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on Monetary Economics |
| By: | Francois de Soyres; Avani Pradhan; Zina Saijid |
| Abstract: | Nearly six years after the onset of the COVID-19 pandemic, headline consumer price inflation has declined substantially from its 2021–2022 peaks in the United States, the euro area, Canada, and the United Kingdom. In several economies inflation has moved closer to central bank targets, yet price pressures remain elevated across a broad set of goods and services relative to the pre-pandemic period. |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102995 |
| By: | Iñaki Aldasoro; Paula Beltran; Federico Grinberg |
| Abstract: | Using data on four USD-pegged stablecoins and 27 fiat currencies, this paper documents spillovers from stablecoin-based foreign exchange (FX) to traditional FX markets. We document a gap between the cost of acquiring dollars via stablecoins and via the spot FX market (parity deviations). To establish a causal link between stablecoin flows and FX markets, we use a granular instrumental variable that exploits idiosyncratic shocks to stablecoin net inflows in other currencies. Our estimates indicate that a 1% exogenous increase in net stablecoin inflows raises parity deviations by 40 basis points, depreciates the local currency, and widens the dollar premium in synthetic funding markets (covered interest parity (CIP) deviations). A model of constrained arbitrage rationalizes these findings and provides structural foundations for the identification strategy. Counterfactual simulations show that halving cross-market frictions would attenuate CIP spillovers by roughly one-half and cut exchange rate effects by nearly one-third. A dynamic extension that closely matches the empirical impulse responses shows that spillovers grow disproportionately when intermediaries suffer losses, as depleted capital reduces their capacity to absorb further shocks. Our results establish stablecoins as an emerging segment of global currency markets with direct implications for financial stability. |
| Keywords: | Stablecoins; foreign exchange; market segmentation; capital flows; arbitrage |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/056 |
| By: | Mr. Adrian Alter; Julia Bersch; Albert Touna Mama; Bright Quaye |
| Abstract: | Central bank independence (CBI) is a key institutional feature for price stability, but its role in sovereign debt markets is less understood. This paper examines whether CBI lowers borrowing costs in local-currency sovereign debt markets in emerging and developing economies. Using data for up to 137 countries from 2000--2024, we first reaffirm that stronger CBI substantially reduces inflation and its volatility. We then show that, in normal times, a 0.1-point increase (on a 0–1 scale) in CBI is associated with lower five-year local-currency sovereign yields of 0.6–0.7 percentage points. A decomposition reveals two important mechanisms through which CBI reduces local-currency sovereign yields: lowering near-term risk compensation and compressing the term premium. In addition, we find evidence that this relationship is stronger under inflation-targeting regimes and larger in sub-Saharan Africa, but does not hold during systemic global crises. Finally, using dominance analysis, we show that domestic fundamentals explain more of the variation in yields than global factors. These findings demonstrate that debt markets directly price institutional credibility, offering clear guidance for the design of monetary frameworks. |
| Keywords: | Sovereign yields; Local-currency bonds; Risk premium; Term premium; Inflation; Central bank independence |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/058 |
| By: | Aina Puig |
| Abstract: | This paper estimates the causal effects of monetary policy shocks on household consumption, with additional analysis of labor market and income responses, disaggregated by gender and race. I find that contractionary monetary policy reduces consumption more for black than white households, with the largest declines among households headed by black women. These gaps persist after accounting for differences in household education, debt, and income, but are partly explained by differences in marital status and spousal insurance against shocks. These shocks also lead households to shift expenditures from non-essential and durable goods toward essential non-durable goods and services. The analysis provides estimates of marginal propensities to consume across groups and shows that contractionary, rather than expansionary, shocks drive aggregate consumption responses. These findings highlight the importance of accounting for intersectional demographic heterogeneity in evaluating the distributional effects of monetary policy. |
| Keywords: | Monetary Policy; Gender; Racial Inequality; Intrahousehold Allocation |
| JEL: | E21 E52 J15 J16 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1108 |
| By: | Lutz Kilian; Michael D. Plante; Alexander W. Richter; Xiaoqing Zhou |
| Abstract: | This paper shows how to assess the inflationary impact of the rise in the price of oil caused by the 2026 Iran War. We first generate projections of the quarterly price of oil from a calibrated DSGE model of the global economy under a range of scenarios and then incorporate these projections into a monthly VAR model of the impact of U.S. gasoline price shocks on inflation and inflation expectations. Our analysis speaks to the magnitude and persistence of the impact of higher oil prices on headline and core PCE inflation and on household inflation expectations. |
| Keywords: | geopolitical risk; rare disasters; oil prices; gas prices; inflation; structural VAR |
| JEL: | C54 E31 E37 Q43 |
| Date: | 2026–04–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:103008 |
| By: | Hiroyuki Oi (Institute for Monetary and Economic Studies, Bank of Japan); Shigenori SHIRATSUKA (Faculty of Economics, Keio University); Shunichi Yoneyama (Research and Statistics Department, Bank of Japan) |
| Abstract: | Shadow short-term interest rate (SSR) models are expected to provide effective monetary policy indicators under the effective lower bound (ELB) constraint on nominal interest rates. This paper revisits the SSR models using yield curve data from the prolonged ultra-low interest rate environment in Japan. Specifically, this paper compares the various specifications of the SSR models based on the Nelson-Siegel model by focusing on a trade-off between estimation performance and theoretical consistency. This paper highlights the importance of evaluating monetary policy easing effects using the entire yield curve fluctuations, rather than relying solely on SSR estimates, especially in the ultra-low interest rate environment in Japan. |
| Keywords: | Effective lower bound constraint, Shadow short-term interest rates, Nelson-Siegel model, Monetary policy indicators. |
| JEL: | E43 E44 E52 G12 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2026-007 |
| By: | Marc Burri; Daniel Kaufmann |
| Abstract: | We extend the heteroskedasticity IV estimator of Rigobon and Sack (2004) from one to multiple monetary policy shocks by imposing recursive zero restrictions on the impact matrix. Unlike high-frequency identification, the approach requires neither intraday tick data nor precise announcement timestamps, making it applicable to countries or historical periods where such data are unavailable. Applied to US FOMC announcements, we find causal effects similar to those of high-frequency identification. The heteroskedasticity-based instrument passes weak-instrument tests for the target shock, whereas high-frequency surprises fail. For the path shock, we also find strong heteroskedasticity-based instruments in key specifications, and we show that the underlying shocks are similar to those based on high-frequency identification. |
| Keywords: | Monetary policy shocks, causal effects, forward guidance, heteroskedasticity, high-frequency, instrumental variables |
| JEL: | C3 E3 E4 E5 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:irn:wpaper:26-06 |
| By: | Mr. Damien Capelle; Yang Liu |
| Abstract: | This paper evaluates the effectiveness and robustness of a Tax on Inflation Policy (TIP) for improving welfare at the Zero Lower Bound (ZLB) in a New Keynesian model. When the ZLB results from a fall in the neutral interest rate, a negative TIP mitigates deflationary pressures, narrows the output gap, and implements the constrained-efficient allocation. When the ZLB is driven by self-fulfilling expectations, TIP can eliminate the deflationary equilibrium altogether. A rule that responds aggressively to inflation with a negative intercept proves robust across scenarios. Using a medium-scale model calibrated to Japan, we quantify a robust TIP rule that would have lifted the economy out of its liquidity trap. |
| Keywords: | Deflation; Zero Lower Bound; Liquidity Trap; Tax on Inflation; Taxbased Incomes Policies; Externality |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/059 |
| By: | Kyungmin Kim; Romina Ruprecht; Mary-Frances Styczynski |
| Abstract: | In July 2025, the U.S. Congress passed the Genius Act, which established the regulatory framework for payment stablecoins. The law defines what an authorized payment stablecoin issuer is and how it will be regulated. |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102996 |
| By: | Sébastien Bourdin (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School); Jérôme Picault (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres); Arnaud Simon (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres) |
| Abstract: | The development of home ownership in the second half of the 20th century has been perceived as an asset and a significant contributor to wealth accumulation. However, rising property prices and increasingly stringent mortgage lending criteria have placed this model under pressure, particularly for younger generations. Recent territorial reforms and expansionary monetary policies, such as the European Central Bank's quantitative easing (QE) programme, have produced asymmetric effects on regional housing markets. This study applies a spatial econometric model to French departments to investigate how these developments have disproportionately benefited departments located near new regional capitals, thereby exacerbating disparities between these centres and their peripheral territories. By incorporating a spatial perspective, this analysis enriches our understanding of the dynamics between housing finance and regional development while shedding light on the implications of these transformations for financial stability and regional planning policy. |
| Keywords: | Regional disparities, Housing lending market, Monetary policy, Territorial reform, Economic geography |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05568167 |
| By: | Alyssa G. Anderson; Alessandro Barbarino; Anthony M. Diercks; Stephen I. Miran |
| Abstract: | For the avoidance of doubt: 1) This catalogue presents and analyzes a variety of options for reducing the Federal Reserve’s balance sheet. Nothing here is an endorsement of any specific policy option; this is a menu of options. Combined, we estimate these options open the door to balance sheet reduction of $1.2 to $2.1 trillion within the Fed’s current ample reserves framework. Further reductions would be possible with a return to scarce reserves. 2) The process of materially shrinking the balance sheet would require a great deal of implementation and rulemaking work in advance and will take time, at least a year and quite possibly several, before the Fed can begin shrinking its balance sheet. If undertaken, there are good reasons for moving slowly and gingerly, and to take steps to ensure financial markets are able to absorb the reissue of securities that roll off the Federal Reserve’s balance sheet. |
| Keywords: | Monetary policy; Open market operations (OMO); Reserves; Federal Reserve balance sheet; Federal funds rate |
| JEL: | E52 E58 |
| Date: | 2026–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103000 |
| By: | Tatsushi Okuda; Tomohiro Tsuruga; Francesco Zanetti |
| Abstract: | We study why inflation responds differently to economic activity over time. Using survey data covering the universe of Japanese firms, we show that firms are unable to perfectly distinguish aggregate from sector-specific demand changes, leading to positively correlated expectations about these two components. We develop a model with imperfect information that reproduces this pattern and predicts that higher relative volatility of sector-specific demand reduces the sensitivity of inflation to changes in aggregate demand, thus flattening the Phillips curve. Testing this prediction with Japanese data from 1976 to 2022, we find that increases in the volatility of sectoral demand shocks explain significant changes in the Phillips curve slope over the sample period. Our results provide a novel explanation for the flattening of the Phillips curve: the composition of shocks -- not just their magnitude -- critically affects the sensitivity of inflation to aggregate demand. |
| Keywords: | Imperfect information; Shock heterogeneity; Inflation dynamics; Survey of expectations to Japanese firms |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/057 |
| By: | DENG, Yongheng; INOUE, Tomoo; NISHIMURA, Kiyohiko; SHIMIZU, Chihiro |
| Abstract: | Why have the world's most rapidly aging economies experienced decades of low inflation followed by emerging supply-side price pressures? We propose a mechanism based on the interaction between demographic change and the irreversibility of physical capital. In a three-generation overlapping-generations model with Calvo pricing and irreversible investment (Ii ≥ 0), durable capital built during the demographic bonus period cannot be rapidly scrapped when population declines, creating a prolonged overhang of productive capacity relative to demand. As depreciation gradually erodes this overhang and the labor force continues to shrink, the economy eventually transitions from structural excess supply to a supply-constrained regime. Reduced-form evidence from 38 economies over 1965- 2019 is consistent with the model's predictions: aging is associated with lower inflation, the Phillips curve slope declines with the elderly share, and countries that experienced migration-driven population reversals exhibit more stable slopes-patterns that the irreversibility mechanism can account for. We interpret the negative Phillips curve slope estimated for Japan after 2015 as suggestive of the onset of the supply-constrained phase, though causal identification remains an important limitation of the international panel design. |
| Keywords: | population aging, inflation, irreversible investment, overlapping generations, supply constraints, international panel data |
| JEL: | E22 E31 E52 J11 O41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:hit:rcesrs:dp26-3 |
| By: | Héctor J. Villarreal (School of Government and Public Transformation, Tecnológico de Monterrey) |
| Abstract: | This paper studies the distributional consequences of fiscal dominance through asset prices. When public debt constrains monetary policy, interest rates may decline as debt increases. Lower discount rates raise asset valuations, generating capital gains for asset holders. In a simple framework combining public debt dynamics, fiscal reaction functions, and a debt-sensitive interest rate rule, we derive a formal condition under which fiscal dominance generates redistribution toward asset-owning households through the asset price channel, and show that the wealth share of asset holders is increasing in public debt. |
| Keywords: | fiscal dominance, public debt, interest rates, asset prices, wealth inequality, monetary policy, fiscal policy, redistribution |
| JEL: | E52 E62 G12 D31 H63 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:gnt:wpaper:30 |
| By: | Joshua K. Hausman; John V. Leahy; John Mondragon; Johannes Wieland |
| Abstract: | Nominal interest rates have real effects. Residential mortgages and other real world debt contracts require a sequence of constant nominal payments. Combined with payment-to-income constraints, these nominal payments force borrowers to take on less debt when nominal interest rates rise, regardless of the behavior of the real interest rate. Survey data shows that conditional on the real rate, higher nominal mortgage interest rates reduce home buying sentiment. And increases in nominal mortgage rates reduce mortgage origination more in cities where payment-to-income constraints are more likely to bind. We explore the macroeconomic implications of payment-to-income constraints in a new Keynesian model modified to include a credit good. The payment-to-income constraint amplifies the effect of current short-term nominal interest rates on output and inflation, making the model less forward-looking than the standard new Keynesian model. |
| JEL: | E4 E50 G21 R21 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35033 |
| By: | Takayuki Tsuruga; Zichong Yue |
| Abstract: | Previous studies on inflation expectations suggest that agents often overreact to public signals, pointing to a role for behavioral explanations and motivating extensions of standard macroeconomic models beyond full-information rational expectations. Using the survey data that include a variety of questions related to behavioral economics, we examine how behavioral attributes of individuals interact with the overreaction to public signals. We find that even individuals with rational behavioral attributes overreact to public signals. These findings suggest that overreaction is a distinct phenomenon that cannot be fully attributed to well-documented behavioral biases such as present bias or myopia. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1309 |
| By: | Alisa DiCaprio; Mr. Marcello Miccoli; Philip Montalvao; Andrew Usher; Jeanne Verrier |
| Abstract: | Cross-border payments face multiple challenges that may result in slow transaction speed, particularly at the beneficiary leg, which constitutes the last mile of the payment process. This paper measures whether capital controls are associated with slower cross-border payments, using two novel cross-country datasets derived from microeconomic data. While it does not establish causality, preliminary evidence suggests that the effect is statistically significant and sizeable. A one-standard-deviation increase in the Financial Account Restriction Index, our measure of capital controls, is associated with a delay of 4 to 8 hours at the beneficiary leg. The effect is stronger in Emerging and Developing Economies, and heterogeneous across geographic regions. |
| Keywords: | Cross-Border Payments; Capital Flow Management |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/068 |
| By: | International Monetary Fund |
| Abstract: | The Centrale Bank van Curaçao en Sint Maarten (CBCS) is undergoing modernization, in which improving transparency is a core component. The fallout from the failures—in the 2010s—of two large institutions under the CBCS’s supervision dented public trust in the central bank. Alongside improved internal governance and regulatory reforms, enhanced transparency is being used as a key tool to strengthen the CBCS’s reputation and institutional credibility. As the central bank for two nations within a monetary union (MU), CBCS faces demands for strong communication and engagement with stakeholders across both jurisdictions. |
| Date: | 2026–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/063 |
| By: | Metzler, Julian; Danisewicz, Piotr; Dieler, Tobias; Mancini, Loriano; Mazzari, Francesco |
| Abstract: | Repo markets clear either bilaterally over the counter (OTC) or through central counterparties (CCPs), which differ in how counterparty risk is priced. In bilateral markets, repo rates reflect borrower-specific risk, while CCP clearing pools counterparties and applies a common pricing rule. We develop a model of security-driven repo in which repo rates are non-linear in borrower risk. As a result, averaging borrower-specific OTC prices yields more negative rates than pricing the pooled borrower in CCP markets. The model predicts that the CCP–OTC specialness gap compresses during periods of counterparty uncertainty and varies with borrower and collateral characteristics. Using transaction-level data from the euro-area interbank repo market around the March 2020 COVID-19 shock, we find evidence consistent with these predictions. Our results show that central clearing dampens specialness in normal times but stabilizes repo pricing during stress. JEL Classification: D47, D82, G14, G15, G21 |
| Keywords: | asymmetric information, collateral risk, counterparty risk, interbank markets, uncertainty |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263214 |