Central Banking 2025-07-21

We analyze how financial stability concerns discussed during Federal Open Market Committee (FOMC) meetings influence the Federal Reserve's monetary policy imple- mentation and communication. Utilizing large language models (LLMs) to analyze FOMC minutes from 1993 to 2022, we measure both mandate-related and financial stability-related sentiment within a unified framework, enabling a nuanced examina- tion of potential links between these two objectives. Our results indicate an increase in financial stability concerns following the Great Financial Crisis, particularly dur- ing periods of monetary tightening and the COVID-19 pandemic. Outside the zero lower bound (ZLB), heightened financial stability concerns are associated with a reduc- tion in the federal funds rate, while within the ZLB, they correlate with a tightening of unconventional measures. Methodologically, we introduce a novel labeled dataset that supports a contextualized LLM interpretation of FOMC documents and apply explainable AI techniques to elucidate the model's reasoning. Kanelis, Dimitrios Kranzmann, Lars H. Siklos, Pierre L. Explainable Artificial Intelligence, Financial Stability, FOMC Deliberations, Monetary Policy Communication, Natural Language Processing 2025 During the post-pandemic inflation surge, many central banks actively used communication about the inflation outlook as a policy tool to limit spillovers from realized to expected inflation. We present novel survey evidence showing that the ECB's guidance about the projected inflation path substantially lowers households' inflation expectations in times of unusually high inflation. A reassuring, positively framed non-quantitative communication style has the largest treatment effects on short-term expected inflation. Providing simple visualizations of the ECB's projected inflation path also significantly lowered inflation ex- pectations across horizons. We document substantial heterogeneity of these effects along key socio-demographic characteristics. Our findings suggest that, regarding their communication, central banks should 'keep it sophisticatedly simple (KISS)'. Hoffmann, Mathias Mönch, Emanuel Pavlova, Lora Schultefrankenfeld, Guido Inflation projections, Central Bank Communication, Inflation Expectations, Randomized Control Trial, Survey Data 2025 This paper sheds new light on an overlooked channel of monetary transmission: the relationship between central bank interest rate policy and the economy’s trade position. It examines the impact of monetary policy on import dynamics through its effect on domestic demand composition. In 2023, the euro area faced a significant contraction in imports, despite resilient GDP growth, challenging traditional import elasticity models. While an import intensity-adjusted demand framework explains the Great Financial Crisis (GFC) trade-GDP disconnect, it fails to account for the euro area’s 2023 import shortfall, indicating that additional factors are at play. Incorporating lending rates into the regression significantly improves the model’s explanatory power for this recent period, underscoring the role of monetary policy in the recent decline in imports. Using local projection methods with high-frequency monetary policy shocks, we confirm that monetary tightening negatively impacts imports by suppressing demand components with higher import intensity. Furthermore, this effect is amplified when accounting for the cross-border synchronization of monetary policy. Francesca Caselli Allan Dizioli Monetary policy; Demand Composition; Monetary policy synchronization; International trade; Euro Area 2025-07-04 Climate change has led to an increase in extreme weather events, causing significant challenges for macroeconomic stability and monetary policy, particularly in small open economies (SOEs). This paper investigates the optimal monetary policy response to weather shocks in an SOE framework, using a Dynamic Stochastic General Equilibrium (DSGE) model calibrated for Turkey. The model includes sectoral price rigidities, trade openness, and climate-related productivity shocks affecting agricultural output. We evaluate alternative monetary policy rules, including those that target aggregate inflation, sector-specific inflation, and output stabilization. Our findings suggest that an aggressive monetary policy response to agricultural inflation mitigates short-term economic disruptions and accelerates recovery, albeit at the cost of a deeper initial contraction. The Ramsey-optimal policy prioritizes inflation stability while minimizing the long-term persistence of weather-induced output losses. Our results offer insights into the role of monetary policy in addressing climate-induced economic fluctuations in SOEs, highlighting the importance of tailored monetary policies that account for sectoral heterogeneities. Busato, Francesco Cisco, Gianluigi De Simone, Marco Marzano, Elisabetta Agricultural output, Weather shocks, Dynamic Stochastic General Equilibrium Model 2025-03-17 In this study, we examine the Federal Reserve’s communication strategies during the COVID-19 pandemic, comparing them with communication during previous periods of economic stress. Using specialized dictionaries tailored to COVID-19, unconventional monetary policy (UMP), and financial stability, combined with sentiment analysis and topic modeling techniques, we identify a distinct focus in Fed communication during the pandemic on financial stability, market volatility, social welfare, and UMP, characterized by notable contextual uncertainty. Through comparative analysis, we juxtapose the Fed’s communication during the COVID-19 crisis with its responses during the dot-com and global financial crises, examining content, sentiment, and timing dimensions. Our findings reveal that Fed communication and policy actions were more reactive to the COVID-19 crisis than to previous crises. Additionally, declining sentiment related to financial stability in interest rate announcements and minutes anticipated subsequent accommodative monetary policy decisions. We further document that communicating about UMP has become the “new normal†for the Fed’s Federal Open Market Committee meeting minutes and Chairman’s speeches since the Global Financial Crisis, reflecting an institutional adaptation in communication strategy following periods of economic distress. These findings contribute to our understanding of how central bank communication evolves during crises and how communication strategies adapt to exceptional economic circumstances. Jonathan Benchimol Sophia Kazinnik Yossi Saadon central bank communication, unconventional monetary policy, financial stability, text mining, COVID-19 2025-07 Empirical monetary policy shocks (EMPS) contain information about monetary policy both today and in the future. We define the term structure of monetary policy news as the marginal impact of an EMPS on the policy residual at each horizon. Policy news at different horizons has different effects, so knowing the term structure is necessary in order to use an EMPS to evaluate theory. We develop an IV method to estimate this term structure. We find that EMPS in the literature do not represent textbook policy surprises. Instead, they represent a mix of information about policy at many horizons, and this mix varies depending on how the EMPS is identified. We use the estimated term structures to construct synthetic forward guidance and surprise shocks, and estimate their macroeconomic effects. Surprise interest rate hikes are contractionary with little effect on prices, while long-term forward guidance is deflationary. Jonathan J. Adams Mr. Philip Barrett Monetary Policy Shocks; Forward Guidance; Term Structure 2025-06-27 Deposits are often perceived as a stable funding source for banks. However, the risk of deposits rapidly leaving banks—known as deposit flightiness—has come under increased scrutiny following the failures of Silicon Valley Bank and other regional banks in March 2023. In a new paper, we show that deposit flightiness is not constant over time. In particular, flightiness reached historic highs after expansions in bank reserves associated with rounds of quantitative easing (QE). We argue that this elevated deposit flightiness may amplify the banking sector’s response to subsequent monetary policy rate hikes, highlighting a link between the Federal Reserve’s balance sheet and conventional monetary policy. Kristian S. Blickle Jian Li Xu Lu Yiming Ma banking; deposits 2025-07-10 This paper examines the impact of mortgage market structures on shaping economic responses to the unprecedented interest rate and inflation dynamics of 2021-2024. We first empirically document that economies with a larger share of variable-rate mortgages exhibit stronger responses in house prices to monetary policy shocks. We then develop and calibrate a structural model of the housing market to demonstrate that these mortgage structures can account for a substantial portion of the divergent house price paths observed across the U.S., Canada, Sweden, and the U.K. during the Great Inflation. Our analysis reveals that early pandemic mortgage rate cuts drove 45% of the U.S. house price boom. Economies dominated by adjustable-rate mortgages (ARMs) show greater price sensitivity to monetary tightening, while fixed-rate mortgage (FRM) regimes exhibit more pronounced path dependence due to a lock-in effect. These dynamics have significant distributional consequences, with low-income homeowners benefiting most from the initial low-rate environment, especially in FRM regimes. Finally, we show that the preferred monetary tightening path is regime-dependent, as a policy counterfactual reveals that FRM-dominant economies benefit more from a shorter and sharper tightening schedule. Aaron Hedlund Kieran Larkin Kurt Mitman Serdar Ozkan housing; mortgages; monetary policy; heterogeneous agents; inflation 2025-06-30 This paper customizes to the Tongan economy a macroeconomic model for medium-term quarterly projections of key macro variables (QPM): output, inflation, interest rate, and exchange rate. The model is calibrated to embody the specific attributes of the Tongan economy such as the persistence of domestic output, core inflation and interest rates, as well as Tonga’s monetary policy transmission. It is then used to study three scenarios and assess their impact on the baseline. The first scenario involves shocks proxying for a bank failure. The second scenario introduces shocks that simulate the consequences of a natural disaster. Finally, the third scenario introduces shocks that represent a significant negative external shock on Tonga. These shocks were chosen to reflect the sensitivity of Tonga to adverse financial shocks, to their trading partners’ macroeconomic policies, and to extreme weather events. Mr. Sam Ouliaris Ms. Celine Rochon Daniel Taumoepeau Forecasting and Policy Analysis; Quarterly Projection Model; Monetary Policy; Transmission Mechanism 2025-06-20 We apply natural language processing tools to news articles in the financial press to construct a sentiment index—an index of the perceived semantic orientation of monetary policy communications around scheduled Federal Open Market Committee (FOMC) meetings. To that end, we develop several dictionaries that capture various monetary policy tools: conventional monetary policy, asset purchases, and forward guidance. The surprises in the sentiment index around FOMC meetings announcements explain variation in major asset prices classes between May 1999 and November 2022. Sentiment index surprises are important for explaining the variation in asset prices beyond monetary policy surprises. Shantanu Banerjee Paul Cordova Michiel De Pooter Olesya V. Grishchenko Textual analysis; Semantic orientation; Sentiment index; Federal Reserve; FOMC; Hawkish; Dovish; Asset prices; Policy expectations; Conventional monetary policy; Asset purchases; Forward guidance; Zero-lower-bound; COVID 2025-07-07 We provide novel evidence on the supply-side transmission of monetary policy through a floating-rate channel. After a rate hike, firms with floating-rate loans keep prices elevated to offset higher borrowing costs, thereby reducing the effectiveness of monetary policy. Using monthly data on product-level prices, industry-level inflation rates and the euro-area credit register from 2021 to 2023, we find that the short-run impact of monetary tightening on inflation is 50% smaller when firms rely on floating-rate loans. This effect is stronger for firms that rely more on working capital to finance production and when they can easily pass on higher prices to their sticky customerbase (customer capital). Since firms with floating-rate loans face an increase in their financial burden, their loan terms are more frequently renegotiated, often resulting in reduced spreads and a shift from floating to fixed rates. Overall, if firms across the euro area had a lower reliance on floating-rate loans, inflation would have been 0.8 percentage points lower in 2022-2023. JEL Classification: E31, E52, G21 Schepens, Glenn Core, Fabrizio De Marco, Filippo Eisert, Tim floating-rate loans, inflation, market power, monetary policy transmission, product prices 2025-06 This paper studies how El Niño Costero, a large climatic event, generates physical risks disrupting business cycles and hindering the effectiveness of monetary policy. Using Peruvian data, we find consistent empirical evidence that El Niño shocks leave a footprint on the economy akin to a supply-side shock: it exerts inflationary pressures while simultaneously contracting GDP. The effects are very persistent and reflect the differentiated effects across sectors in the economy. Primary sectors response is more immediate and larger but persistent. Conversely, non-primary sectors experience lagged effects that become considerably more persistent and important later on. We integrate these empirical findings into a semi-structural model that incorporates five non-linear transmission channels through which El Niño affects the economy. These non-linearities present a challenge for monetary policy design, as the economic uncertainty and the cost in stabilizing the economy depends on the frequency of El Niño events. Faced with such large-scale shocks, hawkish conventional monetary policy remains a relevant, though limited, tool for stabilizing inflation dynamics. John Aguirre Alan Ledesma Fernando Perez Youel Rojas climate, extreme weather events, growth, inflation, financial and macroeconomic stability 2025-07 Monetary policy transmits through broad financial conditions—interest rates, asset prices, credit spreads and exchange rates—rather than through the policy rate alone. Yet current frameworks remain anchored around r*, the neutral interest rate. We introduce FCI*, the neutral level of financial conditions that closes expected output gaps, within a framework where financial conditions and macroeconomic shocks drive economic activity with inertia. Conceptually, FCI* reflects macroeconomic developments rather than financial market valuations, making it more stable than r*, which responds to both macroeconomic and financial factors. We estimate FCI* using a two-equation model along the lines of Laubach and Williams (2003) with 1990-2024 data. Our empirical estimates reveal three findings. First, estimated FCI* remained stable after the 2008 crisis while r* declined persistently due to asset price declines. Second, since the observed FCI reflects financial market shocks, large FCI gaps emerge especially during recessions. Third, at times of rapid monetary policy changes, FCI gaps more accurately reflect the effective policy stance because FCI is driven by forward-looking markets; for example, FCI gaps correctly identified the 2022 tightening when interest rate measures still suggested accommodation. Ricardo J. Caballero Tomás E. Caravello Alp Simsek 2025-06 We combine modern methods from Speech Emotion Recognition and Natural Language Processing with high-frequency financial data to precisely analyze how the vocal emo- tions and language of ECB President Mario Draghi affect the yields and yield spreads of major euro area economies. This novel approach to central bank communication reveals that vocal and verbal emotions significantly impact the yield curve, with effects varying in magnitude and direction. Our results reveal an important asymmetry in yield changes with positive signals raising German, French, and Spanish yields, while negative cues increase Italian yields. Our analysis of bond spreads and equity mar- kets indicates that positive communication influences the risk-free yield component, whereas negative communication affects the risk premium. Additionally, our study contributes by constructing a synchronized dataset for voice and language analysis. Kanelis, Dimitrios Siklos, Pierre L. Artificial Intelligence, Asset Prices, Communication, ECB, High-Frequency Data, Speech Emotion Recognition 2025 This study introduces a methodology for evaluating the de-anchoring of inflation expectations by proposing indicators to measure deviations in short- and long-term inflation expectations from the Central Bank's target, analyzing their dependency over time using traditional and hierarchical statistical copulas, the latter incorporating the effect of the monetary policy stance. Using data from the Colombian financial market, the findings reveal that during inflationary episodes (2008–2009, 2015–2016, and 2022–2023), the dependency between short- and long-term expectations increased, indicating de-anchoring. This pattern was also observed during periods when inflation was below the target (2013 and 2020). Conversely, in years such as 2006, 2010, 2014, 2017, and 2021, and towards the end of 2023, the decrease in this dependency suggests that expectations were anchoring. Additionally, when the monetary policy stance was considered, there was a strong negative dependency during contractionary episodes, while progressive interest rate reductions were associated with a positive dependency. *****RESUMEN: Este estudio introduce una metodología para evaluar el desanclaje de las expectativas de inflación proponiendo indicadores que miden desviaciones en las expectativas de inflación a corto y largo plazo respecto al objetivo del Banco Central, posteriormente, se analiza su dependencia a lo largo del tiempo utilizando cópulas estadísticas tradicionales y jerárquicas, estas últimas incorporando el efecto de la postura de la política monetaria. Utilizando datos del mercado financiero colombiano, los hallazgos revelan que durante episodios inflacionarios (2008–2009, 2015–2016 y 2022–2023), la dependencia entre las expectativas a corto y largo plazo aumentó, indicando desanclaje. Este patrón también se observó durante períodos en los que la inflación estuvo por debajo del objetivo (2013 y 2020). Por el contrario, en años como 2006, 2010, 2014, 2017 y 2021, y hacia finales de 2023, la disminución en esta dependencia sugiere que las expectativas estaban ancladas. Además, cuando se consideró la postura de la política monetaria, hubo una fuerte dependencia negativa durante episodios contractivos, mientras que las reducciones progresivas de la tasa de interés se asociaron con una dependencia positiva. Jonathan Alexander Muñoz-Martínez De-anchoring, Expectations, Credibility, Monetary Policy, Desanclaje, Expectativas, Credibilidad, Política Monetaria. 2025-07 The rise of Islamic banks in different countries worldwide can potentially complicate the implementation of monetary policy and affect its effectiveness. The purpose of our work is to address the question of the nature of the response of Islamic banking financing to the interest rate of monetary policy. Beyond this question, we are also interested in the factors that can shape the response of Islamic banking financing to conventional monetary policy. For the period between 2013 and 2022, across a panel of 12 countries, the results of the GMM approach first revealed the absence of an Islamic banking financing channel. They also showed that conventional monetary policy loses its effect on Islamic banks in dual banking systems where these banks have systemic importance. The development of Islamic finance, in turn, contributes to shielding Islamic financing from the effects of monetary policy. Savon Zakaria Islamic banks, Transmission, Panel, GMM, Banques islamiques, politique monétaire, transmission, panel, Monetary policy, Banques islamiques politique monétaire transmission panel GMM Islamic banks monetary policy transmission panel GMM, GMM Islamic banks, monetary policy 2025-06-15 This paper studies how Treasury market dynamics depend on adjustments to the central bank balance sheet. We introduce a dynamic model of Treasury bonds with traditional and shadow banks. In the model, both Treasury and repo market disruptions arise as a joint consequence of three frictions: (i) balance sheet costs, (ii) intraday reserves requirements, and (iii) imperfect substitutability between repo and bank deposits. Our model highlights the critical role of both sides of the central bank’s balance sheet as well as agents’ anticipation of shocks and policy interventions in matching observed market dynamics. JEL Classification: E43, E44, E52, G12 d'Avernas, Adrien Vandeweyer, Quentin Petersen, Damon basis trade, hedge funds, liquidity risk, repo, reserves, shadow banks 2025-07 We analyze the international dimension of repo markets using novel euro area regulatory microdata. Our findings highlight the deep integration of funding markets across the Atlantic and the US dollar’s outsized role. Our paper documents five key facts: (1) US dollar repos by euro area entities account for approximately 40% of total volumes and are comparable in size to euro repos; (2) term repos (with maturities beyond one day) are quantitatively more relevant than commonly thought, especially non-centrally cleared ones; (3) repo markets have become more collateral-driven, involving diverse nonbank financial players and trading motives; (4) banks’ intragroup transactions form a large share of non-centrally cleared volumes; and (5) haircuts, even for riskier collateral, are often zero or negative, especially in euro trades. We show in two empirical applications that US monetary policy shocks spill over to euro repo rates and that negative haircuts arise from market power and collateral demand dynamics. JEL Classification: G12, G14 Hermes, Felix Schmeling, Maik Schrimpf, Andreas bank intermediation, haircuts, repo market, US dollar funding 2025-06 This paper examines the impact of the Federal Reserve’s 2022 capital requirements on Colombian banks’ access to foreign credit lines. These measures, more stringent than in previous years, introduced a stronger stress capital buffer in response to global recession risks and inflationary pressures. A key contribution of the study is its distinction between the announcement, publication, and implementation phases of these regulations, highlighting how expectations, information flows, and uncertainty shape banks’ financial strategies. Using a Synthetic Difference-in-Differences (SDID) approach, the findings reveal that credit from affected U.S. banks declined significantly following the announcement, with further reductions observed as the enforcement date approached. Substitution effects partially mitigate this decline, offering insight into the global interconnectedness of financial systems and the broader implications of regulatory changes. The study contributes to a deeper understanding of how capital regulations influence cross-border liquidity, capital allocation, and risk exposure, particularly in periods of heightened global uncertainty. *****RESUMEN: Este documento analiza el impacto de los requerimientos de capital de la Reserva Federal de 2022 en el acceso a líneas de crédito extranjeras a los bancos en Colombia. Estas medidas, más estrictas que en años anteriores, introdujeron un buffer de capital de estrés más sólido en respuesta a los riesgos de recesión global y las presiones inflacionarias. Una contribución clave del estudio es la diferenciación entre las fases de anuncio, publicación e implementación de estas regulaciones, indicando cómo las expectativas, la información y la incertidumbre moldean las estrategias financieras de los bancos. Utilizando una aproximación de Diferencias en Diferencias Sintéticas (SDID), los hallazgos indican que el crédito de los bancos estadounidenses afectados disminuyó significativamente tras el anuncio, con reducciones que se intensificaron cerca de la fecha de implementación. Los efectos de sustitución compensaron parcialmente esta disminución, indicando la importancia de la interconectividad global de los sistemas financieros y las consecuencias de las políticas regulatorias. El estudio proporciona una comprensión más profunda de cómo las restricciones de capital influyen en la liquidez transfronteriza, la asignación de capital y la exposición al riesgo durante períodos de elevada incertidumbre global. Camilo Gómez Mariana Escobar-Villarraga Ligia Alba Melo-Becerra Héctor M. Zárate-Solano macroprudential capital restrictions, Fed, foreign capital funding, synthetic Difference-in-Differences, restricciones macroprudenciales de capital, Fed, financiamiento de capital extranjero, Diferencias en Diferencias Sintéticas. 2025-07 This paper examines how central banks can strategically integrate artificial intelligence (AI) to enhance their operations. Using a dual-framework approach, we demonstrate how AI can transform both strategic decision-making and daily operations within central banks, taking the Federal Reserve System (FRS) as a representative example. We first consider a top-down view, showing how AI can modernize key central banking functions. We then adopt a bottom-up approach focusing on the impact of generative AI on specific tasks and occupations within the Federal Reserve and find a significant potential for workforce augmentation and efficiency gains. We also address critical challenges associated with AI adoption, such as the need to upgrade data infrastructure and manage workforce transitions. Sophia Kazinnik Erik Brynjolfsson 2025-07 This paper investigates how social network and conformity dynamics shape the stability of inflation expectations and the dissemination of economic narratives. Using an agent-based macroeconomic simulation, I integrate a heuristic switching framework with an opinion dynamics mechanism to examine the impact of targeted narrative dissemination by highly central agents on expectation dispersion. The computational experiments reveal that when influential network actors transmit the central bank's inflation narrative, both inflation rate dispersion and the dispersion of expectations are substantially reduced. Conversely, when distorting narratives spread through these key nodes, it requires very high persuasion levels to significantly amplify instability. Moreover, impulse response analyses show that stronger social influence accelerates convergence toward rational expectations following shocks, thereby mitigating both the magnitude and persistence of deviations. However, heightened persuasion can also weaken the link between expectations and underlying fundamentals, as agents increasingly align with dominant narratives rather than economic signals. Overall, these findings underscore the dual role of social networks in monetary policy communication, capable of both anchoring expectations and amplifying destabilising narratives. Kothe, Rafael Expectations, Economic Narratives, Network Effects, Behavioral Macroeconomics, Agent-Based Modeling, Monetary Policy Communication 2025 Stablecoins' linkages with the traditional financial system are growing, which raises policy challenges ranging from preserving financial integrity to mitigating financial stability risks. Broader use of foreign currency-denominated stablecoins could raise concerns about monetary sovereignty and, in some jurisdictions, erode the effectiveness of existing foreign exchange regulations. The principle of "same risks, same regulation" faces limitations in the context of stablecoins, highlighting the need for tailored regulatory approaches that address the nature and specific features of stablecoins. Iñaki Aldasoro Matteo Aquilina Ulf Lewrick Sang Hyuk Lim 2025-07-11 One of the main goals of launching the EU’s second Markets in Financial Instruments Directive (MiFID II) and the respective Markets in Financial Instruments Regulation (MiFIR) was to increase the transparency of transactions in financial markets. Prior to MiFID II, transparency requirements in financial markets were limited mostly to equities traded in regulated markets. Following MiFID II, transactions now need to be publicly reported for a broader range of financial assets. Furthermore, disclosures on financial transactions are not restricted to those transactions executed in regulated markets but apply also to those executed over the counter. Importantly, this information should be made available free of charge, ensuring non-discriminatory access, within the 15 minutes following the transaction. The published information should also be machine-readable. The purpose of this paper is to show how a relatively simple IT tool may be devised that gathers data on market prices and transacted volumes published in compliance with MiFID II. We steer our simple IT tool towards retrieving data on those financial assets that are eligible for use as collateral in Eurosystem credit operations. This includes those assets eligible for outright purchase under the various monetary policy programmes launched by the Eurosystem. In view of the importance of UK financial markets when it comes to trading in Eurosystem eligible marketable assets, our tool also covers transactions and quotes reported by UK trading venues and investment firms in compliance with UK MiFIR. Apart from the merits and potential of our IT tool, this paper documents some of the tool’s shortcomings related to processing the posted MiFID II and UK MiFIR raw data. It also covers some of the deficiencies associated with the data. Increased market transparency contributes to deeper and more integrated financial markets, potentially supporting economic growth. […] JEL Classification: C81, D40, G10 Camba-Méndez, Gonzalo Darecki, Jan Jerzy Manzanares, Andrés Metra, Matteo Vergnano, Riccardo ECB eligible assets, financial market prices, MiFID II 2025-07 We examine how primary dealers utilized repo operations conducted by the Federal Reserve from September 2019 until May 2020 and how usage affected dealer borrowing and lending. Using daily dealer-level supervisory data, we find that during normal market conditions, dealers primarily used Fed repo to expand their total repo borrowing and on-lent much of this funding to a broad variety of counterparties. However, during market stress in March 2020, dealers used Fed repo as a substitute for funding from other counterparties and focused their on-lending to affiliated counterparties. Moreover, dealers with more headroom under the Supplementary Leverage Ratio requirement used more of their Fed repo borrowing to provide intermediation in funding markets. Our results underscore the critical role that the Fed's repo operations played, especially in March 2020, by reducing dealer funding stress and enabling dealers to pass on liquidity. Mark A. Carlson Zack Saravay Mary Tian Federal Reserve; Dealer intermediation; Funding markets; Repo operation; Standing Repo Facility; Leverage ratio 2025-07-14 What stimulus payments replicate the consumption effect of a desired (but potentially infeasible) interest rate cut? Using granular full-population administrative data, we estimate consumption responses to interest rate changes via adjustable-rate mortgage resets and lump-sum cash windfalls from unanticipated inheritances. Combining them, we map a 1 percentage point monetary-policy rate decrease to equivalent uniform transfers of ~$1, 000 per person paid over 5 years, totaling 1.3% of GDP. This estimate remains robust when accounting for heterogeneity in the cross-sectional incidence of these macro-equivalent policies. We find only modest heterogeneity in marginal propensities to consume, limiting efficiency gains from targeting transfers. Ulf Nielsson Jesper Rangvid Farzad Saidi Fabian Seyrich Daniel Streitz Marginal propensity to consume, monetary policy, fiscal policy, mortgages 2025-07 Updated estimates of real equilibrium interest rates in the euro area, derived from eight prominent methodologies proposed in the academic literature, deliver a wide range of estimates, partly because they vary in time horizon and economic complexity. By the end of 2024, shorter-term equilibrium rates mostly exceeded longer-term rates, with foreign spillovers contributing positively to euro area equilibrium rates. Given the wide range of estimates and their high uncertainty, a judgment-based assessment should be based on three criteria and consider their conceptual fit, robustness, and alignment with other economic indicators. Even then, the uncertainty surrounding the estimates represents a specific form of model uncertainty that necessitates the formulation of robust conclusions and policy recommendations. Our results show that ECB policy rates are broadly aligned with short-run efficient rates and suggest that monetary policy remained restrictive at the end of 2024. Robert C. M. Beyer Mr. Luis Brandão-Marques Equilibrium Interest Rates; Euro Area; Monetary Stance; Foreign Spillovers 2025-06-20 The global COVID-19 crisis led to a major recession, following a supply and demand shock severely affecting both developed and emerging economies. Containment measures reduced demand and production, while financial market volatility impacted emerging economies. Countries' stimulus policies had mixed effects on these economies. The pandemic also disrupted global supply chains, leading to volatility in the prices of raw materials such as oil, metals and agricultural products. These fluctuations had an impact on production costs and, consequently, on the prices of final goods and services. In the wake of rising inflation, some are questioning the effectiveness of inflation-targeting policies. Our study evaluates the performance of this monetary regime in the face of crisis, estimating the efficiency frontier: inflation variability - output variability, which allows us to deduce measures of economic performance and measures of the efficiency of monetary policy in the face of an economic crisis. Abdelkader Aguir Monetary Policy, Covid Crisis, Inflation Targeting Policy, Efficiency Frontier 2025 This paper examines the macroeconomic impacts of adverse weather shocks on the Colombian economy, with a specific focus on agricultural output, food prices, and headline inflation. Drawing on empirical evidence from events such as the 2015–2016 El Niño, we document that these shocks tend to reduce agricultural output and increase inflation while having a limited effect on aggregate GDP growth. Motivated by these stylized facts, we develop a small open economy New Keynesian model for Colombia that introduces a mechanism in which weather shocks alter the relative prices of agricultural and non-agricultural goods. This framework allows us to capture the inflationary pressures induced by adverse climate events in a structural setting. Under our proposed calibration, food inflation, headline inflation, and inflation expectations rise in response to the shock, prompting the monetary authority to raise the interest rate to anchor inflation expectations. *****RESUMEN: Este documento examina los impactos macroeconómicos de choques climáticos adversos sobre la economía colombiana, con un enfoque específico en la producción agrícola, los precios de los alimentos y la inflación total. A partir de la evidencia empírica, documentamos que estos choques tienden a reducir la producción agrícola y aumentar la inflación, aunque con un efecto limitado sobre el crecimiento del PIB total. Motivados por estos hechos estilizados, se desarrolla un modelo neokeynesiano para una economía pequeña y abierta que introduce un mecanismo mediante el cual los choques climáticos afectan los precios relativos de bienes agrícolas y no agrícolas. Este marco permite capturar las presiones inflacionarias inducidas por eventos climáticos adversos de manera estructural. Bajo la calibración propuesta para Colombia, la inflación de alimentos, la inflación total y las expectativas de inflación aumentan en respuesta al choque, lo que lleva a la autoridad monetaria a incrementar parcialmente la tasa de interés con el fin de anclar las expectativas de inflación. José Vicente Romero Sara Naranjo-Saldarriaga Jonathan Alexander Muñoz-Martínez Extreme Weather events, El Niño Southern Oscillation (ENSO), Inflation, Small Open Economy New Keynesian Models, Eventos climáticos extremos, Fenómeno de El Niño (ENSO), Inflación, Economía pequeña y abierta, Modelos neokeynesianos. 2025-07