZLB. The neutral rate, i.e. the real policy rate consistent with stable inflation in the long-run, should fall more than one-to-one with the long-run natural rate, as the latter approaches zero. This is the case both under optimal commitment policy, and if optimal policy is implemented through a price level targeting rule. |
| Keywords: | Zero lower bound; Optimal monetary policy with commitment; Liquidity trap; New keynesian model |
| JEL: | C63 E31 E52 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19528 |
| By: | Kira Kang; Rodrigo Sekkel; Temel Taskin; Jing Yang |
| Abstract: | This note decomposes Canadian inflation into supply- and demand-driven components using detailed personal consumption expenditure data. We find that both supply and demand forces contributed to the post-pandemic rise in inflation, with supply-side pressures accounting for the larger share. Demand-driven inflation is more cyclical and declines during economic downturns. We then use the decomposition in two policy applications. First, contractionary monetary policy shocks lower demand-driven inflation but have little effect on supply-driven inflation. Second, estimates of a targeted Taylor rule indicate that the Bank of Canada responds more strongly to demand-driven inflation than to supply-driven inflation. The results highlight the importance of distinguishing between the sources of inflation when evaluating inflationary pressures and monetary policy. |
| Keywords: | Models and tools; Econometric, statistical and computational methods; Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission |
| JEL: | E31 E52 E58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-33 |
| By: | Wieland, Volker; Tatar, Balint |
| Abstract: | This paper investigates the implications of monetary policy rules during the surge and subsequent decline of inflation in the euro area and compares them to the interest rate decisions of the European Central Bank (ECB). It focuses on versions of the Taylor (1993) and Orphanides and Wieland (OW) (2013) rules. Rules that respond to recent outcomes of HICP Core or domestic inflation data called for raising interest rates in 2021 and well ahead of the rate increases implemented by the ECB. Thus, such simple outcome-based policy rules deserve more attention in the ECB’s monetary policy strategy. Interestingly, the rules support the recent shift of the ECB to policy easing. Yet, they add a note of caution by suggesting that policy rates should not decline as fast as apparently anticipated by traded derivative-based interest rate forecasts. |
| Keywords: | Monetary policy; Interest rates; European central bank; Taylor rule; Orphanides-Wieland rule; New-Keynesian macro-epidemic models |
| JEL: | E42 E43 E52 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19521 |
| By: | Bodnár, Katalin; Fagandini, Bruno; Healy, Peter; Höynck, Christian; Rousseau, Flavie |
| Abstract: | The ECB’s inflation target is formulated in terms of headline inflation. However, domestically determined inflation features prominently in the monetary policy transmission mechanism and in gauging underlying inflation, making it important to assess it regularly. The ECB monitors various proxies for domestically determined inflation, including: (i) “domestic inflation”, which aggregates inflation items with a low import share; and (ii) “Supercore” inflation, which aggregates inflation items found to be sensitive to the aggregate business cycle. This paper provides a detailed overview of the methodologies used to derive both these indicators and updates the relevant input data. It suggests refinements to the methodologies that would also make these measures more robust in future updates. In addition, it explains the changes in these indicators due to the introduction of a new classification of consumer goods and services (European Classification of Individual Consumption according to Purpose (ECOICOP) version 2) for the compilation of the Harmonised Index of Consumer Prices (HICP). First, on domestic inflation, the paper explains the new underlying data on the import share of inflation items made available since the publication of its methodology, and provides an update, combined with a few methodological changes (for example, moving to a constant composition of the included items). Second, with regard to Supercore inflation, the paper explains the challenges of identifying a cyclical inflation indicator for the euro area, especially in the light of the recent large shocks, and explores modelling approaches. It proposes some refinements to the previous methodology, while keeping a Phillips curve approach as a focal point in the analysis. For both indicators, the paper presents the updated indicators and some key properties. JEL Classification: E31, E32, E52 |
| Keywords: | business cycle, domestic inflation, monetary policy, Phillips curves, Supercore, underlying inflation |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbsps:202654 |
| By: | Karadi, Peter; Nakov, Anton; Nuño, Galo; Pasten, Ernesto; Thaler, Dominik |
| Abstract: | We characterize optimal monetary policy under state-dependent pricing. The framework gives rise to nonlinear inflation dynamics: The flexibility of the price level increases after large shocks due to an endogenous rise in the frequency of price changes. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to curb inflation. When faced with total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability. The optimal long-run inflation rate is just above zero. |
| Keywords: | State-dependent pricing; Optimal monetary policy; Large shock; nonlinear Phillips curve |
| JEL: | E31 E32 E52 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19339 |
| By: | Naveed Javed; Nicolas Groshenny |
| Abstract: | We estimate SVAR models for six advanced small open economies to evaluate the extent of deviations from uncovered interest parity following SOE and US monetary policy shocks. Since UIP implies that currency movements are driven by the expected path of the spread between the domestic and foreign short-term interest rates, our econometric strategy disciplines the dynamic response of the SOE-US policy rate differential to monetary disturbances. Specifically, our approach jointly identifies the systematic component of SOE and US monetary policy by combining block exogeneity and sign restrictions on policy parameters. We find that UIP broadly holds conditional on SOE and US monetary policy shocks irrespective of the observed exchange rate overshooting patterns. |
| Keywords: | uncovered interest rate parity, monetary policy shocks, systematic component of monetary policy, forward discount puzzle, vector autoregressions, small open economies, block exogeneity |
| JEL: | C32 E52 F31 F41 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-68 |
| By: | Spanò, Guido; Figueres, Juan Manuel |
| Abstract: | This paper investigates the interest rate pass-through of monetary policy in the euro area by focusing on the role of banks’ funding structures. We estimate the interest rate pass-through for loans to non-financial corporations using bank-level balance sheet data. In doing so, we interact the response of lending rates with characteristics of the funding structure, and show that banks that rely more on bond issuance than on the money market tend to be less responsive to policy changes. Finally, we test the presence of the asset-liability-management channel, and find that banks combining longer-term liabilities (higher bond shares) with longer rate fixation periods for loans (higher share of loans with fixed rates) exhibit the most muted lending rate response to policy shocks. JEL Classification: C23, E44, E52, G21 |
| Keywords: | bank lending channel, banks’ funding structures, monetary policy pass-through |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263274 |
| By: | de Souza, Tomás Carrera; Oosterhek, Koen; Weber, Soizic |
| Abstract: | The Eurosystem implements its monetary policy through a set of monetary policy instruments (MPIs). This report reviews the main changes in the use of MPIs and the associated developments in the Eurosystem’s monetary policy implementation framework over 2024-25. Inflation returned to the ECB’s medium-term target of 2%, supported by the smooth transmission of monetary policy. After completing the hiking cycle of 2022 and 2023, the ECB began reducing its key interest rates in June 2024. This easing phase occurred alongside further balance sheet normalisation. Holdings in the monetary policy bond portfolios continued to run-off, and funds lent under the third series of targeted longer-term refinancing operations (TLTRO III) were fully repaid by December 2024. In March 2024, the ECB announced several changes to its operational framework for implementing monetary policy following a review process. Finally, the collateral framework remained broad, while temporary crisis-related measures were phased out and climate-related considerations were further integrated. JEL Classification: D02, E43, E58, E65, G01 |
| Keywords: | asset purchase programmes, central bank collateral framework, central bank counterparty framework, central bank liquidity management, climate, monetary policy implementation, non-standard monetary policy measures, refinancing operations |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026398 |
| By: | Edoardo Briganti; Wei Dong; Olena Kostyshyna; Soyoung Lee; Florent Samson; Rodrigo Sekkel |
| Abstract: | This paper assesses the resilience of flexible inflation targeting in the presence of large and persistent supply shocks. Evidence from Canada’s post pandemic experience, new macroeconomic experiments, and policy changes at the Reserve Bank of New Zealand shows that flexible inflation targeting remains a robust framework provided that credibility is preserved. Timely policy action and clear communication are critical for anchoring inflation expectations and sustaining policy flexibility. |
| Keywords: | Monetary policy; Monetary policy framework and transmission |
| JEL: | E52 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-23 |
| By: | Bonaparte, Yosef; Korniotis, George; Kumar, Alok; Vosse, Melina |
| Abstract: | We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential. |
| Keywords: | Interest rates; Asset allocation |
| JEL: | G11 E52 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19511 |
| By: | Selva Demiralp; Orkun Saka; Michael Weber |
| Abstract: | We study how politically polarized television news shapes household inflation expectations in Turkey. We combine new household panel data with transcript-based measures of channel-level inflation coverage during prime-time news and a large-scale randomized information experiment. Inflation coverage differs sharply across politically aligned channels, and viewers sort into outlets consistent with their political affiliations. Within-person estimates show that greater coverage on a respondent’s initially preferred channel leads to higher inflation expectations, with effects concentrated among viewers of politically neutral channels. Experimental evidence indicates that belief updating depends on prior anchoring as well as on source credibility and reveals the political costs of rising inflation expectations. |
| Keywords: | inflation, expectations, media, polarization |
| JEL: | D84 E31 E52 E58 L82 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12854 |
| By: | Berg, Tobias; Keil, Jan; Martini, Felix; Puri, Manju |
| Abstract: | We analyze the effect of a major central bank digital currency (CBDC) – the digital euro – on the payment industry to find remarkably heterogeneous effects. Stock prices of U.S. payment firms decrease, while stock prices of European payment firms increase in response to positive announcements on the digital euro. Bank stocks do not react. We estimate a loss in market capitalization of USD 127 billion for U.S. payment firms, vis-a-vis a gain of USD 23 billion for European payment firms. Our results emphasize the medium-of-exchange function of CBDCs and point to a novel geopolitical dimension of CBDCs: enhanced autonomy in payments. |
| JEL: | G21 E41 E42 E51 E52 E58 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19367 |
| By: | Gödl, Maximilian; Gödl-Hanisch, Isabel |
| Abstract: | The recent surge in inflation led many unions and firms to alter their bargaining and wage-setting policies. Using novel German firm-level survey data, we document the extent of state dependence in wage setting across firms and workers during periods of high and low inflation. We find state dependence along the extensive and intensive margins: the average duration of wage agreements shortens from 14.2 to 12.9 months, and the adjustment per pay round increases from 2-4% to 4-6%. We complement these findings with newly compiled union-level panel data on collective bargaining outcomes. We show that the observed state dependence can be rationalized in menu cost and Calvo models of wage setting with heterogeneous firms. We examine the implications of state-dependent wage setting for the long-run effects of trend inflation, the transmission of monetary policy shocks, and the slope of the Phillips curve in an otherwise standard New Keynesian model. |
| Keywords: | Phillips curve |
| JEL: | E24 E31 E50 E60 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19403 |
| By: | Carlos Giraldo (Fondo Latinoamericano de Reservas - FLAR); Iader Giraldo-Salazar (Fondo Latinoamericano de Reservas - FLAR); Jose E. Gomez-Gonzalez (Department of Finance, Information Systems, and Economics, City University of New York – Lehman College); Jorge M Uribe (Universitat Oberta de Catalunya) |
| Abstract: | Deposits are the primary source of funding for commercial banks, but their role in the transmission of monetary policy remains relatively understudied, particularly in emerging and developing economies. This paper examines whether monetary policy affects both the growth of bank deposits and the spread between policy rates and deposit remuneration. Using a panel of more than 1, 600 banks across 52 countries between 1996 and 2021, we find that higher policy rates are associated with slower deposit growth and wider deposit spreads. These relationships remain robust after accounting for macroeconomic conditions, bank-specific characteristics, and the banking-sector structure. These results are consistent with the view that banks do not fully pass policy rate increases through to depositors, allowing funding spreads to widen during periods of monetary tightening. By providing broad cross-country evidence from emerging economies, this paper highlights the importance of deposit markets for monetary transmission and suggests that the liability side of bank balance sheets deserves greater attention in both research and policy discussions. |
| Keywords: | Monetary Policy Transmission; Deposit Channel; Bank Deposits; Emerging Markets |
| JEL: | E52 G21 E44 |
| Date: | 2026–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:col:000566:023352 |
| By: | Edward Booth; Edouard Djeutem; Oleksiy Kryvtsov; Fanny McKellips; Yang Zhang |
| Abstract: | Relative to the pre-pandemic period, supply shocks in the Bank of Canada’s Terms-of-Trade Economic Model (ToTEM) have been moderately larger since 2022, and markedly larger if the 2020–21 pandemic is included. ToTEM simulations show that moderately larger supply shocks increase inflation volatility without materially worsening the medium-term inflation outlook or significantly increasing recession risks. When supply shocks are especially large, however, episodes of core inflation outside of the 1–3% control range become both more frequent and more persistent, and recession risks rise sharply. In these environments, monetary policy faces more challenging trade-offs as stabilizing inflation increasingly entails costs to real activity, and even more aggressive policy rules cannot replicate inflation outcomes in more stable periods. Amplification of inflationary risks—due to de-anchoring inflation expectations or high cost pass-through—worsens these trade-offs and reduces the scope to look through inflationary shocks. When such amplification is present, a much tighter policy response than the one embedded in the historical rule is warranted to manage more frequent high-inflation states and ensure price stability. |
| Keywords: | Models and tools; Economic models; Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission |
| JEL: | E31 E32 E52 E58 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-27 |
| By: | Anja Bauer (Nürnberg Institut für Marktentscheidungen); Katharina Gangl (Nürnberg Institut für Marktentscheidungen) |
| Abstract: | This study examines possible predictors and consequences of expected inflation, a central determinant of individuals’ decision making. We utilize unique microdata from the German consumption climate survey covering monthly data from more than 220, 000 individuals between 2003 and 2025. Our findings confirm that consumer perception of past inflation plays a decisive role for inflation expectations leading to sticky inflation expectations that need some time to adjust to official inflation statistics. In addition, results indicate that across the sample period, inflation expectations are correlated with reduced individual income expectations. In contrast and as a novelty, the present data shows that the relationship with buying and saving intentions is not stable. During moderate inflation phases inflation expectations are related to lower buying and lower saving intentions, during inflation peaks this relationship reverses to the opposite and during transition phases from moderate to high inflation or vice versa, no significant relationships can be found. Theoretically, the present research indicates that high frequency data is needed to estimate how inflation expectations and consumer intentions are related. Practically, the present research can be used to better time and frame inflation communication and mitigation policies. |
| Keywords: | inflation perceptions, consumer climate, consumer confidence, behavioral economics, consumption behavior |
| JEL: | E31 E39 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:eoh:report:report-002 |
| By: | Matteo Cacciatore; Daniela Hauser; Yuko Imura |
| Abstract: | The global economy is entering a period of greater volatility and structural change, with rising geopolitical fragmentation and a partial reversal of decades-long globalization trends. This note examines the implications of deglobalization and trade fragmentation for the Bank of Canada's flexible inflation-targeting framework, focusing on the inflation–output trade-off faced by a small open economy. Using a two-country, multi-sector general equilibrium model calibrated to Canada and the United States, we trace how trade-cost shocks propagate through production networks and assess the monetary policy trade-offs they generate. A bilateral 10 percentage-point increase in trade costs produces a non-trivial trade-off: fully stabilizing CPI inflation over a two-year horizon requires accepting a 0.16% reduction in output relative to potential, while fully closing the output gap implies tolerating a 0.32 percentage-point increase in inflation. The severity of the trade-off depends on shock size and persistence, on whether tariffs target final or intermediate goods, and on the inflation measure the central bank stabilizes. For trade-cost shocks of magnitudes comparable to recent policy measures, the existing framework retains sufficient flexibility to return inflation to target within the standard horizon. Larger or more persistent shocks, however, would make "look-through" policies costlier and raise the risk of expectation de-anchoring. |
| Keywords: | Monetary policy; Monetary policy framework and transmission; Monetary policy tools and implementation; Structural challenges; International trade, finance and competitiveness |
| JEL: | D57 E52 E58 F13 F41 F62 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-24 |
| By: | Leonard, Clara; Braun, Ben; Klooster, Jens van 't; Monnet, Eric |
| Abstract: | The Hormuz shock of February 2026 confronts the European Central Bank (ECB) with a familiar dilemma: inaction can risk entrenching inflation, while tightening risks deepening the slowdown and penalising renewable energy and cleantech investment. We argue that the ECB should be cautious and, if tightening proves necessary, ensure its operations shield renewable energy and cleantech sectors. Our analysis also reveals a growing gap between the ECB's communication on fossil fuel risks and its policy framework. |
| JEL: | F3 G3 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140409 |
| By: | Kenneth Clements (Department of Economics, University of Western Australia); Yihui Lan (Department of Accounting and Finance, University of Western Australia) |
| Abstract: | This paper introduces an internally consistent approach to measure the global economy with indexes of inflation, growth and currency movements, which together account for the changing rankings of countries. This leads to three key patterns. First, global inflation above a modest threshold comes with more cross-country raggedness or dispersion, meaning more uncertainty in the world. The minimum-variance rate of global inflation follows from this, together with the “natural rate” of cross-country dispersion. Second, countries’ propensity to import inflation differs substantially. High-inflation countries tend to be more susceptible to global inflation, while more affluent ones are more insulated. Surprisingly, the economic size of a country seems to have no impact on the transmission of inflation. Finally, using a Markov-chain approach and more traditional measures, inflation is found to be surprisingly fluid, not sticky. |
| Keywords: | global inflation, inflation transmission, inflation persistence |
| JEL: | E31 F41 C32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:uwa:wpaper:26-04 |
| By: | Cieslak, Anna; McMahon, Michael; Pang, Hao |
| Abstract: | We study the impact of the Federal Reserve’s communication on financial markets following the adoption of its revised policy framework in 2020. We propose a channel whereby market uncertainty stemming from perceived policy errors can raise risk premia. Post-framework communication introduced uncertainty about the Fed’s reaction function. Market concerns about policy mistakes amid incoming data drove up term premia, undermining easy financial conditions the Fed initially sought. While short-rate expectations were anchored by forward guidance, term premium sensitivity to inflation news increased. The subsequent shift in Fed's words and eventual actions helped stabilize premia, mitigating adverse macroeconomic news. |
| Keywords: | Federal Reserve; Monetary policy; bond market |
| JEL: | E52 E61 G12 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19360 |
| By: | Marco Gallegati; Solomos Solomou; Kun Tian |
| Abstract: | In this paper we apply the wavelet approach and the GVAR methodology to investigate the effects of El Niño fluctuations on national inflation rates, global commodity prices and world oil prices. The focus of our analysis is on the inflation effects of “ENSO diversity”, measured as the central Pacific (CP) and eastern Pacific (EP) El Niño. Using quarterly data from c.1950 onward, we substantially extend the time span of existing studies. This allows us to observe a much larger number of ENSO cycles. The set of countries included in our study comprises countries directly affected by the El Niño, countries that are teleconnected with the El Niño variations and countries that are only indirectly affected by these processes via global economic linkages. The results from wavelet analysis display several key features. First, we observe an episodic relationship between ENSO variations and inflation for most countries, irrespective of whether they are directly impacted by ENSO or impacted via teleconnections. Second, the identification of CP and EP ENSO effects highlights the importance of ENSO diversity when analysing the inflationary effects of ENSO. Third, the periods of statistical significance encompass both El Niño and La Niña phases of the ENSO cycle. The GVAR framework used to estimate the magnitude of the effects of the ENSO cycle on national CPI inflation confirms that modelling the effects of ENSO diversity as captured by CP and EP ENSO measures matters for the identification of their complex nonlinear effects on national inflation rates. |
| Keywords: | El Niño, ENSO Cycle, ENSO diversity, CP-EP ENSO, Wavelet analysis, global shocks, GVAR models, inflation, global commodity prices |
| JEL: | E31 Q54 C32 Q02 F41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12896 |
| By: | Sofia Priazhkina |
| Abstract: | This policy note examines how a non-interest-bearing retail central bank digital currency (CBDC) could affect the financial stability of Canada’s systemically important banks during a severe recession. Stress test results show that the banks remain resilient, maintaining key regulatory ratios even under high CBDC demand. To manage funding outflows, banks scale back balance sheet growth and replace some lost deposits with alternative funding. Profitability stays strong overall, though short-term volatility may occur. To reduce potential risks, the note recommends a gradual CBDC rollout with holding limits, well-timed capital buffer adjustments, liquidity regulation updates, early communication of regulatory changes, and coordination with central bank balance sheet policies. |
| Keywords: | Financial system; Financial stability and systemic risk; Models and tools; Economic models; Money and payments; Digital assets and fintech; Structural challenges; Digitalization and productivity |
| JEL: | E44 E58 E61 G01 G21 G28 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-30 |
| By: | Casado, Alejandro; Martinez-Miera, David |
| Abstract: | We provide evidence that bank loan supply reactions to monetary policy changes are market-specific, emphasizing the importance of banks’ local specialization. We analyze the U.S. mortgage market and find that when monetary policy eases, banks increase new mortgage lending growth more in markets in which they are geographically specialized relative to other markets and banks. This holds after controlling for local lending opportunities and (unobservable) bank differences. Further empirical findings, supported by a simple model, suggest that banks face market-specific differences in lending advantages, related to market-specific information, leading them to exhibit different reactions to monetary policy changes. We document the aggregate effects of this geographical specialization channel both at the county level on mortgage supply and house price growth, as well as at the bank level on average specialization growth. Our study underscores the relevance of banks’ local specialization in shaping the transmission of monetary policy. |
| JEL: | D82 E52 E58 G21 G23 L10 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19473 |
| By: | Ryan Niladri Banerjee; Fiorella De Fiore; Marco Jacopo Lombardi; Giovanni Lombardo |
| Abstract: | The recent energy shock ranks among the most significant since the 1990s.Structural factors and initial conditions influence how energy shocks propagate into inflation – directly and through second-round effects. The appropriate monetary policy reaction depends on the persistence of the inflationary pressures as well as the magnitude of the growth impact, and it differs across economies. Uncertainty about these effects further complicates the policy challenge. |
| Date: | 2026–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:131 |
| By: | Fatás, Antonio |
| Abstract: | The post pandemic years have brought inflation back to levels not seen for decades. While this surge has been a global phenomenon, the impact has not been uniformly felt across all regions. Notably, Asia, among the emerging and developing economies, has experienced a comparatively mild rise in inflation, with rates not significantly diverging from those seen in previous inflationary periods. This paper explores the factors that might explain the distinct behavior of Asia. We provide evidence that a combination of weaker post-pandemic recovery, a less aggressive traditional fiscal policy, a strong use of subsidies, minimal depreciation of exchange rates, and a history of lower and less volatile inflation account for this region differential’s response. |
| Keywords: | Asia |
| JEL: | E31 E32 E52 E60 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19445 |
| By: | Kaetlynd McRae; Jessie Ziqing Chen |
| Abstract: | The Standing Liquidity Facility (SLF) is one of the Bank of Canada’s least discussed tools—and one of its most important. Embedded directly in Canada’s high value payment system, Lynx, the SLF operates quietly in the background every business day, ensuring the smooth settlement of payments and reinforcing the implementation of monetary policy. This Staff Discussion Paper demystifies the SLF by answering the questions that are most often overlooked: how intraday and overnight advances work, what their use does (and does not) signal about liquidity conditions, how collateral eligibility and haircuts are determined, and how the facility supports both monetary policy implementation and financial system resilience. By shedding light on this “business as usual” facility, the paper shows why the SLF is the cornerstone of Canada’s liquidity framework—addressing everything you wanted to know about the SLF (and a few things you may have been afraid to ask). |
| Keywords: | Financial markets and funds management; Market functioning; Financial system; Financial institutions and intermediation; Monetary policy; Monetary policy tools and implementation; Money and payments; Payment and financial market infrastructures |
| JEL: | E41 E42 E44 E58 E59 G21 G28 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-26 |
| By: | Cox, Lydia; Feng, Jiacheng; Müller, Gernot; Pasten, Ernesto; Schoenle, Raphael; Weber, Michael |
| Abstract: | The jointly optimal monetary and fiscal policy mix in a multi-sector New Keynesian model with sectoral government spending and productivity shocks entails a separation of roles: Sectoral government spending optimally adjusts to sectoral output gaps and inflation rates---a policy supported by evidence from sectoral federal procurement data. Monetary policy optimally focuses on aggregate stabilization, but deviates from a zero-inflation target; in a model calibration to the U.S., however, it effectively approximates a zero-inflation target. Because monetary policy is a blunt instrument and government spending trades off stabilization against the optimal-level public good provision, the first best is not achieved |
| Keywords: | Optimal monetary and fiscal policy |
| JEL: | E62 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19340 |
| By: | Christopher J. Gust; Edward P. Herbst; J. David López-Salido |
| Abstract: | We develop a finite-horizon planning model in which firms choose how far ahead to plan when setting prices. Planning further ahead improves a firm's pricing decision but requires cognitive effort. We derive analytical solutions for a firm's chosen planning horizon and show that large and persistent aggregate demand or supply disturbances induce firms to plan further ahead, making inflation more sensitive to shocks and generating endogenous movements in inflation uncertainty. Quantitatively, we show that the model matches the positive relationship between the size of inflation forecast revisions and inflation uncertainty observed in the data. |
| Keywords: | inflation uncertainty; finite-horizon planning; inflation expectations |
| Date: | 2026–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103617 |
| By: | Jamilov, Rustam; König, Tobias; Müller, Karsten; Saidi, Farzad |
| Abstract: | Bank runs are a central concern for financial stability, yet systematic empirical evidence remains scarce. We construct a novel historical dataset of bank runs, covering 184 countries since 1800 by combining narrative evidence from 503 sources with statistical indicators of aggregate deposit contractions. We find that: (i) the unconditional likelihood of a bank run is 1.9%; (ii) systemic runs---those accompanied by aggregate deposit outflows---are associated with output losses of 9% over five years, more than after non-systemic runs or deposit contractions alone; (iii) these losses persist even when banks are well capitalized and there is no evidence of fundamental triggers, banking crises, or widespread bank failures; (iv) central banks and deposit insurance are linked to a lower probability of runs becoming systemic, while liability guarantees coincide with smaller output losses. Our findings highlight a key role of bank liability disruptions in economic fluctuations, over and above solvency issues. |
| Keywords: | Bank runs; Banking crises; Sunspots |
| JEL: | E44 G01 G20 G21 G28 N20 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19382 |
| By: | Eduardo Amaral; Rafael Guerra; Alejandrina Salcedo; Pablo Tomasini; Christian Upper |
| Abstract: | Public debt has reached multi-decade highs in the Americas. Additionally, public interest costs have generally increased over the past decade. High public debt and interest costs increase the sensitivity of risk premia to fiscal deficits – regardless of the exchange rate regime – and amplify the sensitivity of short-term inflation expectations to fluctuations in risk premia.Our analysis underscores the relevance of disciplined fiscal policies, which assume heightened significance in the context of current debt dynamics. On the monetary side, safeguarding central bank independence is crucial for ensuring macroeconomic stability. |
| Date: | 2026–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:133 |
| By: | Delatte, Anne-Laure; Garg, Pranav; Imbs, Jean |
| Abstract: | Using a unique identification methodology, we provide evidence that easing collateral requirements has economy-wide causal effects on firms' real outcomes, through increased credit. These effects extend beyond firms with newly eligible collateral because the credit expansion benefits all firms. We categorize banks based on their pre-reform loan portfolios, allowing us to compare banks with varying exposures to the change in collateral constraints but otherwise similar loan portfolios. We introduce a bank-level metric for firms’ real outcomes, calculated as a loan-weighted average across borrowers, which enables us to use the same identification for both credit and real effects. The effects on credit and on firms' investment, productivity, and dividends are large. |
| Keywords: | Bank lending channel; Collateral constraints; Credit supply; Real effects of monetary policy |
| JEL: | E44 E58 G21 G32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19502 |
| By: | Auclert, Adrien; Rognlie, Matthew; Straub, Ludwig |
| Abstract: | In the past decade, a new paradigm for fiscal and monetary policy analysis has emerged, combining the canonical macro model of income and wealth inequality with the New Keynesian model. These Heterogeneous-Agent New Keynesian (“HANK†) models feature new transmission channels and allow for the joint study of aggregate and distributional effects. We review key developments in this literature through the lens of a unified “canonical HANK model†. Monetary and balanced-budget fiscal policy have similar aggregate effects as in the standard new Keynesian model, while deficit-financed fiscal policy is much more expansionary. We discuss the split between direct and indirect effects of policy, and also the implications of cyclical income risk, maturity structure, nominal assets, behavioral frictions, and many other extensions to the model. Throughout, we highlight the benefits of using sequence-space methods to solve and analyze this class of models. |
| JEL: | D1 E21 E31 E32 E43 E52 E62 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19501 |
| By: | Matej Opatrny; Martin Opatrny; Tomas Havranek; Zuzana Irsova; Mojmir Hampl |
| Abstract: | We revisit the optimal long-run inflation rate using 777 estimates from 116 primary studies published between 1989 and 2026, the largest sample on the topic to date. To our knowledge, this is among the first economics meta-analyses in which primary-data extraction is done from start to finish through a documented and auditable large-language-model pipeline, calibrated against a hand-coded training set and released for replication. The literature points to an optimum of about 0.6 percentage points per year, well below the two-percent targets used by most advanced-economy central banks. The gap should not be automatically read as a verdict against the two-percent norm. Measurement error in published price indices could close, widen, or even reverse the gap, and the structural literature itself cannot pin down the sign of the required correction. Bayesian model averaging over the full set of structural moderators shows that cross-study variation is driven by real modelling choices rather than by selective reporting. The main drivers are the choice of monetary benchmark (Friedman rule vs. laissez-faire), the transactions-frictions technology, the assumed shock structure, and the class of nominal-rigidity contract. The non-parametric caliper test finds no upward bunching at the two-percent target. The paper contributes a reproducible LLM-assisted extraction pipeline for structurally calibrated literature and a quantitative decomposition of where the optimal-inflation literature disagrees. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.00567 |
| By: | Barthélemy, Jean; Mengus, Eric; Plantin, Guillaume |
| Abstract: | Fiscal dominance refers to situations in which fiscal policy imposes restrictions on monetary policy. Large shifts in the dynamics of sovereign debts, surpluses, and central bank's balance sheets since the Great Financial Crisis have created the perception of a heightened risk of such fiscal dominance in major jurisdictions. This paper reviews the theoretical and empirical literature on fiscal dominance. We offer a simple theory in which fiscal dominance arises as the outcome of strategic interactions between the government, the central bank and the bond markets. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19591 |
| By: | Alexander, Patrick; Han, Lu; Kryvtsov, Oleksiy; Tomlin, Ben |
| Abstract: | How do market power and nominal price rigidity influence inflation dynamics? We formulate a tractable model of oligopolistic competition and sticky prices, and derive closed-form expressions for the pass-through of idiosyncratic and common cost shocks to firms' prices. Using unpublished micro data for Canadian wholesale firms, we estimate that idiosyncratic cost pass-through is incomplete and independent of the sector price stickiness, while common cost pass-through declines with price stickiness. The estimates imply a degree of strategic complementarity that lowers the slope of the New Keynesian Phillips curve by 30% in a one-sector model and by 64% in a multi-sector model. |
| Keywords: | Inflation; Oligopolistic competition; Markups; Strategic complementarities |
| JEL: | D43 E31 L13 L81 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19419 |
| By: | Ayelen Banegas; Lucas Devigne; Mulalo Mamburu; Kleopatra Nikolaou; Anna Samarina; Fabio Tamburrini |
| Abstract: | This paper synthesizes the literature on vulnerabilities in government bond-backed repo markets, focusing on the features that contribute to both the fragility and stability of these markets. The literature shows that the same features that enable efficient liquidity provision, including short-term funding, dealer intermediation, extensive collateral reuse, and low haircuts, can also create channels for rapid transmission of stress. The review documents tight linkages between repo and government bond markets, highlighting how repos are key to the build-up of leverage and can propagate stress across funding, cash, and derivatives markets, particularly through dealers and nonbank financial intermediaries such as investment firms, hedge funds, and money market funds. Evidence from recent stress episodes illustrates how these vulnerabilities materialize in practice. The review also examines post-crisis regulatory reforms and central bank interventions, identifying how these measures have enhanced market resilience while also creating trade-offs for market dynamics, with implications for liquidity and collateral availability. |
| Keywords: | repo markets; government bonds; vulnerabilities; financial stability |
| JEL: | G10 G12 G15 G20 |
| Date: | 2026–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103647 |
| By: | Oliver Pfäuti; Edson Wu |
| Abstract: | How does fiscal policy shape firms' price-setting behavior and aggregate inflation when firms are uncertain about fiscal policy and productivity shocks? We study this question in a general equilibrium model of rationally inattentive price-setting firms, where fiscal policy affects firms’ desired prices through revenue taxes. Public debt changes firms’ incentives to acquire information through two opposing forces: higher debt lowers the stakes of pricing decisions, but makes desired prices more sensitive to tax changes. This trade-off generates a U-shape in firms' attention and inflation volatility with respect to public debt. Using micro data on price setting from euro-area countries, we show that the passthrough of expected cost changes to expected price changes increases in countries' debt-to-GDP ratios, consistent with our model. In general equilibrium, an increase in the debt-to-GDP ratio from 100% to 175% leads to an increase in inflation volatility of about 20% when attention is costly. |
| Keywords: | inattention, price setting, fiscal policy, inflation, uncertainty |
| JEL: | D83 E31 E52 E62 E70 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12912 |
| By: | Dahal, Mounata; Campbell, Ben |
| Abstract: | This paper examines how food price inflation affects household healthy food spending in the United States, with attention to heterogeneity across income, racial, and urban-rural groups. Using household-level Consumer Expenditure Survey (CEX) Diary data merged with regional Food-atHome (FAH) Consumer Price Index data from 2015 to 2024, the study exploits temporal and regional price variation to identify causal effects. The empirical strategy combines Fixed Effects OLSwithaDoubleMachineLearning(DML)frameworkemployingLASSO, ElasticNet, Random Forest, and Gradient Boosting algorithms to address high-dimensional controls and nonlinear confounding. While FE OLS yields a positive but insignificant estimate, DML consistently finds a large, significant positive effect of FAH CPI on healthy food spending, with estimates ranging from 1.12 to 1.20 across specifications. Heterogeneity analysis reveals no significant income-based differences, suggesting broad-based spending adjustments. Asian households exhibit a significantly stronger response under LASSO and Random Forest, and urban households increase healthy food spending more than their rural counterparts. These findings have important implications for food assistance program design and nutrition policy, particularly regarding rural food access during periods of macroeconomic volatility. |
| Keywords: | Consumer/Household Economics, Labor and Human Capital |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404615 |
| By: | Rey, Hélène; Stavrakeva, Vania; Tang, Jenny |
| Abstract: | The paper explores empirically the tight links between exchange rates and the global network of equity holdings. Exchange rates can be expressed in terms of "equity net currency supplies", i.e. local currency stock market capitalization minus equity holdings, denominated in investors' currencies, as well as elasticities, reflecting the "centrality" of currencies in global equity markets. The observed components of our exchange rate decomposition account for, on average, 95% of the monthly variation of 28 bilateral currency crosses vis-Ã -vis the USD and 98% vis-Ã -vis the EUR. We use the decomposition to elucidate the unique role of the USD in transmitting risk aversion and U.S. macroeconomic news throughout the global equity network. Our findings contribute towards explaining global financial cycles and "risk-on"/"risk-off" episodes. |
| JEL: | F3 G15 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19508 |
| By: | Gabriel de Macedo Santos |
| Abstract: | This paper documents an applied natural-language-processing framework for measuring the tone of Brazilian Monetary Policy Committee (Copom) statements. The project is explicitly inspired by iSent, Ita\'u's Central Bank sentiment classifier, particularly its sentence-level division of official communication into hawkish, dovish, neutral, and out-of-context classes. The implementation extends that idea in three directions. First, an LLM identifies short hawkish and dovish expressions and assigns each a 0-to-1 intensity weight. Second, the document index combines sentence counts with document-specific average signal intensities, producing a bounded score from -1 to 1. Third, a separate full-document layer measures forward-guidance direction, guidance explicitness, uncertainty level, and change in uncertainty. The empirical sample is restricted to communications dated August 2016 or later and contains 80 statements and 1, 498 classified sentences from August 31, 2016 through August 5, 2026. Across this sample, 33.3% of sentences are hawkish, 18.0% dovish, 42.1% neutral, and 6.5% out of context. The average document score is +0.107, while the most hawkish reading is +0.570 in August 2021. The latest statement, dated August 5, 2026, scores +0.232, with eight hawkish, two dovish, and nine neutral sentences. Its structural overlay is more nuanced: guidance is directionally ambiguous but partly explicit, while uncertainty is classified as central and higher than at the prior meeting. Tone and the guidance-direction score have a contemporaneous Pearson correlation of 0.719. These are descriptive outputs, not a validated forecast of Selic decisions or DI returns. The main contribution is therefore methodological: a transparent, incremental, auditable system that separates rhetorical tone from policy guidance and uncertainty. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.07251 |
| By: | Badino, Nicolò (Department of Economics, University of Genova); Cardullo, Gabriele (University of Genova); Sechi, Agnese (Department of Economics, University of Genova) |
| Abstract: | How much a household suffers from inflation depends on what it consumes. We show that this simple observation links household expenditure behavior to inflation inequality, welfare losses, and poverty. Building on a non-homothetic CES demand system, we derive household-specific exact cost-of-living indexes and apply them to the 2022 European energy crisis in Spain and Italy. Using household expenditure microdata, we estimate non-homothetic preferences and show that the same expenditure patterns governing Engel curves also determine households' welfare sensitivity to inflation. Consequently, poorer households face substantially larger welfare losses than would be implied by inflation differentials alone, while Italian households exhibit systematically greater welfare sensitivity than comparable Spanish households. Under an anchored poverty line, a common price deflator conceals 1.6 million newly poor in Spain, while in Italy it is nearly innocuous, because the shock is already large enough to push the same households below the line. Our results caution against relying on a single representative-agent price index to assess the distributional consequences of large relative-price shocks. |
| Keywords: | household consumption, non-homothetic preferences, inflation inequality, cost-of-living indexes, welfare, poverty measurement |
| JEL: | D12 E31 I32 Q43 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18849 |
| By: | Harshbir Kaur; Rishi Vala |
| Abstract: | Amid heightened Canada–US trade tensions in 2025, financial markets showed signs that investors had greater difficulty anticipating near-term Bank of Canada interest rate decisions. This uncertainty could have stemmed from two sources: uncertainty about the economic outlook or uncertainty about how the Bank of Canada would respond to that outlook. In assessing these sources, changes in the 2-year Government of Canada bond yield around the Bank of Canada's decisions remained in line with historical norms, suggesting that investors broadly understood the Bank of Canada's monetary policy response by the time decisions were announced. At the same time, the 2-year yield remained highly sensitive to incoming inflation and labour market data, indicating that these data releases continued to resolve uncertainty about the outlook. Taken together, the evidence suggests that the heightened uncertainty around Bank of Canada's interest rate decisions in 2025 was more consistent with an uncertain economic outlook than with an uncertain monetary policy response. |
| Keywords: | Financial markets and funds management; Market functioning; Models and tools; Econometric, statistical and computational methods; Monetary policy; Monetary policy framework and transmission |
| JEL: | C58 D53 E44 E52 E58 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-25 |
| By: | Chen, Tao; Levell, Peter; O'Connell, Martin |
| Abstract: | We provide new evidence that inflation inequality surged during the 2021–2023 cost-of-living crisis, driven by systematically higher price growth for lower-quality goods disproportionately consumed by poorer households. While substitution in response to relative price changes helped mitigate cost-of-living increases, it did not reverse historically high cost-of-living inequality. Declining living standards drove many households to trade down to lower-quality goods, further exposing them to the strongest price increases. Our findings have important implications for cost-of-living measurement and policymaking in an inflationary environment and underscore rising political discontent, as lower-income households face the steepest rise in their living costs. |
| JEL: | D12 D30 E31 I30 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19388 |
| By: | Ambrosino, Ludovica; Chan, Jenny; Tenreyro, Silvana |
| Abstract: | How does trade fragmentation affect inflationary pressures? What is the response of monetary policy needed to sustain inflation at target? To address these questions, we develop a two-sector, small open-economy model that features imperfect international risk-sharing and household heterogeneity, capturing both the supply-side and demand-side effects of fragmentation. In the model, fragmentation takes the form of import-price increases or a decline in tradable-sector productivity. The sign and magnitude of its impact on inflationary pressures, and the appropriate policy response, depend not only on the direct effect of higher import prices or lower productivity on supply but also, crucially, on how aggregate demand adjusts to lower real incomes. In turn, this depends on the pace of fragmentation (gradual versus front-loaded) and other key structural factors highlighted by the model. We compare outcomes under Taylor-type monetary policy rules to a constrained-efficient allocation. |
| Keywords: | monetary policy;trade fragmentation;open economies;inflation;heterogeneity;globalisation |
| JEL: | F12 F15 F41 |
| Date: | 2026–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130958 |
| By: | Jackson, Andrew; Svartzman, Romain; Barmes, David; Pereira da Silva, Luiz Awazu |
| Abstract: | Climate change and volatile fossil fuel prices increasingly drive macroeconomic and price instability. A successful green transition is a precondition for price stability in the long term but could generate inflationary pressures over shorter time horizons. A restrictive monetary response to such pressures would disproportionately affect the capital-intensive green investment needed for a transition. To maintain price stability without compromising the green transition, we propose adaptive inflation targeting, adjustments to monetary operations, and an institutional architecture for systematic monetary–fiscal coordination. |
| JEL: | F3 G3 R14 J01 N0 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140416 |
| By: | DeLay, Nathan; Brewer, Brady; Cowley, Cortney; Kreitman, Ty; Scott, Francisco |
| Abstract: | This study examines the role of interest rates and monetary policy in shaping short-run supply dynamics in the U.S. fed cattle sector. Using quarterly data on agricultural loan rates, feedlot inventories, cattle placements, and marketings across major cattle-producing states, we estimate the relationship between financing costs and cattle inventories. Initial fixed-effects results indicate that higher agricultural interest rates are associated with significantly lower cattle placements, with a one percentage-point increase in loan rates reducing placements by approximately 2.5–2.9%. Evidence on cattle-on-feed inventories and marketings is weaker but suggests dynamic responses over time. Because observed loan rates may be endogenous to local market conditions, we outline an instrumental variables approach that uses exogenous monetary policy surprises used elsewhere in the monetary economics literature. This paper highlights the importance of financing costs as a determinant of cattle supply. |
| Keywords: | Agricultural Finance, Farm Management |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404349 |
| By: | Fisnik Bajrami (Institute of Economic Studies, Charles University, Prague, Czech Republic); Ermal Lubishtani (University for Business and Technology, Prishtina, Kosovo) |
| Abstract: | One of the main expected benefits of official dollarization is its potential to promote trade by reducing exchange rate risk and transaction costs. This paper assesses the dollarization-trade relationship through a meta-regression analysis of 270 estimates from 14 empirical studies. The publication-bias diagnostics do not provide strong evidence that the reported effects are driven by selective reporting or small-study effects, while the average reported association remains positive. The results also show that the reported trade effect of dollarization is time-dependent. Reported effects are largest during the first 10 years after dollarization and decline as the post-dollarization horizon lengthens. This declining pattern remains evident across alternative specifications and robustness checks, although statistical precision weakens for the longest time horizon. |
| Keywords: | Official dollarization, trade, monetary integration, meta-regression analysis, publication bias |
| JEL: | F14 F33 E42 F15 C83 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2026_24 |
| By: | Reina Ke Xin Li; Andreas Park; Andreas Veneris; Srisht Fateh Singh |
| Abstract: | Most currency pairs lack a direct liquid market, so international foreign exchange relies on routing transactions through a dominant vehicle currency. Multi-currency automated market makers (AMMs) offer an alternative by sharing liquidity across many currency pairs, facilitating direct cross-currency trade while exploiting liquidity consolidation. This paper studies a multi-currency pool design that minimizes trading cost. Under a constant-mean AMM architecture, equilibrium trading costs reflect the trade-off between reduced price impact from consolidated liquidity and increased impermanent loss from joint return risk. This work derives closed-form costs, characterizes optimal pool weights, and shows that the optimized multi-currency pool dominates the status quo over a range of market parameters. It then formulates the system-level problem of partitioning currencies into multi-currency pools, which is solved using a hierarchical agglomerative clustering algorithm. Empirically, using exchange rate and trade data for 43 currencies over 2008-2023, the algorithm runs in 1.6 seconds and produces pools with geographic and economic structure. Notably, this reduces realized costs by ~13% relative to the status quo of vehicle-currency routing, with gains stable through episodes of global financial stress. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.26405 |
| By: | Esteban Sánchez-Gómez (Economic Division, Central Bank of Costa Rica) |
| Abstract: | This paper evaluates the performance of machine learning (ML) methods for forecasting year-over-year inflation in Costa Rica using monthly data from 2012-2025 and compares their performance against standard benchmarks within a rolling out-of-sample framework. ML techniques are particularly useful for capturing nonlinearities and complex interactions between inflation and a broad set of macroeconomic covariates. The results show that nonlinear ensemble methods such as XGBoost and BART provide the strongest gains at short horizons, while linear shrinkage methods are more competitive at longer horizons. ***Resumen: Este documento evalúa el desempeño de los métodos de aprendizaje automático (ML) para pronosticar la inflación interanual en Costa Rica, utilizando datos mensuales de 2012 a 2025 y comparándolos con estándares de referencia dentro de un esquema de muestra móvil fuera de muestra. Las técnicas de ML son especialmente útiles para captar no linealidades e interacciones complejas entre la inflación y un amplio conjunto de variables macroeconómicas. Los resultados muestran que los métodos de ensamblaje no lineal como XGBoost y BART presentan los mayores beneficios en horizontes cortos, mientras que los métodos de reducción lineal son más competitivos en horizontes largos. |
| Keywords: | Inflation, Macroeconomic Forecasting, Machine Learning, Monetary Policy, Hybrid Models, inflación, Pronósticos, Aprendizaje automático, Política Monetaria, Modelos Híbridos. |
| JEL: | C53 C33 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:apk:doctra:2606 |
| By: | Remo Isch-Taudien (University of Bern and Study Center Gerzensee); Cyril Monnet (University of Bern and Study Center Gerzensee) |
| Abstract: | An intrinsically useless asset can have value not because it serves as a medium of exchange today, but because it could in the future— this is the option value of money. We characterize the private and social option values of cryptocurrency in a model with a possibly selfinterested government controlling the cash supply. The social value is ambiguous: negative because cryptocurrency raises the cost of holding cash, yet positive when it disciplines the government. Calibrating the model, we find households would forgo 0.10%-0.81% of consumption to live in an economy where Bitcoin carries option value. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:szg:worpap:2602 |
| By: | Daniele Aglio (Vrije Universiteit Amsterdam); Eric Bartelsman (Vrije Universiteit Amsterdam) |
| Abstract: | This paper provides theory and evidence on micro-level pricing behavior needed to model an aggregate New Keynesian Phillips Curve. We start with individual firms that are heterogeneous in their production technology and in the demand curves they face. We estimate the parameters of supply and demand curves by utilizing prices and quantities of outputs and factor inputs of firms along with exogenous downstream demand instruments from global input-output and trade data. The research addresses model heterogeneity using a clustering method to classify firms according to their production technology and observed price pass-through. The results show that more productive firms exhibit a lower price response to changes in demand. We find that the aggregate price response to demand shocks will be smaller when more productive firms absorb a larger portion of demand shocks, which generally is the case. At the same time, our results imply that idiosyncratic shifts in demand to clusters of firms with more rapidly rising marginal cost curves, or cost shocks to clusters of firms with high pass-through, will result in a higher aggregate price response. Finally, this paper provides a framework to incorporate heterogeneous pricing behavior into an estimate of the slope of the aggregate Phillips Curve. |
| Keywords: | Phillips curve, Firm heterogeneity; Production technology, Cost pass-through, Firm-level data, Micro-to-macro aggregation |
| Date: | 2026–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260046 |
| By: | Paudel, Ujjwol |
| Abstract: | The question of how firms pass changes in their input costs to consumer prices, their pass-through rate, is an important and a long-standing puzzle in economics and marketing. I study this problem in the retail grocery sector, focusing on cost shocks from minimum wage increases. Exploiting spatial variation in U.S. minimum wage policies, NielsenIQ scanner data from 2011–2021, and a stacked difference-in-differences design, I find that a 10 percent increase in the minimum wage raises retail grocery prices by 1.1 to 1.5 percent. I also document forward-looking behavior as retailers increase prices immediately after legislation is enacted, rather than waiting until the policy is implemented. To examine heterogeneity, I use causal machine learning methods and show that pass-through rates are lower among larger retailers and in higher-income markets, which implies greater ability to absorb cost shocks. By contrast, retailers that rely less on promotions exhibit higher pass-through, which indicates that pricing adjustments can also occur through changes in discounting strategies rather than solely through base price increases. These findings highlight that the transmission of cost shocks depends on firm strategy and market context, with implications for both policymakers evaluating minimum wage policies and managers shaping retail pricing decisions. |
| Keywords: | Industrial Organization |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404620 |
| By: | Lukasz Adamski; Robert Slepaczuk |
| Abstract: | Our primary goal is to forecast and empirically examine the evolution of the implied volatility (IV) surface, with particular focus on the dates of scheduled meetings of the Federal Open Market Committee (FOMC). Firstly, we check if IV increases before the announcement and if thes effect is stronger for short-dated, out-the-money (OTM) options in high volatility regimes. In the second part, we turn the focus to verifying if the ML framework can beat the benchmark random walk in forecasting this effect. A feature related to dates of scheduled FOMC meetings augments the model, which allows us to discover if it can learn the effect of elevated pre-announcement uncertainty. Our contribution relies mainly on the quantitative prediction of the pre-announcement effect and the inclusion of exogenous information inside the ML framework used for the IV surface forecasting. It is also on of the first attempts to apply ML models directly on the IV surface without relying on dimensionality reduction. To achieve this, we employ a convolutional two-dimensional LSTM model, which is capable of learning spatio-temporal signals in the surface. Our analysis reveals that the edge of the ML framework can be limited due to the noisy characteristics of the IV surface. Nevertheless, our study reinforces the perspective that ML models can effectively forecast the IV surface also during abnormal days. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.10693 |
| By: | Mikhail Perepelitsa |
| Abstract: | In this paper, we develop an open-economy macroeconomic model of a Proof-of-Stake network to analyze nominal token-price dynamics and the systemic effects of speculative capital. We first consider a network populated solely by active utility users, who finance network activity through a steady exogenous inflow of fiat currency. We prove the existence of a unique, globally asymptotically stable steady-state equilibrium with a well-defined nominal token price and derive a closed-form expression for the network's relaxation time. Calibrating the model using parameters representative of the current Ethereum network, we estimate a relaxation half-life of approximately 46 years. This extreme macroeconomic inertia implies that the token price may remain persistently displaced from its evolving steady-state benchmark, producing sustained price overshooting as the network adjusts to changing fundamentals. We then introduce an Investor class to examine the effects of passive and active speculative capital. We show that passive institutional staking compresses the native staking yield and creates a structural imbalance that systematically raises the nominal token price while shifting consensus ownership away from active utility users. Active speculative capital has a qualitatively different effect. In response to capital shocks, the Consumer class's rigid preference for fiat-denominated consumption generates an endogenous constant-value strategy. This mechanism shifts staked-token ownership from the Investor class toward active utility users, with potentially favorable implications for consensus decentralization. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.16622 |