|
on Monetary Economics |
| By: | Duarte, João B.; Pires, Mariana N. |
| Abstract: | We study how financial integration shapes the transmission of monetary policy to consumer prices and output in the euro area. Using local projections, we document that the effect of financial integration is continuous: greater integration systematically strengthens the pass-through of monetary policy. When integration falls to low levels—around the first quartile of its historical distribution— transmission to both prices and output becomes statistically and economically insignificant. The amplification pattern is pervasive across member states and more pronounced in peripheral economies. These results show that financial integration is a key determinant of monetary policy effectiveness within the euro area. JEL Classification: E44, E52, F36, F45 |
| Keywords: | financial integration, local projections, monetary policy, monetary union |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253165 |
| By: | Viktoria Alaverdyan (Central Bank of Armenia); Gevorg Minasyan (Central Bank of Armenia); Aleksandr Shirkhanyan (Central Bank of Armenia) |
| Abstract: | This paper examines whether macroprudential foreign exchange (FX) regulations unintentionally shift currency risk to sectors not directly targeted by such measures. Using a difference-indifferences framework and a highly granular dataset combining loan-level credit registry data with bank-level balance sheet information, we analyse how Armenian banks adjusted their portfolios following the introduction of a differentiated loan-to-value (LTV) regulation that imposed stricter limits on FX-denominated mortgages. The results show that the differentiated LTV, while tightening borrowing conditions for FX-denominated mortgages, also led to an increase in the dollarization of business loans and a higher share of foreign-currency bonds in banks' portfolios. These shifts imply that FX-related macroprudential policies can reallocate rather than reduce currency risk, emphasizing the need for system-wide oversight to prevent its build-up in unregulated segments of the financial system. |
| Keywords: | Macroprudential policy; Foreign exchange regulation; Loan-to-value limits; Dollarization; Bank portfolio reallocation |
| JEL: | E58 G21 G28 F31 E44 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-04 |
| By: | Pablo Aguilar-Perez |
| Abstract: | This paper examines the effects of monetary policy on the profitability of life insurers during the prolonged low-interestrate period, leveraging a novel dataset of 31 leading French insurers from 2009 to 2018. Following supervisory practice and business-model criteria, we classify firms into bancassurers (insurance subsidiaries of banking groups) and non-bancassurers (the rest of life insurers governed by the French Insurance Code). Our central contribution is to document the income channel for life insurance. Monetary policy easing boosts profitability, but the adverse effect of the low-yield era operates through the spread between portfolio returns and credited (guaranteed) rates: as this guaranteed-yield spread widens, the gain from easing attenuates. We show that this mechanism differs materially across business models. Bancassurers reduce credited rates more rapidly than peers while maintaining above-average premium growth, thereby dampening the income channel’s drag and sustaining margins. Portfolio choices reinforce this advantage: bancassurers’ profitability increases with higher equity shares, in contrast to nonbancassurers, consistent with more diversified portfolios that smooth returns. Taken together, the results reveal pronounced heterogeneity in how life insurers adapt to monetary easing and underscore the importance of business model for the transmission of monetary policy to non-bank financial intermediaries. |
| Keywords: | Low-Interest Rate Environment;Insurance Profitability;Monetary Policy;Financial Stability;Non-Bank Financial Intermediaries |
| JEL: | G22 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2025-22 |
| By: | Tatul Hayruni (Central Bank of Armenia); Mane Pirumyan (Central Bank of Armenia); Aleksandr Shirkhanyan (Central Bank of Armenia) |
| Abstract: | This paper examines depositor behavior during two episodes of system-wide withdrawal pressure in Armenia, a small, open, and highly dollarized economy. Using depositor-level administrative data covering 60–73 percent of the national deposit portfolio, we study early withdrawals during the 2014 exchange-rate and financial-market shock and the 2020 geopolitical shock, both characterized by sizable outflows despite the absence of bank-specific solvency stress. This environment allows us to analyze how contract characteristics, currency denomination, and depositor–bank relationships shape withdrawal decisions under uncertainty. We exploit Armenia’s dual-currency deposit insurance regime to assess how currency-specific coverage interacts with exchange-rate risk, and we use legally defined insider classifications to identify individuals with formal ties to bank governance. We find that deposit insurance has a clear stabilizing effect, though insured depositors still adjust behavior modestly as balances approach the coverage limit. Insiders, despite lacking insurance and plausibly possessing superior information, do not withdraw more aggressively than the broader public. Prior crisis experience reduces the likelihood of withdrawal in subsequent shocks, and dual-currency depositors disproportionately redeem AMD deposits, consistent with depreciation-driven precautionary motives. These results underscore how currency composition, contract design, and relational ties shape withdrawal pressures under macro-financial stress. |
| Keywords: | Depositor Behavior, Deposit Insurance, Early Withdrawals, Financial Shock, Geopolitical Shock |
| JEL: | D81 G01 G21 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-06 |
| By: | Le Roux, Thomas |
| Abstract: | Abstract This paper argues that the dominant risk to Euro Area stability has structurally shifted from cyclical inflation to a direct conflict between geopolitically-driven fiscal policy and central bank independence. We construct a novel quarterly dataset of exogenous geopolitical fiscal shocks (GEO_SHOCK) using a narrative approach (Ramey, 2011). A Structural Vector Autoregression (SVAR) for the EA aggregate finds these shocks are persistently inflationary, with a peak impact of +0.08% on the HICP. A Panel SVAR, robust to local projections, finds the shocks drive significant fragmentation: a 1-std-dev shock widens spreads in high-debt (90th percentile) member states by 22 basis points, an effect absent in pandemic-related fiscal shocks. The shock accounts for 34% of medium-term spread variance. A high-frequency event study confirms this, showing an immediate +11.2 bps impact on Italian spreads post-announcement. A counterfactual simulation shows that a TPI "spread cap" would stabilize debt but amplify inflation, quantifying the fiscal dominance trade-off. |
| Keywords: | Fiscal Dominance, Monetary Policy, Geopolitical Risk, TPI, Fragmentation, SVAR, Local Projections |
| JEL: | E52 E58 E62 E63 F45 H63 |
| Date: | 2025–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126750 |
| By: | Larsen, Mathias; Jackson, James |
| Abstract: | Climate change has become a concern for central banks, at least rhetorically. Questioning whether the banks walk the talk, a proliferating research agenda covers mandates, motives, expertise, and independence. Yet, it remains unappreciated that the only central bank with actual green monetary policies is not independent, namely, the People’s Bank of China (PBoC). Here, we explore the relation between independence and climate action through an in-depth, interview-based study of the PBoC, in comparison with the U.S. Federal Reserve, the European Central Bank, and the Bank of England. First, we find that Western central banks indirectly promote financial institutions to consider climate issues, whereas the PBoC, most centrally, directly intervenes through monetary policy. Second, by examining legal independence, mandates, and government influence, we find that independence constrains Western central banks, while non-independence forces the PBoC to act. From this, we discuss how the climate era requires revisiting central bank independence. |
| Keywords: | China; finance; environment; governance; state |
| JEL: | H11 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130460 |
| By: | Lovisa Reiche; Gabriele Galati; Richhild Moessner |
| Abstract: | We study how consumers form and revise inflation expectations using a unique, highly balanced monthly panel of Dutch households. We develop a Bayesian frame-work that nests Full-Information Rational Expectations (FIRE) alongside common forecasting heuristics and test it by recovering person-specific belief-updating rules from individual time-series regressions. Our novel individual-level design reveals sub-stantial heterogeneity in how households process information over time. On average, consumers systematically overreact to current inflation, echoing patterns found for pro-fessional forecasters. Only 2.5 percent, predominantly wealthier, more educated men, behave consistently with FIRE. Most consumers rely on simple heuristics, especially adaptive expectations. Our results show that heuristic learning, not FIRE, character-izes expectation formation for the vast majority of households. Crucially, heterogeneity in belief updating is both large and systematic. |
| Keywords: | Household Inflation Expectations; FIRE; Heuristic Learning |
| JEL: | E31 E37 E70 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:852 |
| By: | Kliem, Martin; Metiu, Norbert |
| Abstract: | Financial cycles refer to fluctuations in credit and house prices that extend beyond typical business cycles. Despite its significance for both monetary and macropru- dential policy, the question of how monetary policy shapes financial cycles remains largely unanswered. We extract innovations from a vector autoregression that account for most of the cyclical co-movement between credit and house price growth at medium frequencies. Our findings indicate that systematic monetary policy plays a crucial role in propagating this innovation and can significantly dampen financial cycles, particularly when counteracting house price movements. These stabilizing effects could have substantially mitigated the U.S. financial cycle during the 2000s. |
| Keywords: | Financial cycle, monetary policy, policy counterfactual |
| JEL: | C32 E32 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:333896 |
| By: | Koppenberg, Maximilian; Hirsch, Stefan |
| Keywords: | Industrial Organization, Agricultural and Food Policy, Agribusiness |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea24:343671 |
| By: | Anahit Matinyan (Central Bank of Armenia) |
| Abstract: | This paper examines exchange rate pass-through (ERPT) to inflation in Armenia using monthly data from 2008-2023. Combining reduced-form estimation with a structural vector autoregression (SVAR) model, it provides evidence on both average and shock-specific ERPT. The analysis yields three key findings. First, exchange rate fluctuations affect domestic prices primarily through the U.S. dollar exchange rate, confirming the relevance of the dominant currency paradigm. Second, ERPT is highly heterogeneous across consumer price index (CPI) components, with larger effects for tradable and imported goods and limited responses for non-tradables and services. Notably, imported prices display a short-run asymmetry, with depreciations eliciting stronger responses than appreciations of comparable size. Third, ERPT is shock-dependent: monetary policy shocks generate the strongest and most persistent pass-through, underscoring the importance of the exchange rate channel in Armenia's monetary transmission mechanism. The results remain consistent across methods, reinforcing their robustness and offering policy-relevant insights for small, dollarized economies pursuing inflation targeting under external volatility. |
| Keywords: | Inflation, Price Level, Monetary Policy, Exchange Rate Pass-Through |
| JEL: | E31 E52 F31 F41 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ara:wpaper:wp-2025-05 |
| By: | Butt, Asad Ejaz |
| Abstract: | This paper investigates why U.S. inflation during 2021–2022 subsided without the expected rise in unemployment implied by the Phillips curve, advancing the question of whether supply-side factors and anchored expectations reshaped the inflation–employment relationship. Drawing on macroeconomic data from FRED, the study integrates empirical analysis of inflation, wage growth, energy prices, and unemployment to test the sensitivity of inflation to labor market conditions. The theoretical framework re-evaluates the Phillips curve in the context of supply-driven inflation and credible inflation-targeting regimes. Results indicate that supply shocks—mainly energy price and supply-chain disruptions—proved transitory, while the Federal Reserve’s communication effectively anchored expectations near its 2% target. Consequently, inflation declined without the employment sacrifices predicted by traditional models, implying a flatter Phillips curve and stronger role for expectations anchoring. The study concludes that macroeconomic policy must better distinguish supply- from demand-induced inflation, integrating expectations management and policy credibility into models of disinflation dynamics. |
| Keywords: | Supply-driven inflation, Phillips curve, Anchored expectations, Disinflation, Monetary policy credibility, Supply-side shocks, Inflation targeting, Energy prices, Labour market dynamics, Macroeconomic stabilization |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:333975 |
| By: | Chihiro Shimizu; W. Erwin Diewert |
| Abstract: | The paper discusses many of the problems that compilers of a Consumer Price Index face. The paper also provides a survey of the four main approaches to bilateral index number theory. These approaches are used by National Statistical Offices to construct their CPIs but these approaches cannot deal with the problems caused by the use of scanner data at the first stage of aggregation. The two main problems are the chain drift problem and the lack of matching problem. In order to deal with these problems, it is necessary to use multilateral index numbers and so seven of the main multilateral methods are explained in the remainder of the paper. The paper concludes with a listing of other challenges to the construction of a CPI. There is some new material on the interpretation of the Commensurability Test and on the Econometric Approach to multilateral index number theory. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:tcr:wpaper:e219 |
| By: | Djeneba Dramé (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, UPN - Université Paris Nanterre); Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | In an era of economic uncertainty and escalating geopolitical risks, global growth is slowing while inflationary pressures persist. Policymakers face a delicate trade-off: curbing inflation without stifling recovery—a challenge that is especially acute in developing economies, where traditional tools often fall short. While monetary policy is a cornerstone of economic management, its real-world impact in these countries remains debated. Our recent study (Dramé and Léon, 2025) sheds light on this issue by examining how firms adjust their behavior in response to monetary policy changes. We find that managers do react to both tightening and easing measures—but their responses vary widely, revealing significant heterogeneity. |
| Abstract: | Dans un contexte marqué par l'incertitude et la montée des tensions géopolitiques, l'économie mondiale navigue en eaux troubles. Les prix restent sous pression, tandis que la croissance montre des signes d'essoufflement. Pour les décideurs, l'enjeu est de taille : comment maîtriser l'inflation sans compromettre la reprise ? Un exercice d'équilibriste, surtout pour les pays en développement, où les outils traditionnels peinent à apporter des solutions durables. La politique monétaire est un instrument clé pour atteindre cet équilibre, mais son efficacité dans les pays en développement reste une question ouverte. Dans une étude récente (Dramé et Léon, 2025), nous examinons cette question en étudiant le comportement des entreprises face à un changement de la politique monétaire. Nous mettons en évidence que les dirigeants d'entreprises réagissent à la fois aux politiques monétaires restrictives et expansives mais que la sensibilité est hétérogène. |
| Keywords: | Developing countries, Firms, Financial constraints, Monetary policy, Pays en dévelopement, Firmes, Contraintes financières, Politique monétaire |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05385539 |
| By: | César Anzola Bravo; Paola Poveda |
| Abstract: | Food prices have consistently been one of the leading contributors to Colombia’s inflation rate. They are particularly sensitive to exogenous factors such as extreme weather events, supply chain disruptions, and global commodity price shocks, often resulting in sharp and unpredictable price fluctuations. This document pursues two main objectives. First, it aims to estimate and evaluate methods for forecasting 33 homogeneous food inflation baskets, which together constitute the total food Consumer Price Index (Food CPI), offering tools that can assist policymakers in anticipating the drivers of future inflation. This includes both traditional time series models and modern machine learning approaches. Second, it seeks to enhance the interpretability of model predictions through explainable AI techniques. To achieve this, we propose a variable lag selection algorithm to identify optimal feature-lag pairs, and employ SHAP (SHapley Additive exPlanations) values to quantify the contribution of each feature to the model’s forecast. Our findings indicate that machine learning models outperform traditional approaches in forecasting food inflation, delivering improved accuracy across most individual baskets as well as for aggregated food inflation. *****RESUMEN: Los precios de los alimentos han sido uno de los principales factores que contribuyen a la inflación en Colombia. Estos son particularmente sensibles a factores externos como choques climáticos, interrupciones en las cadenas globales de valor y choques en los precios de los productos básicos a nivel global, lo que resulta en fluctuaciones impredecibles de precios. Este documento tiene dos objetivos. En primer lugar, busca estimar y evaluar métodos para pronosticar 33 canastas homogéneas de inflación de alimentos, ofreciendo herramientas que puedan ayudar a los hacedores de política anticipar los factores que afectan la inflación de alimentos futura. Esto incluye tanto modelos tradicionales de series de tiempo como enfoques modernos de machine learning. En segundo lugar, se propone mejorar la interpretabilidad de las predicciones de los modelos mediante técnicas de explainableAI. Para ello, proponemos un algoritmo de selección de variables que identifique las variables explicativas más relevantes, y utilizamos valores SHAP (SHapley Additive exPlanations) para cuantificar la contribución de cada variable explicativa en las predicciones del modelo. Nuestros hallazgos indican que los modelos de machine learning superan a los enfoques tradicionales en el pronóstico de la inflación de alimentos, logrando una mayor precisión tanto en la mayoría de las canastas individuales como en la inflación de alimentos agregada. |
| Keywords: | Macroeconomic Forecasts, Food Prices, Machine learning, Pronóstico Macroeconómico, Inflación de alimentos |
| JEL: | C53 E31 E37 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1335 |
| By: | Zakaria Savon (University Mohamed V - Souissi) |
| Abstract: | The financial crisis of 2007-2008 compelled economists to reevaluate the impacts and trajectories of monetary policy. It highlighted the new challenges central banks face, particularly in integrating financial stability into the monetary policy-making process. Financial stability is closely connected to monetary policy. The financial sector plays a vital role as a channel for monetary policy to affect the real economy. Numerous studies have investigated the impact of monetary policy on the stability of conventional banking institutions. Nonetheless, a substantial study vacuum persists concerning the impact of monetary policy on the stability of Islamic financial institutions. Our research aims to investigate this matter. The study analyzed a sample of 34 financial institutions across 11 countries with dual banking systems, spanning the years 2013-2022. It utilized a random effects estimator and a system GMM estimator. The findings demonstrate a substantial and negative impact of the monetary policy rate on the stability of Islamic banks. The study's conclusions have significant consequences, especially for infrastructure and monetary policy. The advancement of the Islamic money market signifies a crucial development in the strength and expansion of Islamic financial organizations. Furthermore, monetary policymakers must evaluate the effects of interest rate-oriented monetary policy on the stability of Islamic banks. |
| Keywords: | Stability, Z-score, GMM, Islamic Banks, Monetary Policy |
| Date: | 2025–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05321401 |
| By: | Ulrich Roschitsch; Hannes Twieling |
| Abstract: | This paper shows that regional disparities in house price growth are more pronounced during house price busts than during booms. To explain this observation we construct a two-region currency union model incorporating a housing sector and extrapolative belief updating regarding house prices. To solve the model, we propose a new method that efficiently handles extrapolative belief updating in a wide class of structural models. We show that intensified extrapolation in busts and regional housing market heterogeneities jointly explain elevated regional house price growth dispersion in busts and muted dispersion in booms. Consistent with our theory, we provide empirical evidence that house price belief updating is indeed more pronounced in busts and we document that regional heterogeneities on the housing supply side affect regional house prices. Quantitatively, our model can match empirically observed elevated regional house price growth dispersion in busts. Moreover, we demonstrate that a monetary authority targeting house prices may reduce the volatility of output and prices as well as regional house price growth disparities. This policy is welfare-improving relative to an inflation-targeting benchmark. |
| Keywords: | Housing; Monetary policy; Monetary policy transmission |
| JEL: | E31 E32 E52 F45 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-36 |
| By: | Lay, Sok Heng; Sam, Vichet |
| Abstract: | Dollarization poses significant challenges to monetary policy effectiveness and heightens economic vulnerability to external shocks, prompting calls for de-dollarization and greater promotion of local currency use. This paper investigates the role of digital payment in fostering the use of Cambodia’s local currency, the Khmer riel (KHR), in an economy that has remained heavily dollarized since the 1990s. First, we develop a simple theoretical model to explain how digital payment has the potential to promote the use of KHR. Second, using unique survey data collected in 2023 from workers in Cambodia’s garment, footwear, and textile sectors, we apply two advanced econometric approaches to address endogeneity in digital payment adoption: i/-A linear regression model with endogenous treatment effects estimated via maximum likelihood, and ii/-An endogenous treatment-effects model allowing for heterogenous impacts of digital payment based on households’ characteristics. These models enable comparison between observed outcomes and counterfactual scenarios—that is, what individuals’ KHR usage would have been had they use or do not use digital payment. Empirical results indicate that digital payment significantly increases KHR usage, raising total expenditure in KHR by 4.52 percent to 10.41 percent relative to the case without digital payment. However, the analysis also reveals important demographic disparities: younger, urban, and more educated individuals show stronger preferences for the US dollar. Hence, while digital payment supports broader use of the local currency, their long-term effectiveness relies on complementary measures such as promoting KHR-denominated pricing, salary payments, and expanding KHR-linked digital services. Therefore, the study emphasizes the necessity of coordinated efforts among relevant stakeholders to ensure sustained progress in the promotion of local currency. |
| Keywords: | Digital payment, Dollarization, Local Currency, Endogenous treatment effects |
| JEL: | D12 E42 O33 |
| Date: | 2025–08–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126747 |
| By: | Josef Simpartl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This article examines forms of direct monetary policy communication and their impact on inflation expectations and the public’s perception of the central bank. To this end, an experiment was conducted in August 2024 with three groups of respondents representative of the Czech population, the first of which was exposed to a monetary policy statement, the second to a related Facebook post, and the third to no information. Respondents who were exposed to the above-mentioned texts significantly reduced their inflation expectations and the link between the inflation expectations and perceived current inflation. At the same time, their knowledge of the monetary policy of the Czech National Bank´s (CNB) improved somewhat. However, none of the groups of respondents changed their opinion on the CNB, with the exception of a slight improvement in the assessment of its communication in the case of the group exposed to the Facebook post. |
| Keywords: | inflation expectations, central bank, communication, social media, survey |
| JEL: | C83 D84 E31 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_29 |
| By: | Adib Rahman (University of Hawaii); Liang Wang (University of Hawaii) |
| Abstract: | We investigate the effects of central bank digital currency (CBDC) issuance in an economy where individuals can evade taxes by using cash. Our tractable model features agent heterogeneity with unobservable idiosyncratic shocks and voluntary exchange, where CBDC and cash compete as payment methods. CBDC's transparency enables governments to collect a labor tax that proves non-distortionary in our quasi-linear environment. Agents with higher marginal utility voluntarily pay fixed fees to access interest-bearing CBDC when their debt constraints bind, allowing the implementation of optimal policy with strictly positive inflation and nominal interest rates. We demonstrate how CBDC enables redistribution between agent types that is not possible in cash-only economies. We conjecture that an optimal CBDC policy involves higher nominal interest rates and lower inflation compared to cash regimes. By reducing tax evasion incentives, the introduction of CBDC can increase both output and aggregate welfare. |
| Keywords: | Cash, CBDC, Labor Tax, Tax Evasion, Monetary Policy |
| JEL: | E42 E58 H21 H26 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202505 |
| By: | Pablo Aguilar-Perez |
| Abstract: | This paper examines the global spillovers of US monetary policy through the remittance channel, in both sending and recipient countries. Using a dataset covering 8 remittance-sending and 41 recipient countries from January 1997 to December 2017, we apply a local projections framework to trace the dynamic effects of unexpected US monetary tightening. We find that remittance outflows decline in advanced economies following policy shocks, illustrating the pro-cyclicality of remittances in source countries and their role in amplifying global financial spillovers. Among recipient countries, our results show that in countries with low to moderate remittance dependence, inflows tend to increase following a contractionary shock – consistent with altruistic or insurance-driven motives. In contrast, remittances decline in highly dependent countries, aligning with self-interest or investment-driven behavior. We find that these heterogeneous responses are shaped by migrant profiles: countries with high remittance dependence typically have a larger share of low-skilled migrants and display more strongly pro-cyclical remittance patterns. In contrast, less dependent countries tend to have more skilled or diversified diasporas, resulting in more stable and less cyclical remittance flows. |
| Keywords: | Global Spillovers;Remittances;US Monetary Policy;Emerging Markets |
| JEL: | F24 E52 F41 F44 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2025-21 |
| By: | Coleman, Andrew; Karagedikli, Özer |
| Abstract: | This paper examines the relative size of the effects of New Zealand monetary policy and macroeconomic data surprises on the spot exchange rate, 2 and 5 year swap rate differentials, and the synthetic forward exchange rate schedule. We find that the spot exchange rate and 5 year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5 year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered. |
| Keywords: | Demand and Price Analysis |
| URL: | https://d.repec.org/n?u=RePEc:ags:motuwp:292650 |
| By: | Naveen Rai; Hayley Touchburn; Matt West |
| Abstract: | Inflation expectations are important to monetary policy decision-makers. The period of high inflation after the pandemic provides a useful context for exploring how inflation expectations influence the behaviours of firms and consumers. Using survey evidence, we examine how firms and consumers react to their inflation expectations. We find that firm price- and wage-setting behaviours were positively associated with high inflation expectations over the period. These behaviours could reinforce inflation. Consumers’ spending and labour market decisions tend to show increased labour supply and reduced consumption in response to high inflation expectations, which could cool rather than reinforce future inflation |
| Keywords: | Inflation and prices |
| JEL: | C8 C83 D8 D84 E3 E31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:25-18 |
| By: | Hall, Viv; Huang, Angela |
| Abstract: | Deterministic simulations with the Reserve Bank of New Zealand’s core FPS model show how New Zealand’s broad macroeconomic environment might have evolved over the 1990s, if a US nominal yield curve and US TWI exchange rate movements under a common currency arrangement had been experienced. Relatively looser monetary conditions would have prevailed, and led to modest short-run output gains, greater excess demand pressures, noticeably higher CPI inflation rates over the whole of the 1990s, and less favourable trade balance outcomes, especially for the late 1990s. These macroeconomic outcomes are overall less favourable than those obtained from simulating the equivalent Australian monetary conditions. |
| Keywords: | Institutional and Behavioral Economics |
| URL: | https://d.repec.org/n?u=RePEc:ags:motuwp:293013 |
| By: | Sayag, Doron; Snir, Avichai; Levy, Daniel |
| Abstract: | In 1991 and 2008, Israel abolished the equivalents of 1¢ and 5¢ coins, respectively, effectively eliminating low-denomination coins and introducing rounding in cash transactions. When totals were rounded up, shoppers incurred a small rounding tax. Using detailed data on price endings and basket sizes across supermarkets, drugstores, small groceries, and convenience stores, we estimate that the magnitude of the rounding tax borne by Israeli consumers averaged only 0.001%–0.002% of revenues in the fast-moving consumer goods markets. These findings have implications for the ongoing debate regarding the desirability and viability of abolishing the 1¢ and 5¢ coins in the US. |
| Keywords: | Rounding Tax; Round Prices; Price Rounding Regulation; 9-Ending Prices; Just-Below Prices; Currency Indivisibility; Rigid and Flexible Prices; Elimination of Low-Denomination Coins; Cost of Producing Low-Denomination Coins; 1¢ coin; 5¢ coin; |
| JEL: | K00 K20 L11 L40 L51 M30 |
| Date: | 2025–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126714 |
| By: | Khemraj, Tarron |
| Abstract: | The Guyana government, from 2015 to 2021, accumulated a large overdraft on its central bank account. It owed this overdraft to a binding debt ceiling limit and fractious political environment that prevented an increase in the ceiling, allowing for the auctioning of Treasury bills to create the liquidity reflux necessary to refill the account. This paper studies the macroeconomic effects of reflux (one-sided sales of Treasury bills) and broken or incomplete reflux (base money expansion) by focusing on domestic inflation, the foreign exchange (FX) rate, and the quantity of FX traded in the local market. The empirical results suggest that the inflation rate is largely driven by foreign price and oil shocks. Nevertheless, the broken reflux adversely affected the local FX market by increasing the demand for foreign currencies, marginally depreciating the exchange rate, and slightly increasing the inflation rate. The latter finding has important implications for the enormous post-2020 budget spending since the discovery of offshore oil. However, reflux was found to have a stabilizing effect on the demand for FX and inflation. Granger predictability tests provide strong evidence that the government spends first from its central bank account before reflux occurs. Finally, the paper discusses a few novel institutional features of Guyana which resemble the monetary circuit framework (with government) of neo-Chartalists. |
| Keywords: | neo-chartalism, fiscal-monetary nexus, government account overdraft, inflation, excess liquidity |
| JEL: | E02 E5 E6 F4 |
| Date: | 2024–05–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126637 |
| By: | Luis Uzeda |
| Abstract: | This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. We find that broad-based inflationary pressures account for most underlying inflation, while sector-specific factors—particularly shelter—have become more inflationary since 2021. Unlike CPI-common, PULSE is less prone to large historical revisions and maintains a strong correlation with economic slack. |
| Keywords: | Econometric and statistical methods; Inflation and prices; Monetary policy transmission |
| JEL: | C5 C55 E31 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:25-29 |
| By: | Christian R. Proano; Naira Kotb |
| Abstract: | In this paper, we investigate the implications of temporal aggregation, i.e. the discrepancy between the Data Generation Process (DGP) and the Data Collection Process (DCP), for the design of monetary policy in a New Keynesian macroeconomic framework with boundedly rational agents. We extend the model by Airaudo, Nistico and Zanna (2015) who investigate if monetary policy should explicitly respond to stock prices due to the presence of a structural linkage between the stock market and the real activity. We stress this rationale in a similar model with agents with heterogeneous boundedly rational expectations by showing that responding to the stock price is further justified when real data is only available at a delay due to temporal aggregation. Under these conditions, reacting moderately to high frequency stock price movements can stabilise both the financial and the real sectors. |
| Keywords: | new Keynesian model, mixed-frequency macroeconomics, behavioural macroeconomics |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-68 |
| By: | Robert A. Buckle (Victoria University of Wellington); Michael Ryan (University of Waikato); Zhongchen Song (Bangko Sentral ng Pilipinas) |
| Abstract: | The frequency with which firms change prices crucially influences inflation dynamics. Using a unique firm-level dataset spanning more than six decades, this paper examines how firm price-setting behaviour has evolved across episodes of high inflation, including the recent COVID-19 inflation episode. Time-series analysis and probit modelling reveal that pricing behaviour has changed markedly since the high inflation episodes of the 1970s and 1980s. In the aggregate, the proportion of firms changing prices has become more highly correlated with inflation. At a firm level, the probability of price increases, conditional on inflation and cost increases, has risen. At the same time, the probability of price decreases when costs fall has fallen, making price adjustment increasingly asymmetric. This asymmetry is particularly pronounced among service-sector firms and at higher inflation levels. Reasons for these changes are evaluated including technological and societal changes, as well as the changing industrial structure of firms. Collectively, the findings imply that the Phillips Curve has become more nonlinear at higher levels of inflation and that the inflation accelerator operates more strongly than in the past. |
| Keywords: | Price change frequency; Inflation and price asymmetry; micro firm data; probit modelling |
| JEL: | E31 E52 D4 |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:wai:econwp:25/06 |
| By: | Yosuke, Fukunishi (Graduate School of Economics, The University of Tokyo); Haorong Qiu and Fan Ye (Graduate School of Economics, The University of Tokyo); Akihiko Takahashi (Faculty of Economics, The University of Tokyo); Fan Ye (Graduate School of Economics, The University of Tokyo) |
| Abstract: | This study introduces a novel generative modeling framework for simulating the term structure of interest rates. In recent years, generative models have achieved significant progress in image generation and are increasingly being applied to finance. To the best of our knowledge, this is the first study to apply a generative model―specifically, a diffusion model―to the term structure of interest rates. Furthermore, we extend the framework to incorporate conditional generation mechanisms and v-parameterization. The training dataset consists of spot yield curves constructed from daily overnight index swap (OIS) rates using cubic Hermite splines. As base conditioning variables, we use short-term interest rates and changes in consumer price indexes (CPIs). Empirical analysis covering the period from 2015 to 2025 demonstrates that our model successfully reproduces the level and shape of yield curves corresponding to historical macroeconomic conditions and short-term interest rate environments. Additionally, when incorporating further conditioning variables related to quantitative easing policies, monetary base, current account balances, and nominal gross domestic product (GDP), we find that the inclusion of quantitative easing indicator notably enhances the model’s output relative to the base conditioning case. This suggests improved robustness and representational capacity under expanded conditioning. In consideration of practical applications, we further analyze the generation outcomes derived from difference-based learning, confirming that the performance of out-of-sample generation is comparable to that of direct generation. Moreover, we also examine an alternative approach based on factor models commonly used in finance and macroeconomics to estimate the functional form of yield curves. Specifically, we consider the Nelson–Siegel–Svensson (NSS) model and investigate the indirect generation of synthetic yield curves by producing the NSS model’s latent factors. Compared to direct generation, this factor-based indirect method enables faster generation while still achieving comparable reproducibility in terms of both the level and the shape of the yield curves. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1262 |
| By: | Nicolás Cachanosky; Emilio Ocampo |
| Abstract: | Recent inflationary episodes in advanced economies have reignited interest in Conflict Theories of Inflation (CTI), which attribute price level increases to conflicts over income distribution rather than monetary factors. These heterodox perspectives, rooted in Marxist and post-Keynesian traditions, emphasize the roles of labor-capital tensions, corporate pricing strategies, and broader sociological struggles. This brief note evaluates the theoretical foundations of CTI and examines their policy implications. It highlights how measures inspired by CTI historically result in higher inflation and lower economic growth. The analysis concludes with a critique of CTI’s reductionist framing and a call for policies grounded in a balanced understanding of monetary and conflict dynamics. |
| Keywords: | Conflict, inflation |
| JEL: | E31 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:887 |
| By: | Husnu C. Dalgic |
| Abstract: | Following U.S. monetary policy shocks, exchange rates exhibit two puzzling patterns: they initially depreciate sluggishly (delayed overshooting) before overshooting excessively. I show that incorporating FX speculators with subjective expectations resolves both puzzles by generating short-term momentum and excess volatility in exchange rates. When investors’ expectations are sticky and backward-looking, their trading amplifies the initial sluggishness and subsequent overshooting. In contrast, the participation of investors with rational expectations helps to dampen such volatility. This distinction yields sharp policy implications: limiting the market participation of speculators with subjective expectations significantly lowers exchange rate volatility , while their presence also makes FX interventions and local monetary policy more effective by endogenously reinforcing central bank actions. |
| Keywords: | foreign financiers, capital controls, subjective expectations |
| JEL: | E44 F32 F41 G15 D84 E71 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_723 |
| By: | Tao Liu (Central University of Finance and Economics); Dong Lu (Renmin University of China); Liang Wang (University of Hawaii) |
| Abstract: | There have been two competing views on the structure of the international monetary system: one sees it as a unipolar system with a dominant currency, such as the U.S. dollar, while the other argues that a multipolar system has been the rule, not the exception. We propose a unified theoretical framework to reconcile these two views. In a micro-founded monetary model, we examine the interactions of two essential roles played by international currencies, the medium of exchange and the store of value, and highlight the importance of abundant safe asset supplies. When the two roles reinforce each other, a unipolar equilibrium exists. However, when one currency is unable to serve as sufficient safe assets for international trade transactions, the two roles work against each other, and agents have the incentive to diversify their portfolio, giving rise to a multipolar system. The effects of monetary policy, fiscal policy, and their combinations crucially depend on the total supply of safe assets and the relative importance of the two functions of international currencies. The structure of the international monetary system could be influenced by various policies such as monetary policy, fiscal policy, and financial sanctions. A calibrated model shows that, all else equal, USD could lose its dominance if the US fiscal capacity deteriorates by 34\% or the US economy size shrinks by 32%. |
| Keywords: | International Currency, Money, Multipolar, Safe Assets, Unipolar |
| JEL: | E42 E52 F33 F40 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202504 |
| By: | Tevdovski, Dragan; Hadzi-Velkova, Biljana |
| Abstract: | This paper examines the interest rate pass-through in an economy with structurally high banking sector liquidity, using North Macedonia as a case study. Persistent surplus liquidity limits commercial banks’ reliance on central bank and interbank funding, potentially weakening the transmission of monetary policy. Employing a dynamic autoregressive distributed lag and error-correction (ARDL/ECM) framework augmented with a liquidity variable, we estimate the two stages of the transmission process - from the policy rate to the interbank rate, and from the interbank to lending rates. The results show that high liquidity dampens both the strength and speed of pass-through by reducing interbank rate responsiveness and moderating lending rate adjustments. These findings suggest that in banking systems with structural liquidity surpluses, conventional interest rate policy may be insufficient, underscoring the need for complementary instruments to enhance monetary transmission effectiveness. |
| Keywords: | interest rate, lending, liquidity, monetary policy, banking sector. |
| JEL: | E43 E52 G21 O11 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126691 |