Central banks

FEDS Paper: From Bank Lending Standards to Bank Credit Conditions: An SVAR Approach

08/04/2025 Federal Reserve Central banks

Vihar Dalal, Daniel A. Dias, and Pinar UysalThis paper uses a structural vector autoregressive (SVAR) model—identified with an external monetary policy instrument and sign restrictions—to derive a measure of bank credit conditions from changes in bank lending standards. The model incorporates data on interest rates, bank credit, and survey-based measures of bank lending standards to identify monetary policy, credit demand, and credit supply shocks.

FEDS Paper: The Theory of Financial Stability Meets Reality

08/04/2025 Federal Reserve Central banks

Nina Boyarchenko, Kinda Hachem, and Anya KleymenovaA large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality.

Beyond averages: heterogeneous effects of monetary policy in a HANK model for the euro area

08/04/2025 European Central Bank Central banks

We introduce an estimated medium scale Heterogeneous-Agent New Keynesian model for forecasting and policy analysis in the Euro Area and discuss the applications of this type of models in central banks, focusing on two main exercises. First, we examine an alternative scenario for monetary policy during the early 2020s inflationary episode, showing that earlier hikes in interest rates would have affected more strongly households at the lower end of the wealth distribution, whose consumption our model suggests was already depressed relative to the rest of the population.

Hand-to-mouth banks: deposit inflows and the marginal propensity to lend

08/04/2025 European Central Bank Central banks

In modern macroeconomics, the marginal propensity to consume out of transitory income shocks is a central object of interest. This paper empirically explores a parallel concept in banking: the marginal propensity to lend out of unsolicited deposit inflows (MPLD). Using county-level dividend payouts as an instrument for deposit inflows, I estimate the MPLD for U.S. banks and show that before QE, the average bank operated “hand-to-mouth” — it transformed approximately every dollar of deposit inflow into new loans, consistent with tight liquidity constraints.

Beyond averages: heterogeneous effects of monetary policy in a HANK model for the euro area

08/04/2025 European Central Bank Central banks

We introduce an estimated medium scale Heterogeneous-Agent New Keynesian model for forecasting and policy analysis in the Euro Area and discuss the applications of this type of models in central banks, focusing on two main exercises. First, we examine an alternative scenario for monetary policy during the early 2020s inflationary episode, showing that earlier hikes in interest rates would have affected more strongly households at the lower end of the wealth distribution, whose consumption our model suggests was already depressed relative to the rest of the population.

Hand-to-mouth banks: deposit inflows and the marginal propensity to lend

08/04/2025 European Central Bank Central banks

In modern macroeconomics, the marginal propensity to consume out of transitory income shocks is a central object of interest. This paper empirically explores a parallel concept in banking: the marginal propensity to lend out of unsolicited deposit inflows (MPLD). Using county-level dividend payouts as an instrument for deposit inflows, I estimate the MPLD for U.S. banks and show that before QE, the average bank operated “hand-to-mouth” — it transformed approximately every dollar of deposit inflow into new loans, consistent with tight liquidity constraints.

Cash is alive… and somewhat young? Decoupling age, period and cohort from euro cash use

08/04/2025 European Central Bank Central banks

Understanding the future of the demand for cash calls for an analysis that separates secular trends and age-related behaviours on different cash usage indicators. This article uses data from the 2019, 2022 and 2024 editions of the Eurosystem study on the payment attitudes of consumers in the euro area (SPACE) survey. It applies an age-period-cohort-interaction (APC-I) framework to illuminate patterns in transactional cash use, precautionary cash hoarding and the perceived importance of cash.

IFDP Paper: Food, Fuel, and Facts: Distributional Effects of Global Price Shocks

08/01/2025 Federal Reserve Central banks

Saroj Bhattarai, Arpita Chatterjee, and Gautham UdupaWe estimate distributional implications of global food and oil price shocks by utilizing monthly panel data on consumption and income from India, and an IV strategy that removes variation coming from global demand shocks. While both shocks lead to stagflationary aggregate dynamics, they differ in terms of distributional consequences.

Back to school when times are bad? The role of housing wealth

07/30/2025 European Central Bank Central banks

College enrolment typically rises during recessions. This paper demonstrates that housing wealth destruction dampened this countercyclical effect in areas most affected by the U.S. housing bust of 2008-2011. By combining household data with a mortgage credit register and housing price data, we reveal that negative shocks to housing wealth significantly reduced college enrolment among homeowners relative to renters during this period. Up to 2% of the local college-age population did not pursue college enrolment at the height of the bust due to housing wealth destruction.

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