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Is there a trade-off between the short-run and long-run real effects of monetary policy "leaning against the wind"? We provide novel evidence on this question from the United States in 1920–1921. Our identification strategy exploits county-level variation in access to the Federal Reserve's discount window, and hand-collected data on banking and agriculture in Illinois. In the short term, tightened conditions at the discount window decreased bank lending and lowered crop prices and farm revenues. In the long term, however, they lowered debt-to-output levels and led to greater farmland utilization, suggesting an avoidance of debt overhang problems. [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]

We study the drift and cyclical components in U.S. Treasury bonds. We find that bond yields are drifting because they reflect the drift in monetary policy rates. Empirically, modeling the monetary policy drift using demographics and productivity trends, plus long-term inflation expectations, leads to cyclical deviations of bond prices from their drift that predict bond returns in- and out-of-sample. These bond cycles can be interpreted as term premia or/and temporary deviations from rational expectations in a behavioral framework. Through the lens of our model, we detect a significant role of the latter in determining the cyclical properties of yields with short maturities. [ABSTRACT FROM AUTHOR]

We develop a quantitative model with imperfections in domestic and international financial markets that generates strong effects of U.S. monetary policy on emerging markets (EMs). Financial imperfections prevent arbitrage both between local EM lending and borrowing rates, and between local-currency and dollar borrowing rates. An adverse feedback effect between financial health and external conditions amplifies the domestic "financial accelerator," leading to large cross-border spillovers of U.S. monetary policy shocks. The model implies a link between uncovered interest parity violations and local credit spreads, a prediction we show the data strongly supports. 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]

While the causal impact of limited attention to macroeconomic news is difficult to detect, this article proposes one solution: exploiting when foreign investors are "distracted" by risk factors in their home markets. I demonstrate that financial activity in the average foreign investor's home market decreases foreign attention paid to 21 emerging economies, measured using Google search volume for economy-specific financial terms that emanate from outside each economy's border. Exploiting this effect using an instrumental variables approach, I find that an exogenous increase in foreign attention preceding a scheduled monetary policy rate announcement raises preannouncement stock returns and announcement day turnover. [ABSTRACT FROM AUTHOR]

Monetary policy differs from other aspects of economic and social policy because it is not directly under the control of the federal government: it is managed by the Reserve Bank [...]

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]

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]

Policy agendas are a well-studied institutional level phenomenon that capture the set of policy issues that an institution pays attention to over time. They are emergent in nature in that individual behaviour shapes institutional level outcomes when policy makers allocate attention to policy issues. To examine the link between individual-level actions and system-level outcomes we introduce the concept of the agenda-setting constellation, defined as a group of policy makers paying attention to a set of policy issues. Taking the European Central Bank as a case study, and using a combination of text-analysis and networks-analysis techniques, we demonstrate how these meso-level structures shape the evolving policy agenda. We then examine the roles of personal experience, institutional constraints, and policy context in driving agenda-setter constellation membership. Our results show the value of studying policy agendas as networked processes and the key role that agenda-setter constellations play in driving policy agenda dynamics. [ABSTRACT FROM AUTHOR]

The paper examines the current state and development of the Bulgarian economy in 2023, considering domestic and regional factors. We analyze the real sector by tracking GDP, inflation, and unemployment, linking these to EU processes. Emphasis is placed on labour market adjustments in the context of digitalization and transitioning to a climate-neutral economy. The sustainability of the fiscal sector is explored through financing the green and digital transition with EU funds, and the necessary policies to maintain fiscal stability. We discuss foreign trade prospects, considering the economic conditions and expectations for Bulgaria's main trading partners, the high dependence on euro area performance, and the specifics of foreign trade relations. The banking sector and the capital market analysis focus on the implications of European Central Bank monetary policy, regulatory actions of the Bulgarian National Bank, and risks to sector stability in a dynamic macroeconomic environment. Expectations and forecasts for the Bulgarian economy through 2026 are based on assumptions about global economic processes and local challenges. We make economic policy recommendations aimed at preserving the purchasing power of the population's income and restructuring certain fiscal measures. [ABSTRACT FROM AUTHOR]

Using daily data over the period August 5, 2013 – September 27, 2019, this study investigates the dynamic spillovers between international monetary policies across four major economies (i.e. Eurozone, Japan, UK and US) and three key cryptocurrencies (i.e. Bitcoin, Litecoin and Ripple). In doing so, we apply a Time-Varying Parameter Vector Auto-Regression (TVP-VAR) model, a dynamic connectedness approach and network analysis. The empirical results indicate that cryptocurrency returns and monetary policy spillovers were particularly large when shadow policy rates became negative, moderated during the Fed's 'tapering process', and sharpened again more recently as cryptocurrency buoyancy returned. Gross directional spillovers suggest that shadow policy rates have more 'to give than to receive', while those from and to cryptocurrency returns are naturally volatile. There is also strong interconnectedness between monetary policy in either the US or the Eurozone and the UK, and between Bitcoin and Litecoin. However, the spillovers across monetary policy and cryptocurrencies tend to be muted. Finally, spillovers were only slightly larger during the Fed's 'unconventional' policy compared to the 'standard' era, but their composition qualitatively changed over time. [ABSTRACT FROM AUTHOR]

We analyse the responses of the monetary policy of five (Brazil, Chile, Mexico, India, and South Africa) emerging market economies (EME) to domestic and external (U.S.) shocks. We argue that the domestic policy rate is sensitive to risk premiums, financial markets, and the world economy, showing that Taylor's Rule can benefit from the inclusion of these variables to understand the behaviour of the monetary authority. Therefore, our results suggest the following: i) policy rates are affected by risk premiums, ii) domestic monetary policy is affected by exchange rates, stock markets, and the U.S. and iii) there is heterogeneity in the factors explaining the behaviour of central banks. [ABSTRACT FROM AUTHOR]

Three hypotheses arise concerning negatives impacts of central bank's repo balance on monetary policy: (i) short maturity and payments close to policy rate for repos cause a decrease in average maturity of public debt; (ii) repo balance expansions weaken the wealth channel of monetary policy; (iii) agents' expectations regarding repo expansions undermine other monetary policy instruments. This work seeks to verify the existence of evidence to support these hypotheses, resorting to VAR and impulse-response functions analysis. Evidence is found for a negative effect of repo on public debt's duration, but not for the other two hypotheses. These suggests an additional cost of resorting to repos for monetary policy execution, albeit smaller than other authors have supposed. [ABSTRACT FROM AUTHOR]

The paper analyzes the persistence properties of the monthly inflation and its components in Kazakhstan using a fractionally integrated approach. The results suggest the presence of long memory behaviour in the inflation series. The general inflation, food inflation, and non-food inflation experienced a break in late 2015 when the National Bank of Kazakhstan announced a shift in the monetary policy regime. Non-food inflation is fractionally cointegrated with the nominal depreciation rate. The estimates of the Bayesian DSGE model reveal shifts in the sources of inflation persistence. The evidence for the effect of the policy change on inflation persistence and its sources is mixed. Finally, the estimation of the persistence parameter is sensitive to the choice of data frequency. [ABSTRACT FROM AUTHOR]

This paper uses a unique firm-bank matched data set for India to provide new insights into the monetary policy transmission mechanism. Our assessment of the bank-lending channel suggests that an increase in credit may have a heterogeneous effect on firms based on the liquidity positions of the lending banks. Investment in fixed assets is found to increase for firms that borrow from liquid banks, when these banks increase their lending. By contrast, we find increased financing of current liabilities – and not increase in long-term investment – for firms that borrow from the less liquid banks. [ABSTRACT FROM AUTHOR]

This paper analyses the relationship between monetary policy uncertainty and earnings management using financial data of Chinese listed companies from 2008 to 2019. The study finds a significant positive association between monetary policy uncertainty and earnings management. Additionally, the research shows monetary policy uncertainty enhances earnings management through corporate operating risk and financial constraints. Furthermore, the results indicate monetary policy uncertainty has a more significant impact on earnings management in non-state-owned enterprises compared to state-owned enterprises. Moreover, the positive impact of monetary policy uncertainty on earnings management is more significant in companies with a higher asset liability ratio. This study contributes to the understanding of the economic consequences of monetary policy uncertainty and expands the literature on the factors influencing corporate earnings management. [ABSTRACT FROM AUTHOR]

This paper examines the heterogeneous effects of monetary policy on consumer prices in the United Kingdom. We estimate a proxy Structural Vector Autoregressive (SVAR) model, using extended high‐frequency monetary surprises from Cesa‐Bianchi et al. (European Economic Review, 123, 2020, 103375) to instrument shifts in UK monetary policy. We then analyze the impulse responses for various components of the UK Consumer Price Index. Our findings reveal that while monetary policy tightening leads to a persistent decline in aggregate consumer prices, the impact on disaggregated components is highly heterogeneous. Notably, we observe that energy price changes offset movements in food, beverage, and tobacco prices, resulting in identical responses of core and headline consumer CPIH inflation measures. The contrasting effects across different CPI components highlight the importance of examining disaggregated data when assessing the transmission of monetary policy to consumer prices. [ABSTRACT FROM AUTHOR]

We estimate perceptions about the Federal Reserve's monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, in particular over the monetary policy cycle. Forecasters update their perceptions about the Fed's policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about the rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings. [ABSTRACT FROM AUTHOR]

In this article, the relationship between international reserves and monetary autonomy in 21 emerging countries during the period 1999–2019 is investigated. Using a nonlinear panel analysis, we find that international reserves begin to have a positive effect on monetary autonomy when the ratio of international reserves to GDP is around 22%–23%. This result implies that the levels of international reserves are not necessarily excessive in most emerging countries and appear appropriate for supporting their monetary autonomy. Above this threshold, we also identify that the exchange rate regime and financial liberalization are no longer constraints for monetary autonomy. This result suggests a partial validity of the trilemma in emerging countries, with that validity depending on the level of international reserves. [ABSTRACT FROM AUTHOR]

This study investigates the issue of trilemma versus dilemma in relation to monetary autonomy. We construct a long‐term interest rate independence index (LRI) apart from the conventional monetary policy independence evaluated on the basis of the short‐term interest rate independence index (SRI). LRI intends to capture the independence of domestic financial conditions and the monetary policy in a broad sense. Empirical results are as follows. On the basis of SRI, trilemma holds well, in which trade‐offs between SRI and international capital mobility and between SRI and exchange rate stability are found. This outcome is consistent with the findings of many past studies that support trilemma. However, on the basis of LRI, dilemma holds after the global financial crisis because only the trade‐off between LRI and international capital mobility exists. This result is consistent with the conclusion of Rey (2013), which emphasized the huge effects of the global financial cycle on the domestic financial condition owing to the integration of international financial markets. Empirical results settle the issue between trilemma and dilemma. [ABSTRACT FROM AUTHOR]

The federal funds target rate is commonly considered to be an important indicator of the state of the US economy and is of keen interest to individual investors, financial firms, and other economic agents. In this paper, we focus on the discrete changes in the federal funds target rate during the period from January 1994 to June 2022 and apply the ordinal forest model, a random forest‐based prediction method for ordinal response variable. We examine the model's performance with 45 predictor variables which include macroeconomic and financial variables as well as forward‐looking survey measures. For an accurate and honest measure of the model performance, we employ single‐period‐ahead out‐of‐sample forecasting accuracy instead of evaluating the in‐sample fit. Our empirical results show the ordinal forest method significantly outperforms a benchmark that uses the most recent data among previous studies on federal funds target rate. We find that TB spread is the most informative from a forecasting perspective along with GDP, initial jobless claims, and survey measures. [ABSTRACT FROM AUTHOR]

This study examines the Macau hotel industry's response to global shocks using vector autoregression analysis. According to the findings, the hotel occupancy rate reacts negatively to a one-standard-deviation shock in global geopolitical risk. However, this reaction decreases after the second period and completely loses its effect after the fourth period. Hotel occupancy rate responds weakly and short term negatively to the shock of global economic policy uncertainty. The hotel industry reacts short term, weakly, and positively to a shock in US monetary policy uncertainty. According to the variance decomposition results, at the end of the tenth term (long-term), 96.25% of the change in hotel occupancy rates is explained by their own dynamics. The rest is 3.00% geopolitical risk, 0.5% US monetary policy uncertainty, and 0.25% economic policy uncertainty. [ABSTRACT FROM AUTHOR]

Risk aversion is one of the investment theories in which the price-performance ratio reacts to the investor’s risk tolerance and is guided with due attention to its changes. These settings allude to changes in the investor’s activity in response to global economic patterns. According to this theory, investors tend to have higher-risk investments when the market risk is low. However, investors tend to invest in a safe asset when a high market risk is felt. The investor’s tendency to avoid risk increases and decreases over time. Occasionally, investors invest more in higher-risk instruments than in other periods, such as economic prosperity in 2009. The primary purpose of this research study is to present a model for identifying the risk aversion of shareholders depending on the influence and role of the government’s monetary and fiscal policies and the mass behavior of shareholders. This is applied research in terms of purpose and descriptive survey research in terms of method. The statistical population of the research is the country of Iran. The study’s participants include managers, shareholders, and investors with associated scientific backgrounds and experience in the stock exchange. Thus, the managers, shareholders, and investors active in the stock exchange were selected as the participants of the present study. Besides, the purposeful sampling method and theoretical sampling strategy with maximum variation were used. The researcher reached theoretical saturation by interviewing nine people, and the interviews continued with 11 people to become confident about the results. Data analysis was done using MAXQDA OLS, pls software. The research results have been to identify the role of the government’s monetary and fiscal policies and the shareholders’ mass behavior in presenting the model of identifying the risk aversion of the shareholders. [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]

ABSTRACT This study analyses and compares the determinants of inflation expectations among households and professional forecasters in India. To this end, we utilize quarterly survey data from the Reserve Bank of India (RBI), specifically the Inflation Expectations Survey of Households (IESH) and the Professional Forecasters’ Survey (SPF). The analysis employs a non‐recursive structural vector autoregressive (SVAR) model to explore the relationships between variables. The impulse response function and variance decomposition analysis shed light on the response of inflation expectations to macroeconomic shocks. Our findings indicate that apart from conventional macroeconomic factors like realized inflation and monetary policy, exogenous factors such as oil prices significantly shape inflation expectations. Comparing IESH and SPF, we found out that household expectations are more sensitive to shocks related to food prices, reflecting the influence of food expenses on household decision‐making. Conversely, professional forecasters’ expectations are more influenced by core inflation. Finally, we observed that inflation expectations adjust more quickly than realized inflation in response to macroeconomic shocks, suggesting a leading role. This study is novel with the contribution to the existing literature as it provides a comparative analysis of determinants of inflation expectations between households and professional forecasters in India, while also considering inflation targeting as a significant factor. [ABSTRACT FROM AUTHOR]

Agents' beliefs regarding future monetary policy changes influence their current decisions. However, these expectations may not always materialize in the future. This study shows that the monetary fundamental shocks (exogenous changes consistent with expectations) stabilize output and inflation, while the noise shocks (biased beliefs that fail to be realized in the future) increase economic fluctuations. Moreover, factors that amplify financial frictions—the spread between the capital return of entrepreneurs and the risk‐free interest rate of a central bank—can increase anticipation effects associated with these two types of monetary policy shocks. [ABSTRACT FROM AUTHOR]

Bitcoin adoption as a legal tender threatens a financial crisis because of the lack of regulatory frameworks and systems for exchanging Bitcoin into local currencies. This study analyzes monthly data from 2010 to 2022 using a structural vector autoregressive model, estimating Bitcoin's pass-through into remittance, money multiplier, the US Dollar index, and gold price. The results show that Bitcoin prices decrease the money multiplier and gold prices in both the short and long run, while remittances moderately increase in the long run. The implication of these results suggests the potential for international business opportunities to stimulate the credit, savings, and investment monetary policy channel. The results are robust to alternative SVAR identification strategies. [ABSTRACT FROM AUTHOR]

Following the end of the coronavirus pandemic, the European Central Bank (ECB) was confronted with an unprecedented increase in energy prices. This led to consumer price inflation in the euro area far beyond the ECB's inflation target of two percent, at times up to 10 percent. At the same time, the euro area economy was threatened by a recession, which resulted in the ECB facing conflicting objectives of stabilizing the economy and combating inflation. Estimates show that while the ECB's policy strategy of maintaining a low level of interest rates did improve the economy, it also exacerbated the rise in energy prices. The empirical analysis demonstrates that an interest rate hike at the beginning of the energy crisis would have stabilized inflation more effectively. Tightening monetary policy would have curbed energy demand and caused the euro to appreciate, which would have led to a more rapid decline in energy prices. In this counterfactual scenario, the euro area would have had to endure a brief recession, but the overall economic situation would have stabilized by the fourth quarter of 2023. The ECB would likely have been better able to follow its price stability mandate if a capital markets and fiscal union existed in the euro area. [ABSTRACT FROM AUTHOR]

Using minutes of consecutive Monetary Policy Committee (MPC) meetings of the Indian central bank, we have constructed two novel measures of implicit dissent at the individual level as well as across groups. We have used VADER sentiment analysis to arrive at the proposed measures and investigated their influence on anchoring Indian growth and inflation forecasts. Our empirical findings show discordance among members increases forecast accuracy. This implies promoting an environment that supports nuanced opinions could improve policy outcomes. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to examine the role of fiscal discipline on the dynamics of exchange rate pass-through during inflation targeting. The present study analyses the Turkish economy for the period 2006–2022 by the use of threshold regression models. Our results suggest that fiscal discipline, measured by the IMF-defined primary budget balance as a share of GDP (which excludes the one-off government revenues balance such as privatization, interest earnings, and real estate sales) has a significant role in inflation dynamics. The degree of exchange rate pass-through is significantly lower and thus raises the effectiveness of inflation targeting when the government ensues strict fiscal discipline. [ABSTRACT FROM AUTHOR]

This article introduces a special issue on Walter Bagehot and his book Lombard Street. Bagehot, known primarily as an essayist and journalist, was the editor-in-chief of The Economist and made it a reference journal for the financial center of London. The article discusses Bagehot's background in banking and his pragmatic approach to describing the world of finance. It also explores the relevance of Bagehot's views in the present, including their application during the Global Financial Crisis and the Covid-19 pandemic. The special issue includes articles that examine the construction and reception of Lombard Street, its application in later financial crises, and Bagehot's views on financial markets and crises. The text discusses various perspectives on Walter Bagehot's ideas on the governance of the Bank of England and the role of central banks in financial stability. It highlights Bagehot's belief in reconciling conflicting interests and the importance of an international lender of last resort. The text also examines the reception of Bagehot's ideas in the wake of the Global Financial Crisis and analyzes the interpretations of his principles by Ben Bernanke, former chairman of the Federal Reserve. Additionally, it explores Bagehot's failure to spot a financial bubble in the past and his contribution to the creation of modern Treasury bills. [Extracted from the article]

This article considers the role of central bank interventions in credit and financial markets in support of decarbonization. Drawing on the critical macrofinance literature, we argue that central banks are constrained in greening financial flows by their continued adherence to monetary dominance – prioritizing short-term price stability – and the structural demands of global market-based finance. This has led to a narrow focus on 'market-fixing' and 'de-risking' policy interventions, implicitly outsourcing the green transition to private finance whilst asserting that central banks cannot be seen as 'climate policymakers'. Moving beyond the constraints of this macrofinancial regime remains challenging, as we illustrate with the European Central Bank's (ECB) tilting of its corporate asset purchase program. We explore the lessons from the Post-World War II credit guidance regimes employed in many countries and consider how these could be updated to meet the challenges posed by market-based finance. Such a shift would require an evolution in the role of the central bank as a public agency, challenging current norms around independence and market neutrality. [ABSTRACT FROM AUTHOR]