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We measure the causal impact of reductions in benchmark interest rates on the renegotiation and performance of distressed loans, using 2000s subprime mortgages as a laboratory. Subprime borrowers treated with larger benchmark rate reductions benefited from increased debt-renegotiation probabilities and lower debt-service payments. Modification rates were similar among current and delinquent borrowers but higher for real estate investors, highlighting the role of financial acumen in renegotiation. Renegotiations also reduced longer-run foreclosures, but treated borrowers who lingered in delinquency offset these benefits. Findings suggest monetary easing can spur debt renegotiation but alone may not lead to longer-run curative outcomes. [ABSTRACT FROM AUTHOR]

We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds' exposures to flow-induced fire sales. We exploit variation in negative spillovers arising from the Fed's SMCCF to confirm the economic mechanism and explore our findings' implications for fund performance and fire-sale spillovers to other funds. [ABSTRACT FROM AUTHOR]

We show that lender of last resort (LOLR) policy exacerbates bank interconnectedness. Using novel micro-level data, we analyze LOLR's haircut gaps: the differences between the private market and central bank haircuts. LOLR policy incentivizes banks to increase pledging and holdings of higher haircut-gap bonds, especially those issued by domestic and systemically important banks. Effects only apply to banks, not to nonbanks without LOLR access. LOLR funding revives bank bond issuance associated with higher haircut gaps and increases the subsequent correlation between pledging and issuing banks' bond prices, in particular during periods of low-market returns and for domestic, systemically important banks. [ABSTRACT FROM AUTHOR]

A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks' access to the central bank's deposit facility and assets' eligibility for quantitative easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

How does creditor health affect the pass-through of monetary policy to households? Using data on the universe of U.S. credit unions, I document that creditor asset losses increase the sensitivity of consumer credit to monetary policy. Identification exploits plausibly exogenous variation in asset losses and high-frequency identification of monetary policy shocks. Weaker lenders can respond more if they face financial frictions that easing alleviates. The estimates imply constraints on monetary policy become more costly in financial crises featuring creditor asset losses and that an additional benefit of monetary easing is that it weakens the causal, contractionary effect of asset losses. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online [ABSTRACT FROM AUTHOR]

Many of the Federal Reserve's (the Fed's) monetary policy operations involve trading with primary dealers. We find that, for agency MBS, dealers charge 2.5 cents (per $100 face value) higher selling to the Fed than to non-Fed customers. Controlling for the same dealer, same security, and same trading time, this discriminatory pricing likely arises from dealers' market power rather than inventory costs. Further, matching trade size reduces the price differential by more than half, implying that dealers' market power greatly relates to the Fed's purchases in large amounts, whereas the Fed's limited breadth of counterparty choice also plays some role. [ABSTRACT FROM AUTHOR]

We study the impact of the refinancing channel of monetary policy on very small and medium-sized businesses. Using data covering the near universe of these businesses, we find that increased household refinancing reduces the probability that a business exits or exhausts its debt capacity in the calendar year, as well as 6 years after the first exposure. It also helps younger businesses maintain credit relationships. Financial factors, like business liquidity, as well as local demand dependence, amplify these effects, especially for very small businesses. These results suggest that the refinancing channel of monetary policy can have large long-run effects on local economies. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Leading central banks did not anticipate the surge in inflation in 2021 and 2022. In our paper we assess whether changes in the velocity of money and monetary growth (broadly defined) explain long term inflation patterns in the US. We use a hundred-year sample to study the long term and the cyclical behaviour of money velocity. We find that changes in the velocity of money are short lived and revert to its mean. We also characterise the periods where changes in money velocity have kept closer to its mean as those of monetary equilibrium. We use a regime switching model to test for the impact of changes in the amount of money (broadly defined) and in money velocity in inflation over the medium and long term. Our model explains both the non-inflationary outcome of the Global Financial Crisis and the surge in inflation in the aftermath of the Covid-19 pandemic. [ABSTRACT FROM AUTHOR]

AbstractThe article explores the global impact of the COVID-19 pandemic, highlighting its severe effects on health systems, economies, and poverty levels. With an estimated 6.9 million deaths worldwide and the deepest recession since World War II, the pandemic had diverse regional impacts. South Asia, for example, experienced varying degrees of health and economic challenges; India faced over 500,000 deaths and a sharp economic downturn, while other nations in the region were less severely affected. The pandemic’s relatively brief duration, aided by global responses like lockdowns, social distancing, and rapid vaccine distribution, facilitated a quicker economic recovery, bolstered by unprecedented counter-cyclical policies. The article also examines South Asian case studies, including regional trade integration, the economic benefits of vaccination, and the socio-economic impacts on women in Bangladesh. It further discusses Pakistan’s response, Sri Lanka’s populist policies, and Indonesia’s monetary policy adjustments, offering valuable lessons for managing global health crises and economic downturns. [ABSTRACT FROM AUTHOR]

AbstractAfter discussion of the lender of last resort before Bagehot, we turn to what Bagehot actually said about the concept, the institutions involved, and appropriate lending terms for the Bank of England in a crisis. We examine the application of “Bagehot principles” in several nineteenth, twentieth and twenty-first century episodes. By operating through the discount houses in the nineteenth century, the Bank of England was able to focus on the quality of the paper presented for discounting, rather than on the solvency of each individual bank. Emphasis was thus on the stability of the system, not of individual banks. [ABSTRACT FROM AUTHOR]

How do capacity constraints affect the slope of the Phillips curve? In particular, do changes in output affect prices by more when firms face more strongly diminishing returns? Intuitively, one may conjecture that the answer is yes. With more strongly diminishing returns, marginal costs increase more when production increases, also raising prices by more. But this intuition is incomplete in models with sticky prices à la Calvo. In the standard New Keynesian model with Calvo pricing frictions, more strongly diminishing returns actually flatten the Phillips curve. The reason is the reluctance of firms who alter their prices to let their prices get too far out of line with the prices set by firms that do not adjust. We explain how the Phillips curve might be amended to avoid this implausible feature, for example, by using Rotemberg pricing or introducing wage stickiness. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to propose a dynamic stochastic general equilibrium (DSGE) model for the State Bank of Vietnam (SBV) to assess the response from the household sector to monetary policy shocks through the consumption function. Moreover, the transmission from monetary policy to household consumption and income distribution is experimented with through the vector autoregression (VAR) model. Design/methodology/approach: In this study, the authors used the maximum likelihood estimation to estimate the DSGE and VAR models with the sample from 1996Q1 to the end of 2021Q4 (104 observations). Findings: The DSGE model's results show that the response of the household sector is as expected in the theory: a monetary policy shock occurs that increases the policy interest rate by 0.29%, leading to a decrease in consumer spending of about 0.041%, the shock fades after one year. Estimates from the VAR model give similar results: a monetary policy shock narrows income inequality after about 2–3 quarters and this process tends to slow down in the long run. Research limitations/implications: Based on the research results, the authors propose policy implications for the SBV to achieve the goal of price stability, and stabilizing the macro-economic environment in Vietnam. Originality/value: The findings of the study have theoretical contributions and empirical scientific evidence showing the effectiveness of the implementation of the SBV's monetary policy in the context of macro-instability, namely: flexibility, caution and coordination of different measures promptly. [ABSTRACT FROM AUTHOR]

In this paper we analyze the impact of less conventional monetary policy tools on the personal and functional distribution of income. We focus on the issuance of central bank digital currency (CBDC) in a comparative perspective, using a stock-flow consistent model of the eurozone economy. We consider two kinds of policies: helicopter money policies such as Quantitative Easing and the issuance of a CBDC; and scenarios not based on balance sheet expansions, such as an interest rate policy following the Pasinetti Rule, or a sterilized issuance of CBDC. Monetary policies using CBDCs tend to increase the wage share at the expense of financial rents. The targeted issuance of CBDCs to firms might produce an increase in GDP, corporate profits, and the wage share. The Pasinetti Rule reduces personal income inequality the most, but if applied mechanically, its impact on growth is also the least desirable. [ABSTRACT FROM AUTHOR]

The paper presents a closed-economy stock-flow consistent model aimed at outlining the natural synthesis between two fundamental pillars of the post-Keynesian approach: the supermultiplier (SM) model and the monetary theory of production based on the notion of endogenous money. Such integration allows the defining of the whole economic mechanism describing the financing of autonomous components and investments, as well as the determination of output and saving within a monetary economy of production. Our contribution argues that the endogenous money theory plays a non-ancillary role within the SM approach. By comparing different scenarios describing the financing of autonomous components of demand and investments (bank loans, retained profits, CB, and equity emissions), we point out that the endogenous process of money creation is the only structural mechanism through which the autonomous components can exist and be independent of current income, and Keynesian causality materializes in the long-run. In general, it is the initial finance of investments and autonomous components through endogenous money that allows them to be ex-post founded by household saving. Conversely, the initial finance through the existing stock of wealth, although it does not intact the investments-saving causality, can be considered only a temporary spin-off of the endogenous money process. [ABSTRACT FROM AUTHOR]

This article explores the long-term and cyclical effects of the Pasinetti Index (PI) and their implications for income distribution and macroeconomic policy in a post-pandemic environment marked by inflationary pressures and increasingly restrictive central bank policies. It discusses the relevance of adopting a zero PI as monetary policy framework as either a short-term target or a long-term norm. The research underscores the importance of coordinating monetary and fiscal policies to achieve a balanced mix of short-term and long-term macroeconomic goals, as per the Pasinetti rule, aimed at stabilizing income distribution between rentier and non-rentier groups without compromising on a Keynesian full employment commitment. By analyzing historical data and employing a SVAR model for Canada and the United States, the study highlights the significant cyclical impact of PI fluctuations on unemployment and income distribution. The findings challenge the efficacy of rigid monetary policy rules and support a macroeconomic policy that reconciles short-term employment objectives and long-term distributional goals. [ABSTRACT FROM AUTHOR]

Purpose: This paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each parameter, and we examine how changes within these ranges can alter the outcomes of fiscal policy. In this way, we aim to highlight the importance of these parameters in the formulation and evaluation of fiscal policy. Design/methodology/approach: The role of fiscal policy, its effects and multipliers continues to be a subject of intense debate in macroeconomics. Despite adopting a New Keynesian approach within a macroeconomic model, the reactions of macroeconomic variables to fiscal shocks can vary across different contexts and theoretical frameworks. This paper aims to investigate these diverse reactions by conducting a sensitivity analysis of parameters. Specifically, the study examines how key variables respond to fiscal shocks under different parameter settings. By analyzing the behavioral dynamics of these variables, this research contributes to the ongoing discussion on fiscal policy. The findings offer valuable insights to enrich the understanding of the complex relationship between fiscal shocks and macroeconomic outcomes, thus facilitating informed policy debates. Findings: This paper aims to investigate key elements of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. The focus is on the calibration of parameters and their impact on macroeconomic variables, such as output and inflation. The study also examines how different parameter settings affect the response of monetary policy to fiscal measures. In conclusion, this study has relied on theoretical exploration and a comprehensive review of existing literature. The parameters and their relationships have been analyzed within a robust theoretical framework, offering valuable insights for further research on how these factors influence model forecasts and inform policy recommendations derived from New Keynesian DSGE models. Moving forward, it is recommended that future work includes empirical analyses to test the reliability and effectiveness of parameter calibrations in real-world conditions. This will contribute to enhancing the accuracy and relevance of DSGE models for economic policy decision-making. Originality/value: This study is motivated by the aim to provide a deeper understanding of the roles macroeconomic model parameters play concerning responses to expansionary fiscal policies and the subsequent reactions of monetary authorities. Comprehensive reviews that encompass this breadth of relationships within a single text are rare in the literature, making this work a valuable contribution to stimulating discussions on macroeconomic policies. [ABSTRACT FROM AUTHOR]

Purpose: To investigate the role of domestic and foreign economic policy uncertainty (EPU) in driving the corporate bond yields in emerging markets. Design/methodology/approach: The study utilizes monthly data from January 2008 to June 2023 from the selected emerging economies. The data analysis is conducted using univariate, bivariate and multivariate statistical techniques. The study includes bond market liquidity and global volatility (VIX) as control variables. Findings: Domestic EPU has a significant role in driving corporate bond yields in these markets. The study finds weak evidence to support the role of the USA EPU in influencing corporate bond yields in emerging economies. Domestic EPU holds more weight and influence than the EPU originating from the United States of America. Research limitations/implications: The findings provide useful insights to policymakers about the potential impact of policy uncertainty on corporate bond yields and enable them to make informed decisions regarding economic policies that maintains financial stability. Understanding the relationship between EPU and corporate bond yields enables investors to optimize their investment decisions in emerging market economies, opens the scope for further research on the interaction between EPU and volatility and other attributes of fixed income markets. Originality/value: Focuses specifically on the emerging market economies in Asia, providing an in-depth analysis of the dynamics and challenges faced by these countries, Explores the influence of both domestic and the USA EPU on corporate bond yields in emerging markets, offering valuable insights into the transmission channels and impact of EPU from various sources. [ABSTRACT FROM AUTHOR]

The role of foreign exchange interventions in monetary policy conduct is an ongoing debatable issue, especially in inflation-targeting emerging economies, where monetary authority can follow other targets rather than price stability. This paper examines whether interventions in foreign exchange markets affect the setting of interest rates in countries where price stability is the main target of monetary policy. We used the ARDL model to investigate the matter of the intervention policy as well as its asymmetric impacts on monetary policy. The results provide evidence of the significant effect of foreign exchange interventions on monetary policy in inflation-targeting emerging economies, implying the existence of fear of floating. Particularly, interest rate changes can mitigate or accommodate the intervention policy, depending on countries. Furthermore, the interventions have asymmetric effects on monetary policy, showing the bias toward sales interventions. While sales interventions play a more pronounced effect in most emerging economies, excepting for Mexico where purchase intervention effect is of more importance.

We provide a measure of the credibility of the monetary policy of India after implementation of the Flexible Inflation Targeting (FIT) framework and attempt to deduce, if inflation expectations are anchored in India. The methodology involves (a) construction of a credibility index for the period 2012 to 2022 using annual data and (b) estimation of a time-varying implicit credibility index using a time-varying regression model, for the period 2014 to 2022 using quarterly data. It is evident from both the measures that there has been a gradual rise in the credibility after implementation of the FIT framework and that credibility is sensitive to unexpected external shocks. The empirical results derived from the implicit credibility index enable us to conclude that the inflation expectations of households and professional forecasters have been anchored after implementation of FIT in India. The robustness of the empirical results is evident as similar conclusions could be drawn when ordinary least square (OLS) estimation was used instead of the time-varying regression model. Likewise, better anchoring of the short-term inflation expectations of the households and professional forecasters is evident as compared to the medium-term expectations. [ABSTRACT FROM AUTHOR]

Purpose: The article aims to establish whether the degree of aversion to inflation and the responsiveness to deviations from potential output have changed over time. Design/methodology/approach: This paper assesses time variation in monetary policy rules by applying a time-varying parameter generalised methods of moments (TVP-GMM) framework. Findings: Using monthly data until December 2022 for five inflation targeting countries (the UK, Canada, Australia, New Zealand, Sweden) and five countries with alternative monetary regimes (the US, Japan, Denmark, the Euro Area, Switzerland), we find that monetary policy has become more averse to inflation and more responsive to the output gap in both sets of countries over time. In particular, there has been a clear shift in inflation targeting countries towards a more hawkish stance on inflation since the adoption of this regime and a greater response to both inflation and the output gap in most countries after the global financial crisis, which indicates a stronger reliance on monetary rules to stabilise the economy in recent years. It also appears that inflation targeting countries pay greater attention to the exchange rate pass-through channel when setting interest rates. Finally, monetary surprises do not seem to be an important determinant of the evolution over time of the Taylor rule parameters, which suggests a high degree of monetary policy transparency in the countries under examination. Originality/value: It provides new evidence on changes over time in monetary policy rules. [ABSTRACT FROM AUTHOR]

This study analysed the three cryptocurrencies with the largest market capitalization: Bitcoin, Ether (cryptocurrency built upon the Ethereum project's blockchain technology), and Binance coin, which account for 60% of the total cryptocurrency market capitalization. The purpose of this research was to measure the impact of monetary policy on the price of these cryptocurrencies using an adjusted R squared.

Ghana was the second African country to adopt the inflation-targeting framework in 2007. The country faced persistently high levels of inflation, exceeding 100 percent in the early 1980s. Since the adoption of the inflation targeting regime, the inflation rate has decreased and remains below 20 percent.

This paper analyzes empirically the existence of the credit channel of monetary policy in Mexico, that is, the relationship between changes in the target interest rate and variations in credit granted by commercial banks. The study combines aggregate information with data from the individual balance sheets of commercial banks and conducts a panel data regression analysis. The analysis is performed for total credit and its components (business, consumer, and mortgage). Additionally, by using banks' accounting information, it explores whether the transmission mechanism occurs on the supply side. It is found that there is a negative and economically significant relationship between interest rate and credit, and such a relationship is established for different types of credit. Furthermore, evidence suggests that the transmission mechanism operates on the supply side, as banks with more robust balance sheets exhibit greater resilience to changes in the interest rate. [ABSTRACT FROM AUTHOR]

In 2012, Draghi put an end to rising euro area sovereign bond yield spreads by resolving to do 'whatever it takes'. The crisis rhetoric and institutional practices of unlimited liquidity have since become commonplace, as countermeasures to recent market turmoil show. This article sets out to explain how and why 'unlimited liquidity' ideas moved to the ECB's center of economic analysis during the euro crisis. Previous work fails to decipher that the ideational shift was highly anomalous when viewed against German ordoliberalism or scholarly support for 'expansionary austerity'. Addressing this relative neglect in other accounts, we draw on qualitative text analysis and expert interviews to argue that this shift was due to norm entrepreneurs who capitalized on the uncertainty of the crisis. We employ constructivist arguments to identify four scoping conditions that account for the ascendance of 'unlimited liquidity': an indicative reference, credibility, institutional positioning and—as an extension to the literature—intellectual sensitivity. Our analysis suggests that the euro crisis changed economic ideas, and fundamentally remodels the constructivist framework for studying monetary policy in crisis times. [ABSTRACT FROM AUTHOR]

This paper examines the relative significance of oil supply, oil demand, and monetary policy shocks in explaining US macroeconomic variations. We analyze impulse response functions and variance decomposition to assess the relative importance of these shocks. Using a Bayesian structural VAR framework and the penalty function approach, we identify the shocks of interest. We find that oil supply shocks explain less than 3% of the variation in output, but have a relatively larger impact on inflation, accounting for around 13% of the inflation variation. Oil demand shocks explain 3% of output variation, but contribute significantly to inflation variation (around 16%). In contrast, monetary policy shocks have a greater influence on output, explaining approximately 13% of the observed variation. Monetary policy shocks are also the most influential source of inflation variation, contributing over 24% to the overall variation. Based on historical variance decomposition, we find that the recent inflation surge is attributable to both monetary expansion and oil supply factors. Overall, the study highlights the dominance of monetary policy shocks in explaining US macroeconomic fluctuations, with oil supply and demand shocks playing secondary roles. [ABSTRACT FROM AUTHOR]

This article provides an overview of the macroeconomic challenges facing the 10 countries in the Association of Southeast Asian Nations (ASEAN). It discusses various macroeconomic indicators and the importance of achieving high levels of economic growth. The article also explores ASEAN's participation in Regional Value Chains (RVCs) and Global Value Chains (GVCs), particularly in the automotive and electronics industries. It examines the adoption of inflation targeting frameworks by ASEAN countries and evaluates their macroeconomic performance. The text further analyzes the fiscal sustainability of Indonesia, Malaysia, and Thailand, providing policy recommendations to enhance revenue collection and reduce subsidies. It also discusses the challenges faced by Vietnam's economy and suggests policy measures to overcome them. The article touches on economic issues in Cambodia and Laos, including technology spillovers, Central Bank Digital Currency (CBDC) implementation, and financial system reform. The perspectives presented offer insights into these countries' economic situations and potential policy measures. [Extracted from the article]

The experience of flexible inflation targeting in ASEAN‐5 has been favorable. The present paper shows improvements in macroeconomic outcomes consistent with the framework's mandated objectives: lower levels and volatility of inflation, more stable economic growth, and a well‐functioning financial system. Using difference‐in‐difference approaches, we find that, for ASEAN‐5 and developing countries, the inflation targeting framework mainly benefits adopters in terms of reducing inflation levels. In response to the challenges emanating from capital flow volatility and domestic financial imbalances, over the past 20 years, ASEAN‐5 policy frameworks have continuously evolved to incorporate various policy tools. These include, among others, foreign exchange intervention, macroprudential policy, and capital flow measures. A multitude of policy tools is arguably one of the key factors contributing to sound macroeconomic outcomes during the post‐targeting periods. [ABSTRACT FROM AUTHOR]

Over the past decade, Lawrence Summers has argued that stagnation cannot be rectified by monetary policy because it is the result of a negative natural rate of interest. This analysis brings together two separate streams of thought: traditions in which stagnation has been connected to excessive saving linked to income distribution, or to diminishing investment demand; and a tradition centred on the natural rate of interest and its relationship to the market rate. However, they remained largely separated until Summers brought them together. Modern discussions of the natural rate stem from Knut Wicksell’s Interest and Prices (1898). However, although he came close to arguing that the natural rate might be negative during cyclical depressions, it was mainly under-consumptionists who argued for the possibility of stagnation. These two strands of thinking came closer in the interwar period but they remained separate. The main advocate of secular stagnation, Alvin Hansen, drew on the American Institutionalist tradition, not Wicksell. Postwar Keynesians did not pursue the idea of a negative natural rate even though Samuelson had provided a theoretical explanation. It was not until Summers that a negative natural rate, income distribution and the possibility of secular stagnation were brought together. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to contribute to the analysis concerning how inflation forecasts from different economic agents (professional forecasters and consumers) lead to varying levels of central bank credibility and how it affects the monetary policy interest rate and its expectations. Design/methodology/approach: Based on the Brazilian economy data from June 2007 to May 2022, the authors provide evidence that is useful for search mechanisms that improve the conduct of monetary policy through the management of inflation expectations. The authors perform several ordinary least squares and generalized method of moments regressions inspired by the Taylor rule principle. In brief, the benchmark model considers that the monetary policy interest rate and its expectations respond to departures of inflation expectations to the target (a proxy for central bank credibility) and the level of economic activity. Findings: The main result of the analysis is that inflation expectations from professional forecasters and consumers imply different perceptions of central bank credibility that affect the monetary policy interest rate and expectations for horizons until one year ahead. Originality/value: The novelty that the authors bring from the analysis is that the authors calculate central bank credibility by taking into account the "public beliefs" of different economic agents. Furthermore, the authors analyze the effect of central bank credibility from professional forecasters and consumers on the monetary policy interest rate and its expectations. [ABSTRACT FROM AUTHOR]

Stock market bubbles arise as a joint monetary and financial phenomenon. We assess the potential of monetary policy in mitigating the onset of bubbles by means of a Markov-switching Bayesian Vector Autoregression model estimated on US 1960–2019 data. Bubbles are detected and dated from the regime-specific interplay among asset prices, fundamental values, and monetary policy shocks. We rationalize the empirical evidence with an Overlapping Generations model, able to generate a bubbly scenario with shifts in monetary policy, and where agents form beliefs over transition dynamics. By matching the VAR impulse responses, we find that procyclicality and financial instability align with high equity premia and the presence of asset price bubbles. Monetary policy tightening, by increasing real rates, is ineffective in deflating bubble episodes. [ABSTRACT FROM AUTHOR]

This paper evaluates the macroeconomic effects of monetary policy for a central bank digital currency rule with traditional monetary policy in an open environment. We build a dynamic stochastic general equilibrium small open model economy with interest-bearing central bank digital currency assets. The redistribution of asset holdings and the change in asset price are the two pathways through which a retail central bank digital currency rule under the traditional monetary policy affects the macroeconomy. Fiat's digital and traditional monetary policies complement one another in lowering macroeconomic fluctuations. As a result, the real exchange rate, current accounts, and consumption are more stable in transmitting foreign shocks. These results occur when price-based or quantitative-based fiat digital monetary policy parallels traditional price-based monetary policy.