|
on Monetary Economics |
| By: | Ting Lan; Lerong Li; Mr. Minghao Li |
| Abstract: | This paper documents that households with higher marginal propensities to consume (MPCs) tend to consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation and experience higher inflation following an expansionary monetary policy shock. We embed this MPC-price stickiness relationship into a tractable multi-sector Two-Agent New Keynesian (TANK) model and analytically demonstrate that it dampens the effectiveness of monetary policy, reducing its efficacy by about 15% relative to a benchmark model with homogeneous consumption baskets. Introducing heterogeneous baskets also generates an inherently inefficient flexible-price equilibrium, which gives rise to a novel trade-off between stabilization and redistribution. The optimal monetary policy therefore differs qualitatively from the standard TANK policy prescription. |
| Keywords: | TANK; HANK; Monetary transmission; Redistribution channel; Price stickiness; Optimal monetary policy; Inequality; Multi-sector model |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/264 |
| By: | Michael Bordo (Rutgers University); Oliver Bush (Bank of England); Ryland Thomas (Bank of England) |
| Abstract: | This narrative paper provides a detailed account of the Great Inflation in the United Kingdom from 1961 to 1997, serving as a companion to the analytical account of fiscal policy presented in Bordo, Bush, and Thomas (2025). We discuss the background fundamentals in place at the outset of the Great Inflation and document the distinct phases of inflation, the unique features of the UK’s experience relative to other advanced economies, and the interplay between fiscal, monetary, and incomes policies. By placing the UK’s inflationary episodes within their institutional and historical context, this paper offers a qualitative perspective that complements the quantitative analysis of the main paper and informs ongoing debates about the causes and consequences of persistent inflation. |
| Keywords: | Great Inflation, fiscal policy, inflation expectations, money growth, United Kingdom |
| JEL: | E4 E6 N10 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:348 |
| By: | Miguel Acosta; Andrea Ajello; Michael D. Bauer; Francesca Loria; Silvia Miranda-Agrippino |
| Abstract: | This paper introduces the U.S. Monetary Policy Event-Study Database (USMPD), a novel, public, and regularly updated dataset of financial market data around Federal Open Market Committee (FOMC) policy announcements, press conferences, and minutes releases. Using the rich high-frequency data in the USMPD, we document several new empirical findings. Large monetary policy surprises have made a comeback in recent years, and post-meeting press conferences have become the most important source of policy news. Monetary policy surprises have pronounced negative effects on breakeven inflation based on Treasury yields. Risk assets, including dividend derivatives, also respond strongly and negatively to monetary policy surprises, consistent with conventional channels of monetary transmission. Press conferences have stronger effects than FOMC statements on most asset prices. Finally, the term structure evidence shows peak effects on market-based inflation and dividend expectations at horizons of several years. |
| Keywords: | Federal Reserve; monetary policy surprises; high-frequency event studies |
| JEL: | E43 E52 E58 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102219 |
| By: | Andreas Schrimpf; Markus Sihvonen |
| Abstract: | We generalize the yield spanning condition in the bond literature to non-linear models and to exchange rates. In standard macro-finance models, no variable should predict yield or exchange rate changes once standard yield curve factors are controlled for. We provide novel evidence that this spanning condition is violated, with inflation as a common unspanned predictor of both bond and exchange rate returns. Investors' incomplete information about the Federal Reserve's monetary policy rule emerges as the key driver of this result. We find high inflation to be followed by unexpected monetary policy tightening, which leads to dollar appreciation and low bond returns. We explain these findings by a simple model that departs from full information rational expectations. |
| Keywords: | inflation, bond markets, exchange rates, central bank reaction function, investor expectations |
| JEL: | G12 E43 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1320 |
| By: | Benjamin Born; Nora Lamersdorf; Jana-Lynn Schuster; Sascha Steffen |
| Abstract: | Using modern natural language processing, we construct a high-frequency inflation expectations index from German-language tweets. This index closely tracks realized inflation and aligns even more closely with household survey expectations. It also improves short-run forecasts relative to standard benchmarks. In response to monetary policy tightening, the index declines within about a week, with the effects concentrated in tweets by private individuals and during the recent period of elevated inflation. Using 117 million online transactions from German retailers, we show that higher inflation expectations are followed by lower household spending on discretionary goods. By linking these shifts in demand to stock returns, we find that, during periods of elevated inflation, firms operating in discretionary sectors experience significantly lower stock returns when inflation expectations rise. Thus, our Twitter-based index provides market participants and policymakers with a timely tool to monitor inflation sentiment and its economic consequences. |
| Keywords: | inflation expectations, social media (Twitter/X), large language models (LLMs), NLP, household consumption, stock returns, monetary policy |
| JEL: | E31 D84 E58 C45 C81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12361 |
| By: | Grodecka-Messi, Anna (Financial Stability Department, Central Bank of Sweden); Kliem, Martin (Deutsche Bundesbank); Muller, Gernot J. (University of Tübingen, CEPR and CESifo) |
| Abstract: | Are central bank losses inflationary? We address this question at two levels. First, we revisit the theory and show that central bank losses constrain the conduct of monetary policy and are indeed inflationary provided the central bank is (a) not automatically recapitalized by the government and (b) concerned about its net worth. Second, we collect 350 years of data on the world’s oldest central bank, the Sveriges Riksbank. We construct a time series for its return on assets and a narrative measure of profitability shocks. We find that inflation increases strongly and persistently in response to exogenous declines in central bank profits. |
| Keywords: | Inflation; Central Banks; Central Bank Profitability; Central Bank Losses; Sveriges Riksbank |
| JEL: | E52 E58 N13 N14 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0457 |
| By: | Ursel Baumann; Annalisa Ferrando; Dimitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt |
| Abstract: | Using data from the euro area SAFE, a novel survey of firms’ inflation expectations including a randomized controlled trial (RCT), we show that firms’ inflation expectations exhibit significant heterogeneity, challenging the predictions of full-information rational expectations models. At the same time, we document that firms update beliefs rationally but under incomplete information, with geographic location playing a dominant role in shaping expectations. Firms extrapolate from regional and national inflation to form euro area inflation expectations. A basic “Lucas island” model calibrated to euro area data replicates key empirical moments and highlights the structural “pass-through” from national to aggregate expectations. Our findings underscore challenges in anchoring inflation expectations in a heterogeneous monetary union. |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102218 |
| By: | Mathilde Dufouleur |
| Abstract: | The pegging of stablecoins to currencies or commodities is designed to mitigate the price volatility of crypto-assets. Billed as stable, easy to use, anonymous and with low transaction costs, stablecoins offer an alternative to fiat currency that lies outside the authority of central banks. However, their use raises concerns over a possible loss of control over monetary policy. <p> L’adossement des stablecoins à une monnaie ou matière première vise à pallier la volatilité des crypto-actifs. Supposés stables, faciles d’utilisation, anonymes, avec de faibles coûts de transaction, ils constituent une alternative à la monnaie légale, en dehors de l’autorité monétaire centrale. Leur utilisation interroge sur une possible perte de contrôle de la politique monétaire. |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:416 |
| By: | Xudong An; Saket Hegde; Harren Jan; Mete Kilic; Rodney Ramcharan |
| Abstract: | This paper shows that monetary policy influences bank credit policy through the risk-taking channel. Using option prices on Federal Open Market Committee (FOMC) announcement days, we measure the impact of monetary policy on bank equity tail risks and link them to loan-level regulatory data. Banks that experience a decline in tail risk lend more to riskier firms and ease loan terms in the three weeks after the FOMC announcement. These effects are concentrated among banks with short-term compensation structures and in competitive credit markets. Our results isolate the impact of bank risk-taking in loan supply from confounding forces such as endogenous credit demand and highlight how institutional frictions mediate the risk-taking channel of monetary policy |
| Keywords: | Fed put; risk-taking channel; credit policy; monetary policy; bank equity tail risk |
| JEL: | E52 G12 G21 |
| Date: | 2025–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:102288 |
| By: | Leila Aghabarari; Sophia Chen; Deniz Igan; Bernardus Van Doornik |
| Abstract: | We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:636 |
| By: | Milena Djourelova; Filippo Ferroni; Leonardo Melosi; Alessandro Villa |
| Abstract: | We analyze 481 speeches by FOMC members since 2007, excluding official press conferences. Combining high-frequency financial data with text analysis, we identify monetary policy surprises and measure each speech’s similarity to the Chair’s press conference preceding it. On average, monetary surprises around these speeches have no significant effect on inflation expectations or stock prices. Yet, speeches closely aligned with the Chair’s press conference amplify policy transmission, while less coordinated remarks dilute earlier effects on yields, inflation expectations, and equities. A general equilibrium model with incomplete information rationalizes these findings. |
| Keywords: | monetary policy communication; FOMC; Text Analysis; Central bank; Market expectations |
| JEL: | C55 D83 E52 E58 G14 |
| Date: | 2025–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:102273 |
| By: | Michael Barczay; Shafik Hebous; Fayçal Sawadogo; Jean-Francois Wen |
| Abstract: | Mobile money has become a central digital alternative to traditional banking in developing countries, yet several African governments have introduced taxes on mobile money transactions. We develop a model that characterizes how such taxes affect payment choices and generate excess burden. The model predicts that taxation reduces mobile money use, with elasticities shaped by access to substitutes and transaction costs: banked users substitute into formal alternatives, while unbanked users face higher effective costs, making the tax regressive. Taxation also induces substitution into cash, raising informality. We empirically test these predictions using cross-country survey data and novel transaction-level data from Cameroon, the Central African Republic, and Mali. Results show sharp declines in mobile money usage, with stronger responses among the banked. Unbanked and rural users bear a disproportionate burden. We use the empirical estimates to gauge the excess burden of the tax, which we quantify at 35% of revenue - highlighting its significant efficiency cost alongside its regressive impact. |
| Keywords: | mobile money tax, financial inclusion, transaction tax |
| JEL: | H27 O16 G20 E42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12322 |
| By: | Duk Gyoo Kim (Yonsei University); Ohik Kwon (Korea University); Seungduck Lee (Sungkyunkwan University) |
| Abstract: | This study investigates the public demand for retail Central Bank Digital Currency (CBDC) and its implications for financial intermediation by focusing on its potential substitution effects on existing digital payment methods and viability as a store of value. Using an information-provision survey experiment, we analyze public responses to technically various CBDC issuance types, including online and offline applications and a physical card type, with and without interest payments. The survey experiment finds that, while CBDC design features do not significantly influence its demand as a payment method, offering positive interest payments can enhance its appeal as a store of value. Moreover, it indicates that payment practices and trust in central banks would have a greater impact on demand for CBDC than its technical design features. |
| Keywords: | CBDC, Privacy, Demand for CBDC, Issuance Type, Survey Experiment |
| JEL: | E41 E58 G11 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2025rwp-274 |
| By: | Aurélien Guillou; Albin Salmon; Paul Vertier |
| Abstract: | Survey data covering 100 “non-advanced economies” show a negative correlation between inflation and trust in the central bank, which is more pronounced under inflation-targeting regimes. While this trust is affected by a number of factors and also influences inflation, it depends on the central bank's ability to meet its monetary policy objectives. <p> Des données d’enquêtes couvrant cent « économies non-avancées » permettent d’établir une corrélation négative entre inflation et confiance en la banque centrale, plus marquée en régime de ciblage d’inflation. Si cette confiance est affectée par divers facteurs et influence aussi l’inflation, elle dépend de la capacité de la banque centrale à respecter ses objectifs de politique monétaire. |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:423 |
| By: | Hegemann, Hendrik; Wieland, Volker |
| Abstract: | This study reviews new perceptions of an imminent decline of the international role of the US dollar and implications for the euro. It considers developments in international reserves, invoicing, debt and payment systems. Strengths and weaknesses of the US and euro area economies are discussed along with new policy initiatives and proposals. The study concludes that a quick decline of the US dollar or a shift towards a multipolar currency system with similarly important reserve currencies is highly unlikely. For the foreseeable future, the euro's role is likely to remain one of primarily regional importance. 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 6 October 2025. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:333885 |
| By: | Ma, Chang; Rebucci, Alessandro; Zhou, Sili |
| Abstract: | Chinese private portfolio equity outflows, though small compared to other Chinese outflows, are growing rapidly because of capital account liberalization and capital flight. Using granular stock-holding data on Qualified Domestic Institutional Investor (QDII) mutual funds, we identify a nascent financial channel of international transmission of Chinese monetary policy to world stocks. Event study analysis around monetary policy announcement days reveals that monetary policy tightening depresses returns of country equity indexes and individual U.S. stocks with QDII fund exposure relative to non-exposed stocks. The results are robust to controlling for the real transmission channel of Chinese monetary policy and other confounders. The effect is driven by smaller and less liquid firms, but not by China-concept stocks or those highly exposed to China's macroeconomic shocks. We also find that the results are driven by household portfolio rebalancing from more to less risky assets following the announcement. |
| Keywords: | QDII Funds, Chinese Monetary Policy, Household Rebalancing, Foreign Portfolio Equity Flows |
| JEL: | F30 G10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:333958 |
| By: | Lucia Gurrieri; Chase P. Ross; Ben Schmiedt; Alexandros Vardoulakis; Vladimir Yankov |
| Abstract: | We examine whether access to the Federal Reserve's Overnight Reverse Repo Facility (ON RRP) affects money market fund flows during flight-to-safety episodes. We find that funds with ON RRP access serving sophisticated investors experience about a 1 percentage point increase in net daily flows over total assets during the March 2020 flight-to-safety episode relative to similar funds without access. The effect aligns with theoretical predictions and explains more than half of the inflows in those funds. Our results show that access to central bank deposit facilities amplifies flight-to-safety behavior. |
| Keywords: | Central bank account access; Flight-to-safety; Regulation D |
| JEL: | E58 G01 G21 G23 |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-100 |
| By: | Wieland, Volker; Hegemann, Hendrik |
| Abstract: | The euro area experienced an unprecedented surge of inflation in 2021 and 2022 followed by a decline in 2023 and 2024. The ECB raised policy rates too late. Simple rules would have prescribed an earlier response. The policy easing since summer 2024, however, is quite in line with such rules. This experience provides a number of lessons that could lead to improvements in the policy strategy that is currently under review. The current level of policy rates appears appropriate. However, there are some important upside risks to inflation. 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 20 March 2025. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:333884 |
| By: | Emil Holst Partsch (Danmarks Nationalbank, Copenhagen K, DK-2100 Denmark); Petrella Ivan (Department of Economics, Social Studies, Applied Mathematics and Statistics, and Collegio Carlo Alberto, University of Turin, Torino, Italy; CEPR); Emiliano Santoro (Department of Economics and Finance, Catholic University of Milan) |
| Abstract: | Durables' interest-rate sensitivity and their persistent comovement with nondurable spending are hallmarks of monetary policy transmission. We develop a two-sector HANK model that replicates this pattern-both across spending categories and among households sorted by liquid asset holdings, consistent with empirical evidence. Direct effects of real interest rate changes are quantitatively important in reproducing sectoral expenditure comovement, while infrequent information updating is crucial to match the hump-shaped dynamics of sectoral and aggregate expenditures. Income effects are essential to preventing counterfactual declines in nondurable spending resulting from fiscal interventions specifically aimed at stimulating durable purchases. |
| Keywords: | Durable goods, Sectoral Comovement, Monetary Policy, HANK |
| JEL: | E21 E31 E40 E44 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:102 |
| By: | Juan Pablo Di Iorio (Department of Economics, Universidad de San Andrés) |
| Abstract: | This study examines the effects of incorporating fiscal dominance, based on the Fiscal Theory of the Price Level, into a New Keynesian Small Open Economy (NK-SOE) model. This framework enables a comparison between the responses of an economy characterized by fiscal dominance and those of canonical NK-SOE models when faced with monetary or external shocks. Notable differences emerge in nominal variables, such as inflation rates and nominal devaluation, as well as in household consumption and the real exchange rate. I show that introducing fiscal dominance into an otherwise standard NK-SOE model can help explain two important puzzles in the literature:the “price puzzle” and the “exchange rate response puzzle.” Furthermore, the model is expanded to account for government debt issued in foreign currency, introducing a fiscal channel related to the currency composition of the government’s debt.Additionally, the structure of taxes and government expenditures—particularly fiscal revenues tied to the non-tradable sector—plays a significant role in shaping the economic response when the government issues debt in foreign currency. |
| Keywords: | - |
| JEL: | E31 E43 E62 F31 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:sad:ypaper:19 |
| By: | Marcin Kolasa; Oliver Vogt; Pawel Zabczyk |
| Abstract: | We investigate the optimal time-consistent use of foreign exchange interventions (FXI) in a small open economy model driven by endowment and portfolio flow shocks, with endogenous FX market depth and a lower bound constraint on FX reserves. In a competitive equilibrium, large capital flows increase conditional exchange rate volatility and make FX markets more shallow. Unlike in the unconstrained case, the central bank's optimal interventions are not solely targeted at offsetting inefficient fluctuations in the UIP premium but also incorporate a forward-looking element due to the risk of depleting reserves. We show that this environment engenders optimal time-consistent FXI policy that is state-dependent. FX sales are more effective than FX purchases, and the policy may respond less or more than one-for-one to capital outflows, depending on their size and the economy's net foreign asset position. Adopting the policy delivers sizable welfare gains, significantly exceeding those from a simple rule directed at stabilizing current capital flows, but only if the initial level of FX reserves is sufficiently far from its effective lower bound. |
| Keywords: | Capital Flows; FX Interventions; Lower Bound on FX Reserves; Time-Consistent Policy |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/261 |
| By: | Grigorios Rapos and Stylianos Fountas (Department of Economics, University of Macedonia) |
| Abstract: | This study investigates the presence of contagion between Bitcoin and four traditional assets (stocks, bonds, gold, and the U.S. dollar exchange rate) over the period 2015-2024. By implementing a framework that combines the DCC-GARCH specification and a time-varying causal inference methodology, we investigate periods of financial contagion. Overall, our findings support that Bitcoin remains weakly connected to the global financial markets. Our main results are as follows: First, among all assets, Bitcoin significantly Granger causes only the U.S. dollar exchange rate during the post-2021 sample period. Second, Bitcoin is Granger caused by the stock market and the US dollar exchange rate. Third, there is evidence for rare contagion episodes running from Bitcoin to the U.S. dollar exchange rate, while there is no evidence of contagion from Bitcoin to all other assets (stocks, bonds, and gold). Fourth, sporadic contagion also applies from the stock market to Bitcoin, mostly in May 2022. Our evidence implies that Bitcoin may be used as a useful portfolio diversification instrument. |
| Keywords: | Bitcoin; Contagion; Time-varying causality; DCC-GARCH. |
| JEL: | C32 C58 G10 G15 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:mcd:mcddps:2025_02 |
| By: | Richard Kima; Keagile Lesame |
| Abstract: | We estimate the macroeconomic effects of shifting to a lower inflation target for South Africa, within a Structural Vector Autoregressive (SVAR) framework identified using the Max Share Identification strategy and estimated with Bayesian methods. We find that a decrease of 1% (in terms of percentage points change) in the inflation target leads to output expanding over the next few quarters after an initial muted response, with a peak of about 1.20% after about two years and remains positive and statistically significant for nearly three years after the shock. |
| Keywords: | Inflation targeting, Macroeconomics, Econometric models (Monetary policy), South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-106 |
| By: | Degiannakis, Stavros; Delis, Panagiotis; Filis, George |
| Abstract: | The aim of the current study is to assess the households’ inflation inequality in Greece not only across different income groups but also across other households’ social and economics characteristics, such as, occupational status and household composition, among others, for a more recent period, which is that of 2009 – 2022. The picture that emerges from our results is that there are important inflation differences across different categories of households. More specifically, we find that the main discrepancies are evident at the different household income categories with the poorer household experiencing significant higher inflation. Other factors that lead to inflation gap across households include the size of the household, the profession of the lead member of the household, as well as, the composition of the household. Policy implications of these results are also discussed. |
| Keywords: | Household-level inflation, inflation inequality, Greece. |
| JEL: | D12 D31 D63 E31 |
| Date: | 2025–04–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127227 |
| By: | Diogo Abry Guillen; Victor Monteiro |
| Abstract: | We build a general equilibrium setup that embeds the organizational structure and its misalignment of incentives in the firm’s pricing decision. On the firm level, such a mechanism endogenously generates discrete prices and explains price stickiness. On the macro level, we derive a Phillips curve where the incentive-provision and the number of divisions of the firms drive its slope. Empirically, we take the model into a novel Brazilian retail daily database to estimate the parameters of the theoretical mechanism. Our model matches price-setting facts, such as the length of price spell, heterogeneity of price distribution, existence of small changes, and sales behavior. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:638 |
| By: | Roxana Khabazzadeh Moghadam |
| Abstract: | Almost fully isolated from global finance, Iran has turned to crypto-assets to bypass sanctions, building a parallel payment system outside traditional banking, tariff enforcement, and capital controls backed by its central bank. This parallel strategy foreshadows the opacity risks of a fragmented global finance. <p> Presque entièrement isolé de la finance mondiale, l’Iran s’est tourné vers les crypto-actifs pour contourner les sanctions, créant un système de paiement parallèle hors du système bancaire traditionnel, de l’application des droits de douane et des contrôles de capitaux garantis par sa banque centrale. Cette stratégie parallèle préfigure les risques d’opacité d’un système financier mondial fragmenté. |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:415 |
| By: | Cristina Badarau (University of Bordeaux); Eleonora Cavallaro (Sapienza University of Rome); Stefania Stancu (University of Bordeaux,) |
| Abstract: | We analyse how corporate debt structure can shape the transmission of monetary policy in a general equilibrium model. We endogenise firms’ choice between bond and loan financing in a dynamic setting, building on the analytical framework of the financial accelerator and show that the corporate structure of firms is not irrelevant. We assume that banks have an informational advantage over other market participants in evaluating firms’ projects. This results in a lower cost of bank finance compared to market finance in a steady state, given institutional factors and market size. Over time, shocks to the cost of finance or liquidity shocks feed back into the dynamics of firms’ net worth, investment and output. In our framework, monetary policy can have asymmetric effects. On one hand, higher banks’ refinancing costs due to more stringent conventional monetary policies have a greater impact on firms that cannot easily substitute loans for bonds. Firms with easier access to the bond market have a competitive advantage over firms that can only rely on bank financing. On the other hand, shocks that increase the liquidity in the bond markets, such as unconventional monetary policies, benefit firms with a more diversified corporate debt structure. From this perspective, the development of bond markets can have important macroeconomic implications for building resilience. |
| Keywords: | Corporate debt structure, investment, monetary policy transmission |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.21 |
| By: | David M. Arseneau; Elizabeth C. Klee; Antonis Kotidis; Michael Siemer |
| Abstract: | The Bank Term Funding Program (BTFP) was an emergency liquidity facility set up by the Federal Reserve in March 2023 following the failure of Silicon Valley Bank which experienced a classic bank run driven by weak fundamentals. This paper provides an in-depth discussion of the design and implementation of the BTFP and presents some evidence on program outcomes. It also quantifies how the lending terms compare to those of the Discount Window—the Federal Reserve’s main standing liquidity facility. The BTFP successfully acted as a backstop source of funding for depository institutions with large unrealized securities losses and heavy reliance on uninsured deposits and, in doing so, helped to avert a potential systemic banking crisis. The program ceased issuing new loans in March 2024 and closed one year later as the last loans matured. All outstanding loan balances were repaid in full. |
| Keywords: | Banking stress; Emergency liquidity facilities; Lender of last resort |
| JEL: | E58 E65 G21 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-99 |
| By: | Jan David Schneider |
| Abstract: | This paper quantifies the contribution of sector-specific supply and demand shocks to personal consumption expenditure (PCE) inflation. It derives identification restrictions that are consistent with a large class of dynamic stochastic general equilibrium models with production networks. It then imposes these restrictions in structural factor augmented vector autoregressive models with sectoral data on PCE inflation and consumption growth. The identification scheme allows the study to remain agnostic on theoretical modeling assumptions yet still gain structural empirical results: sectoral shocks cannot explain the initial inflation increases that followed the COVID-19 pandemic. This changed from the end of 2021 onward when shocks originating in non-services sectors became a major source of the post-pandemic inflation surge. |
| Keywords: | Business fluctuations and cycles; Econometric and statistical methods; Inflation and prices |
| JEL: | C50 E31 E32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-37 |
| By: | Sami Alpanda; Serdar Kabaca |
| Abstract: | We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases, using an estimated dynamic stochastic general equilibrium macro-finance model with nominal and real rigidities and portfolio rebalancing effects. The latter arise from imperfect substitutability between stocks and short- and long-term government bonds in mutual funds’ portfolios. Since households’ consumption-savings decisions are tied to expected portfolio returns, the required returns on all three assets affect overall demand in the economy. The model shows that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity. Since stocks comprise a larger share in asset portfolios and are less substitutable for short-term securities than long-term bonds are, the effects of stock purchases on aggregate demand are larger than those of similar-sized bond purchases. |
| Keywords: | Business fluctuations and cycles, Economic models, Monetary policy transmission |
| JEL: | E32 E44 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-38 |
| By: | Johannes Eugster; Giovanni Rosso; Pinar Yesin |
| Abstract: | This paper investigates the interaction between the rise of inelastic intermediaries, e.g. mutual funds and exchange traded funds (ETFs), and exchange rate dynamics. By leveraging regulatory microdata on the universe of mutual funds domiciled in Switzerland, we first document the remarkable rise of the market share of this industry. Mutual funds went from holding 5% of domestic currency fixed income instruments in 2005 to 51% in 2024. We show that these intermediaries have strict mandates and trade only when faced with in(out)-flows. This makes the market more price-inelastic on aggregate in response to asset demand shocks. We develop an analytical model that we bring to the microdata. We find that (i) an inflow into domestic mutual funds with a large portfolio weight on the domestic currency appreciates it and (ii) the reduced aggregate elasticity makes the exchange rate more sensitive to capital flows. Finally, using a weekly panel of five advanced economies, we document the external validity of this mechanism. We show that the currencies whose markets see a higher prevalence of inelastic intermediaries react significantly more strongly to capital inflows. |
| Keywords: | Inelastic intermediaries, Mutual funds, Exchange rate dynamics, Capital flows |
| JEL: | F31 G23 G15 F21 E44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-17 |
| By: | Martin McCarthy (Reserve Bank of Australia); Stephen Snudden (Wilfrid Laurier University) |
| Abstract: | Forecasting period-average exchange rates requires using high-frequency data to efficiently construct forecasts and to test the accuracy of these forecasts against the traditional random walk hypothesis. To achieve this, we construct the first real-time dataset of daily effective exchange rates for all available countries, both nominal and real. The real-time vintages account for the typical delay in the publication of trade weights and inflation. Our findings indicate that forecasts constructed with daily data can significantly improve accuracy, up to 40 per cent compared to using monthly averages. We also find that unlike bilateral exchange rates, daily effective exchange rates exhibit properties distinct from random walk processes. When applying efficient estimation and testing methods made possible for the first time by the daily data, we find new evidence of real-time predictability for effective exchange rates in up to fifty per cent of countries. |
| Keywords: | temporal aggregation; exchange rates; forecasting; forecast evaluation; high-frequency data |
| JEL: | C43 C5 F31 F37 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2025-09 |
| By: | Marc Rysman; Shuang Wang; Krzysztof Wozniak |
| Abstract: | We use consumer panel scanner data to examine households' payment choices, a new application of such data. In particular, we study the long-term shift towards payment cards, as well as the role of transaction size in determining choices. We find that idiosyncratic household preferences are a key driver of payment choice. Our estimates suggest that transaction size, while important, may have a smaller effect on payment choice than previously thought, and that the effect varies substantially across households. Our results further suggest that idiosyncratic household preferences evolve slowly over time, explaining only a third of the increase in card use over the seven-year period in our data. Taken together, our findings have potential policy implications not just for the adoption of new methods such as instant payments, but also around potential costs to households from sunsetting older payment methods such as checks. |
| Keywords: | Credit Cards; Heterogeneity; Households; Panel Data; Payment Choice |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-96 |
| By: | Gustavo Silva Araujo; José Valentim Machado Vicente; Wagner Piazza Gaglianone |
| Abstract: | This article investigates the determinants of the risk premium in Brazilian nominal interest rates. The risk premium reflects the compensation investors require for holding long-term bonds instead of sequentially investing in short-term bonds. The study estimates risk premiums embedded in the Brazilian yield curve and analyzes their relationship with a comprehensive set of domestic and external macroeconomic variables. This is, to our knowledge, the first application of the ACM model to Brazil using such a comprehensive macro-financial variable set. Regression results reveal that the policy rate, long-term public financing cost, inflation expectations, public debt indicators, U.S. interest rates, USD/BRL exchange rate, and global volatility measures are statistically significant drivers. The timeseries decomposition highlights the predominance of domestic interest rates and the increasing role of external shocks in periods of heightened global uncertainty. These findings contribute to the understanding of long-term interest rate dynamics in emerging markets. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:637 |
| By: | Marco Pinchetti |
| Abstract: | Not all geopolitical shocks hit the economy in the same way – and that matters, especially for their transmission to inflation. This blog post, based on a recent Banque de France working paper, proposes a novel methodology to decompose geopolitical risk fluctuations into geopolitical energy shocks and geopolitical macro shocks. <p> Tous les chocs géopolitiques n’affectent pas l’économie de la même manière – et c’est un point important, en particulier s’agissant de leur transmission à l’inflation. Ce billet de blog, qui s’appuie sur un récent document de travail de la Banque de France, propose une méthodologie novatrice pour décomposer les fluctuations du risque géopolitique en chocs géopolitiques énergétiques et chocs géopolitiques macroéconomiques. |
| Date: | 2025–11–24 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:420 |