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on Monetary Economics |
| By: | Heinemann, Friedrich; Kemper, Jan |
| Abstract: | We examine the changing attention that ECB Governing Council members pay to different policy objectives by analysing more than 4, 600 speeches given between the establishment of the ECB and the summer of 2024. Alongside the primary objective of price stability, we consider the following potential secondary objectives: financial stability, stability of the government bond market, sustainable public debt, climate protection and distribution. On the methodological side, we take advantage of LLMs to identify the speeches' coverage of each of these objectives and the associated support. We conduct a series of validation tests to verify our AI-based scores, including a conventional dictionary approach. We use two-way fixed effects regressions to search for a link between a country's level of public debt and the objective function of its representatives. The results suggest that objectives have become more diverse in recent years. An increase in the public debt-to-GDP ratio in a governor's home country is associated with a shift in focus away from the primary objective and towards a growing coverage and support for secondary objectives. This general pattern is particularly robust for the distribution objective. These results can only be partly explained by governor selection. Therefore, in their communication, individual governors indicate shifts in their objective function in response to changes in the fiscal situation of their home country. |
| Keywords: | fiscal dominance, green monetary policy, large language model, text analysis |
| JEL: | E58 E52 H63 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:337484 |
| By: | Eijffinger, Sylvester C. W.; de Haan, Jakob |
| Abstract: | Central bank independence (CBI) refers to the absence of influence of politicians on monetary policy making. Since we wrote our first surveys of the literature on central bank independence (Eijffinger and de Haan, 1996 and Berger et al., 2001), a lot has changed. The level of CBI has increased considerably in almost all countries, also more recently. According to Romelli (2024), following a slowdown in central bank law reforms between 2010 and 2015, after 2016 reforms led to further increases in independence in 35 cases, while it declined in only 7 cases. However, Garriga (2025) argues that although there is a global tendency towards more CBI, there is significant variance across and within regions, including numerous reforms reducing CBI in the past two decades. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:337453 |
| By: | Ballensiefen, Benedikt; Somogyi, Fabricius; Winterberg, Hannah |
| Abstract: | We study the determinants of US dollar demand across market participants and traded instruments using survey-based exchange rate and macroeconomic expectations. Leveraging granular FX trading data and forward looking expectations, we present three results. First, currency investors increase their dollar holdings when expecting US dollar appreciation or improved US macroeconomic fundamentals, whereas synthetic dollar funding is driven by forecasted CIP deviations. Second, cross-sectionally, investors rebalance along the factor structure of currency risk into dollars following an expected dollar appreciation. Third, responses to professional forecasts weaken when uncertainty or forecaster disagreement rises, and are lower for forecasters with poorer past accuracy. Our findings demonstrate that long-horizon expectations accurately predict dollar demand across spot, swap, and forward currency markets. We rationalize those finding in a theoretical model of currency demand. |
| Keywords: | Exchange rate expectations, dollar demand, currency flows, FX swaps, survey forecasts |
| JEL: | F31 G15 F37 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfrwps:337468 |
| By: | Andre, Peter; Schaffranka, Claudia; Weber, Michael |
| Abstract: | This paper examines the persistent upward bias in euro area households' inflation perceptions and expectations, even when realized inflation is near the ECB's target. It discusses behavioural and informational drivers of this bias, its implications for consumption, wage setting, and monetary policy transmission, and the challenges it poses for ECB communication and credibility. The study concludes that improved monitoring and household-oriented communication are essential. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 26 February 2026. |
| Keywords: | Inflation Expectations, Monetary Policy, ECB |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:337489 |
| By: | Fernando M. Martin |
| Abstract: | An analysis examines inflation and labor market factors testing both sides of the Fed’s dual mandate, as well as FOMC projections for the federal funds rate. |
| Keywords: | dual mandate; price stability; labor markets |
| Date: | 2026–03–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:102847 |
| By: | Tao Chen (Institute for Fiscal Studies); Peter Levell (Institute for Fiscal Studies); Martin O'Connell (Institute for Fiscal Studies) |
| Date: | 2026–03–02 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:26/16 |
| By: | Adam, Klaus; Weber, Henning |
| Abstract: | The introduction of a firm or product life cycle into New Keynesian frameworks fundamentally alters the design of optimal monetary policy. Economic welfare and the Phillips curve then depend on the gap between inflation and a time-varying inflation target that arises endogenously from turnover. The inflation target is positive on average and shifts in response to productivity disturbances. As a result, steady-state price stability is no longer desirable and the dynamics make it optimal for monetary policy to "look through" certain productivity disturbances. The latter requires keeping nominal rates unchanged even though both output and inflation move. This complicates the empirical distinction between supply, demand, and policy shocks. Our results highlight that accounting for supply side turnover delivers a rich set of policy-relevant results for inflation targeting and shock identification. |
| Keywords: | firm turnover, product turnover, optimal monetary policy, time-varying inflation target |
| JEL: | E31 E32 E52 E61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:337464 |
| By: | Aniello Piscopo |
| Abstract: | Informality represents a pervasive feature of many emerging and developing economies, yet standard macroeconomic models often ignore its effects, potentially biasing the analysis of shocks and the design of monetary policy. This paper studies the macroeconomic and policy implications of informality using a structural VAR for Colombia and a two-agent New Keynesian model with formal and informal sectors, featuring heterogeneous households including hand-to-mouth consumers. I show that informal labor supply shocks generate sectoral reallocation: informal activity absorbs part of the shock, sustaining aggregate output while altering wages, hours, and capital allocation. In contrast, monetary policy shocks propagate more strongly when informality is present, amplifying distributional and capital-reallocation effects. Critically, the presence of informality alters equilibrium determinacy: standard Taylor rules may fail to ensure uniqueness, with stability depending on the share of Ricardian households, the size of the informal sector, and the monetary policy stance. My findings highlight that accounting for informal production is essential for understanding transmission mechanisms and designing effective policy in economies with significant informality. |
| Keywords: | Informal economy; Tax evasion; Monetary policy transmission; Fiscal policy; Public debt; DSGE model; Capital reallocation; Colombia |
| JEL: | E52 E62 E26 H26 O17 O54 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:569 |
| By: | Emrehan Aktuğ; Abolfazl Rezghi |
| Abstract: | We study optimal monetary and exchange rate policy in a small open economy facing oil price shocks. In a model with segmented financial markets that generate endogenous UIP deviations, the first-best allocation is achieved through a combination of interest rate policy and foreign exchange intervention (FXI). Monetary policy stabilizes domestic inflation and the output gap, while FXI targets the UIP wedge to offset financial frictions. Oil price shocks endogenously move the net foreign asset position, giving rise to financial imbalances that make FXI essential—a mechanism distinct from exogenous financial shocks highlighted in the literature. Quantitatively, for a calibrated oil exporter, suboptimal regimes such as a free float or a simple peg entail sizable welfare losses of around 2% in consumption-equivalent terms, though peg, and especially peg with fuel subsidies, can outperform free floats. Overall, FXI is crucial to break the destabilizing link between real commodity shocks and financial risk premia. |
| Date: | 2026–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/030 |
| By: | Marco Del Negro; Elena Elbarmi; Michael Pham |
| Abstract: | In this post we provide a measure of “global” r* using data on short- and long-term yields and inflation for several countries with the approach developed in “Global Trends in Interest Rates” (Del Negro, Giannone, Giannoni, and Tambalotti). After declining significantly from the 1990s to before the COVID-19 pandemic, global r* has risen but remains well below its pre-1990s level. These conclusions are based on an econometric model called “trendy VAR” that extracts common trends across a multitude of variables. Specifically, the common trend in real rates across all the countries in the sample is what we call global r*. The post is based on the discussion of an insightful paper by Lukasz Rachel on the drivers of r* presented at the Brookings Papers on Economic Activity Fall 2025 conference. |
| Keywords: | macroeconomics |
| JEL: | E43 |
| Date: | 2026–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:102824 |
| By: | Xiwen Bai; Jesús Fernández-Villaverde; Yiliang Li; Francesco Zanetti |
| Abstract: | We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off. |
| Keywords: | monetary policy, supply chain disruption, state dependence, convex supply curve, inflation |
| JEL: | C32 E31 E32 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12451 |
| By: | Jens H. E. Christensen; Daan Steenkamp |
| Abstract: | Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific liquidity risk premia, this paper provides estimates of bond investors' inflation expectations and associated inflation risk premia in South African sovereign bonds. The results suggest that investors' long-term inflation expectations have gradually been declining towards the tolerance band adopted by the South African Reserve Bank in 2000. |
| Keywords: | Inflation, Liquidity, Risk, Financial institutions, Capital market |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2026-21 |
| By: | Michał Brzoza-Brzezina (Narodowy Bank Polski); Rodolfo Rigato (European Central Bank) |
| Abstract: | We study the distributional consequences of the recent inflationary surge and the subsequent monetary policy response in the euro area. Using an estimated two-asset Heterogeneous Agent New Keynesian model with an overlapping generations structure, we analyze the macroeconomic shocks driving inflation between 2021 and 2022. We find that these shocks generated substantial redistribution from young and poor households toward older and wealthier ones. By keeping interest rates unchanged until mid-2022, monetary policy largely offset these distributional effects. A policy response based solely on a standard Taylor rule would have failed to mitigate the redistribution. |
| Keywords: | Monetary policy, Redistribution, HANK, OLG, Euro area, Great Inflation |
| JEL: | E31 E52 E58 D31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:nbp:nbpmis:382 |
| By: | Anna Amirdjanova; David Lynch; Anni Zheng |
| Abstract: | We examine prospective classification of crypto currencies risks within the ISDA Standardized Initial Margin Model (SIMM) framework for calculation of initial margin on trades sensitive to cryptocurrencies’ risk factors in the uncleared market. Consistent with the view that cryptocurrencies are digital assets that fundamentally rely on distributed ledger technology (DLT) and induce financial risks that are significantly different from those in traditional risk classes like commodities or FX, we find that cryptocurrencies are best classified into a distinct risk class within SIMM that is split into two buckets – pegged and floating (unpegged) crypto currencies as risk factors - and suggest risk weights’ calibration methodology within the cryptocurrencies risk class that is consistent with the existing approaches adopted in SIMM. |
| Keywords: | Risk management; Cryptocurrencies; Credit risk; Derivatives |
| JEL: | G12 G13 G18 G28 |
| Date: | 2026–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102799 |
| By: | Melissa Leistra |
| Abstract: | This paper describes the current U.S. dollar interbank payments landscape and identifies its key characteristics. It then discusses major considerations and potential tradeoffs that various conceptual alternatives might raise. |
| Keywords: | Payment systems; Real-time payment systems (RTPS); Systemic risk; Monetary policy transmission; Liquidity |
| Date: | 2026–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102840 |
| By: | Juan Pablo Di Iorio (Universidad de San Andrés); Javier García-Cicco (Universidad de San Andrés) |
| Abstract: | A salient feature of many emerging and developing economies is that a substantial fraction of government debt is denominated in foreign currency. We study the implications of the Fiscal Theory of the Price Level (FTPL) in a standard New Keynesian small and open economy model, with an explicit role for the currency denomination of public debt. We show that, while the classical FTPL characterization of equilibrium existence and uniqueness extends largely independently of debt composition, the propagation of shocks does not. The currency denomination of public liabilities alters the effects of monetary and fiscal policy, including the possibility that a monetary tightening leads to a depreciation under active fiscal regimes. More broadly, the interaction between the fiscal-monetary policy mix and the share of foreign-currency debt also plays a central role in shaping the response to external shocks. |
| Keywords: | E31; E52; E63; F41 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:179 |
| By: | Michael Junho Lee; Donny Tou |
| Abstract: | We propose a theory of stablecoin disintermediation, whereby stablecoins not only erode banks’ deposit franchises but also transmit liquidity stress to the banking system. Using transaction-level data linking on-chain transactions to wholesale interbank payments, we document the first evidence of liquidity-driven bank disintermediation. Stablecoins directly transmit liquidity shocks to the banking system: banks with stablecoin deposits experience substantial increases in payment demand and heightened liquidity exposure to daily stablecoin primary market activity. Consistent with theory, banks operate “narrowly” to support liquidity-hungry stablecoin deposits – requiring substantially larger bank reserve balances to mitigate potential shortfalls. Even as beneficiaries of stablecoin growth within the banking system, partner banks’ loan share of assets contracts relative to peers. Our results substantially broaden the scope for stablecoins to disintermediate banks, impact bank lending, and complicate monetary policy implementation. |
| Keywords: | stablecoins; Bank disintermediation; payments; bank reserves |
| JEL: | D47 E41 E42 E58 G10 G21 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102830 |
| By: | David Argente (Yale University, Yale School of Management Economics, and NBER); Chang-Tai Hsieh (University of Chicago Booth School of Business and NBER); Munseob Lee (University of California, San Diego School of Global Policy and Strategy) |
| Abstract: | Measuring aggregate inflation is subject to two opposing biases: unobserved quality and variety growth, and the use of incorrect weights when new varieties are misclassified. We show that it is possible to measure an aggregate price index free of these biases when we have a subset of products where these two errors average to zero. This procedure does not require us to distinguish new from existing goods, measure quality attributes directly, or classify new varieties into the appropriate category. We implement this approach using BEA data from 1959 to 2019, approximating the official PCE price index with a CES aggregate of BEA prices at the product level. Our estimate of the inflation rate exceeds the CES aggregate of BEA prices by 0.3 to 1.0 percentage points per year on average. The aggregate bias was close to zero prior to the BLS introducing hedonic adjustments, which suggests that only adjusting for quality bias can lead to an underestimation of overall inflation, particularly in quality-adjusted categories. |
| JEL: | D11 D12 E01 E31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfi:wpaper:2026-26 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Bank failures can stem from runs on otherwise solvent banks or from losses that render banks insolvent, regardless of withdrawals. Disentangling the relative importance of liquidity and solvency in explaining bank failures is central to understanding financial crises and designing effective financial stability policies. This paper reviews evidence on the causes of bank failures. Bank failures — both with and without runs — are almost always related to poor fundamentals. Low recovery rates in failure suggest that most failed banks that experienced runs were likely fundamentally insolvent. Examiners' postmortem assessments also emphasize the primacy of poor asset quality and solvency problems. Before deposit insurance, runs commonly triggered the failure of insolvent banks. However, runs rarely caused the failure of strong banks, as such runs were typically resolved through other mechanisms, including interbank cooperation, equity injections, public signals of strength, or suspension of convertibility. We discuss the policy implications of these findings and outline directions for future research. |
| Date: | 2026–02–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:102826 |
| By: | Linda S. Goldberg; Oliver Hannaoui |
| Abstract: | The share of US dollar assets in the official foreign exchange reserve portfolios of central banks, at times, is taken as an indicator of the dollar's global status. We provide a decomposition that shows two distinct channels contributing to the changes in the dollar share of reserves aggregated across countries: shifts in preferences for dollar assets, and changes in reserve balances driven by countries whose portfolio allocations differ from the aggregate. We document how the concentrated nature of foreign exchange reserve holdings allows countries that contribute a large share of aggregated reserves to exert substantial influence on aggregate dollar shares over time, potentially dominating the narrative. In recent periods, the key contributors to changes in aggregate preference shifts for dollar assets are changes in bilateral country trade with the United States and dollar debt share, with geopolitics additionally working through the investment tranches of central bank portfolios. Diversification away from dollar assets is more prevalent conditional on official reserves of countries being large enough to satisfy country liquidity needs. |
| JEL: | F33 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34888 |
| By: | Es-Sellami Ayoub (ENCG - Ecole Nationale de Commerce et de Gestion - UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar), UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar)); Kehel Mohammed (UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar), ENCG - Ecole Nationale de Commerce et de Gestion - UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar)) |
| Abstract: | The aim of this research is to analyse the relationship between monetary policy and the choice of investment projects at Moroccan Subnational governments. It sets out to explain how these authorities react to adjustments in monetary decisions. More precisely, our study seeks to understand the impact of changes in the key rate, made by Bank Al-Maghrib, on the use of credit and investment spending by local authorities during the period 2015-2024. The results of our analysis reveal a complex and non-linear relationship between these variables. According to economic theory, a cut in the key rate should encourage credit and stimulate investment, but the case of Morocco reveals a partial transmission of this logic. Indeed, some years have shown that favourable monetary conditions do not necessarily translate into an increase in credit or investment. |
| Abstract: | L'objectif de cette recherche est d'analyser la relation entre la politique monétaire et le choix des projets d'investissement au niveau des collectivités territoriales marocaines. Elle vise à expliquer comment ces collectivités réagissent aux ajustements des décisions monétaires. Plus précisément, notre étude s'attache à comprendre l'impact des modifications du taux directeur, effectuées par Bank Al-Maghrib, sur le recours au crédit et les dépenses d'investissement des collectivités territoriales durant la période 2015-2024. Les résultats de notre analyse mettent en évidence une relation complexe et non linéaire entre ces variables. Si, selon la théorie économique, une baisse du taux directeur devrait encourager le crédit et stimuler l'investissement, le cas du Maroc révèle une transmission partielle de cette logique. En effet, certaines années montrent que des conditions monétaires favorables ne se traduisent pas nécessairement par une hausse des crédits ni des investissements. |
| Keywords: | Monetary policy, Key interest rate, Local investments, Subnational governments, Collectivités territoriales, Investissements locaux, Taux directeur, Politique monétaire |
| Date: | 2026–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05442849 |
| By: | Austin Roberts |
| Abstract: | The Federal Open Market Committee makes important decisions regarding U.S. monetary policy and comprises leaders from around the Federal Reserve System. |
| Date: | 2026–01–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102790 |
| By: | Dario Bonciani; Riccardo M. Masolo; Silvia Sarpietro |
| Abstract: | Food prices are salient for households’ inflation perceptions and expectations at both the micro and macro levels. UK survey data indicate over 60% of households report food prices as very important for perceived inflation. These households exhibit a stronger correlation between perceived and expected inflation, reflecting backward-looking expectations. An SVAR with aggregate data shows food-price shocks generate larger and more persistent movements in expectations than “representative” inflation shocks. Finally, embedding behavioural expectations in a New Keynesian model, we find that, following a food-price shock, welfare losses are mitigated when monetary policy responds to households’ inflation expectations, even if they overreact. |
| Keywords: | Inflation Expectations; Inflation Perceptions; Monetary Policy |
| JEL: | D10 D84 E31 E52 E58 E61 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp274 |
| By: | Santiago Camara |
| Abstract: | This paper examines the sign-dependent international spillovers of Federal Reserve and European Central Bank monetary policy shocks. Using a consistent high-frequency identification of pure monetary policy shocks across 44 advanced and non-advanced economies and the methodology of Caravello and Martinez-Bruera, 2024, we document strong asymmetries in international transmission. Linear specifications mask these effects: contractionary shocks generate large and significant deteriorations in financial conditions, economic activity, and international trade abroad, while expansionary shocks yield little to no measurable improvement. Our results are robust across samples, identification strategies, and the framework proposed by Ben Zeev et al., 2023. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.09237 |
| By: | Behn, Markus; Lo Duca, Marco; Perales, Cristian |
| Abstract: | Using information from the ECB’s Bank Lending Survey, we examine how the implementation of borrower-based macroprudential measures (BBMs) between 2009-Q1 and 2023-Q3 affected mortgage lending standards in a sample of 15 euro area countries. We find that banks generally tightened credit standards around the implementation of BBMs, with the strongest effect occurring contemporaneously. Such tightening of credit standards is observed for different types of BBMs, including limits on loan-to-value or debt-service-to-income ratios and maturities. We also find mild evidence that legally binding measures imply a stronger tightening of credit standards than measures in the form of non-binding recommendations. Finally, this tightening is more pronounced in cases where mortgage loan growth or real estate price growth is high, consistent with BBMs effectively smoothing the credit cycle. JEL Classification: G21, G28, G51 |
| Keywords: | borrower-based measures, credit standards, macroprudential policy, mortgages |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263190 |
| By: | Falk Bräuning; Victoria Ivashina |
| Abstract: | Revolving credit is at the core of the banking business. Corporate revolving credit lines are demandable claims; therefore, as with a traditional bank run on deposits, sudden widespread drawdowns on credit lines can destabilize the banking sector. However, we show that, unlike with deposits, credit-line utilization is highly sensitive to interest rates. A run on revolving lines is less likely in a high-interest-rate environment, but when the Federal Reserve cuts the interest rate to support a weak banking sector, the sector can become vulnerable to such a run. |
| Keywords: | bank liquidity; corporate credit; bank runs; financial crises |
| JEL: | G21 G32 G01 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:102835 |
| By: | Gert Peersman |
| Abstract: | This paper employs a joint SVAR-IV model for the United States and the euro area to estimate the pass-through of energy and food commodity cost shocks to inflation. Exogenous commodity cost shocks — such as those triggered by the Russian invasion of Ukraine — had only a modest impact on inflation during the post-pandemic period. However, counterfactual analyses based on the pass-through estimates indicate that overall commodity cost fluctuations — including their endogenous responses to macroeconomic conditions — can almost fully account for the rise and subsequent decline of energy, food, and core CPI inflation over this period. These findings highlight that commodity costs constitute a key transmission channel through which macroeconomic developments affect inflation. Estimates of a standard Phillips Curve specification, including its slope, are shown to be severely biased when this channel is ignored. |
| Keywords: | commodity costs, post-pandemic inflation, Phillips curve |
| JEL: | E31 Q11 Q43 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12415 |
| By: | Kubitza, Christian; Damast, Dominik; Sørensen, Jakob Ahm |
| Abstract: | We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers’ balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers’ assets, tightening insurers’ balance sheet constraints and increasing their shadow cost of capital. These frictions in insurance supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending. JEL Classification: E5, E44, G21, G22, G5, R3 |
| Keywords: | financial frictions, housing markets, insurance, monetary policy |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263194 |
| By: | Falk Bräuning; Victoria Ivashina |
| Abstract: | Revolving credit is at the core of the banking business. Corporate revolving lines are demandable claims; thus, similar to a traditional run on deposits, sudden and widespread drawdowns can destabilize banks. However, unlike deposits, credit line utilization exhibits substantial interest rate sensitivity. As a result, a run on revolving credit lines is less likely in a high-interest-rate environment but can introduce vulnerabilities when policy rates are lowered. Using an interest rate discontinuity commonly embedded in commercial credit contracts, we propose a methodology to estimate the elasticity of credit demand and apply it to measure the sensitivity of precautionary drawdowns. |
| JEL: | G1 G21 G32 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34879 |
| By: | Ruth A. Judson; Colin Weiss |
| Abstract: | The size of the Federal Reserve's balance expanded dramatically from 2008 to 2022 and has recently begun to adjust as the Fed moves toward a policy of "ample" reserves. While this expansion was unprecedented in its speed and came after a long period of stability, the Federal Reserve's balance sheet has risen and fallen and changed in composition over time. This note provides a graphical review of the evolution of the balance sheet from the Fed's founding in 1914 through 2025, with particular emphasis on how the balance sheet changed as the gold standard ended in the early 1970s, as the Fed shifted to interest-rate targeting in the early 1990s, and as the Fed responded to the 2008 financial crisis. |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102802 |
| By: | Blix Grimaldi, Marianna (Financial Stability Department, Central Bank of Sweden); Schneider, Fabienne (Bank of Canada); Vestin, David (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | This paper examines the interaction between quantitative easing (QE) and the securities lending facility (SLF) using a detailed dataset on Riksbank QE purchases, Swedish DMO SLF transactions and OTC repo deals. A theoretical model further shows how excess demand for assets and search frictions shift the SLF from a backstop to a first-resort tool. Empirically and theoretically, we find that QE expansion is closely linked to higher SLF use. Narrowing spreads between SLF yields and market repo rates make the SLF yield a floor for secured lending, weakening ties to monetary policy benchmarks and potentially altering its transmission. QE announcements also increase SLF usage, raising moral hazard concerns. Theoretically, QE strengthens cash-borrowing dealers’ bargaining position and may reduce reliance on the repo market, with implications for market liquidity. |
| Keywords: | Security Lending Facilities; Quantitative Easing; Repo Market |
| JEL: | E52 E58 G21 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0462 |
| By: | Anyfantaki, Sofia; Migiakis, Petros; Petroulakis, Filippos; Giannakidis, Haris; Malliaropulos, Dimitris |
| Abstract: | Using granular security-level data from bond funds domiciled in the US and the euro area, we identify a market-based risk-taking channel of monetary policy transmission via the credit-risk and the maturity structure of bond funds’ portfolios. We measure credit risk at the fund level as the weighted average credit rating of the fund’s bond holdings. We find that accommodative monetary policies by the Fed and the ECB are associated with increased risk in bond funds’ portfolios. Interestingly, risk-taking is more pronounced for funds with longer-term holdings relative to short-term ones and unconventional monetary policy exerts stronger market-based risk-taking effects than interest rate policy. Finally, we find that Fed’s monetary policy has a stronger impact on funds’ risk-taking behaviour than the ECB’s, highlighting the dominant role of US monetary policy in global financial markets. JEL Classification: E52, G12, G15, G20 |
| Keywords: | investment funds, monetary policy, non-bank financial intermediation, risk-taking channel |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263196 |
| By: | Merve Capan; Ahmet Gulveren; Tuba Ozsevinc |
| Abstract: | In this study, we propose a trend inflation indicator by using the Multivariate Unobserved-Components Stochastic Volatility Outlier-Adjusted (MUCSVO) model to better capture the underlying inflation dynamics in Türkiye. Our measure effectively filters out temporary shocks and exhibits superior forecasting performance at horizons beyond three months. Moreover, results imply that the permanent component of inflation declined from 3.9 in October 2023 to 2.2 in June 2025. Services emerge as the dominant driver of trend inflation, contributing about 55% despite having only 31% of the consumption basket weight. These results highlight the importance of sectoral decomposition in understanding inflation persistence and improving monetary policy design. As an addition to the underlying trend inflation indicators currently monitored by the Central Bank of the Republic of Türkiye (CBRT), the MUCSVO model enhances the CBRT’s capacity to monitor underlying price dynamics. |
| Keywords: | Unobserved component models, Trend inflation, Inflation forecasting, Monetary policy design |
| JEL: | C32 E31 E37 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2605 |
| By: | Bletzinger, Tilman; Martorana, Giulia; Mistak, Jakub |
| Abstract: | Financial Conditions Indices (FCIs) are a widely used tool for assessing the broader monetary policy stance beyond the central bank’s direct control. This paper presents a novel vector autoregressive (VAR) model that includes key macroeconomic variables and maps financial variables into a single index, named Macro-Finance FCI. The VAR coefficients and the FCI weights are estimated jointly in one step, ensuring a model-consistent microfinance feedback. The model-implied long-run mean of the index provides a neutral benchmark to which financial conditions converge when inflation is at target and output is at potential. For the euro area, the proposed FCI incorporates nine asset prices – including risk-free rates, sovereign spreads, risk assets, and the exchange rate – and assigns a dominant role to nominal interest rates. It outperforms existing indices in out-of-sample forecasts of inflation and output. A structural identification of supply, demand, and financial shocks indicates that financial conditions require up to one year to transmit to the real economy and almost up to two years to inflation. JEL Classification: C32, E44, E52 |
| Keywords: | financial conditions index, monetary policy, structural macro-finance VAR |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263193 |
| By: | Tobias Krahnke; Wenjie Li |
| Abstract: | Capital flow restrictions have long been debated as a tool to manage external financial vulnerabilities, as volatile international capital flows and high external debt can contribute to financial crises. However, empirical evidence on whether capital flow management measures (CFMs) can shift the composition of countries’ external liabilities toward more stable types of funding is limited. Using a novel dataset of granular capital account openness indicators measuring policy intensity, we show that an asymmetric liberalization favoring equity over debt can tilt external capital structures toward equity. This effect is stronger in countries with higher institutional quality, underscoring the role of governance in attracting stable foreign investment. |
| Keywords: | Capital Controls; Foreign Direct Investment; Portfolio Equity; External Debt; External Liabilities |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/037 |
| By: | Anna Cole; Christopher J. Neely |
| Abstract: | One of the U.S. dollar’s influential international roles is as the dominant reserve currency, widely used in international foreign exchange reserves, which are rainy day funds for governments. |
| Date: | 2026–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102817 |
| By: | Wenbin Wu; Can Liu |
| Abstract: | This paper investigates systemic risk transmission across stablecoin markets using Quantile Vector Autoregression (QVAR). Analyzing eight major stablecoins with day data coverage from 2021 to 2025, supplemented by minute-level event studies on three additional coins experiencing major depegs until 2025, we document three findings. First, stabilization mechanism dictates tail-risk behavior: fiat-backed stablecoins function as "stability anchors" with near-zero net spillovers across quantiles, while algorithmic and crypto-collateralized designs become risk amplifiers specifically under extreme market conditions. Second, the theoretical risk isolation between fiat and crypto markets breaks down during stress: direct volatility channels emerge between the US Dollar Index and Bitcoin that bypass stablecoin intermediation. Third, Forbes-Rigobon contagion tests across four depeg events show heterogeneous transmission: after adjusting for volatility, algorithmic stablecoins exhibit significant residual contagion while fiat-backed coins show flight-to-quality effects. These findings imply that uniform stablecoin regulation is inappropriate; regulatory capital buffers for extreme losses should be 2--3x higher for non-fiat-backed stablecoins than median-based measures indicate. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.18820 |
| By: | Danilo Leiva-León; Rodrigo Sekkel; Luis Uzeda |
| Abstract: | We develop a trend–cycle Bayesian vector autoregression that jointly estimates the real neutral rate of interest, 𝑟𝑡∗, and identifies monetary policy shocks. As a key innovation, the framework allows cyclical shocks, most notably monetary policy shocks, to affect the trend component of macroeconomic variables, providing a new way to assess whether transitory disturbances have persistent effects. Using external instruments, we find that contractionary monetary policy shocks reduce 𝑟𝑡∗ and lower trend GDP growth, while the model’s estimates of 𝑟𝑡∗ remain consistent with standard benchmark measures. We then quantify the contribution of monetary policy shocks to the secular decline in 𝑟𝑡∗. Although these shocks at times generate sizable movements in 𝑟𝑡∗, their contribution to the long-run decline is modest, and their net effect on 𝑟𝑡∗ since the early 1990s is slightly positive. We complement these findings with cross-country evidence from other advanced economies, pointing to similar effects. |
| Keywords: | neutral interest rate; monetary policy; trend-cycle BVAR |
| JEL: | E32 E44 C32 C51 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:102795 |
| By: | Kristie M. Engemann |
| Abstract: | An economist explains how inflation expectations are estimated, why they're important to monetary policymakers, and what can happen if they become "unanchored." |
| Date: | 2025–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00100:102782 |