Central banks

IFDP Paper: Geopolitics Meets Monetary Policy: Decoding Their Impact on Cross-Border Bank Lending

02/12/2025 Federal Reserve Central banks

Swapan-Kumar Pradhan, Viktors Stebunovs, Előd Takáts, and Judit TemesvaryWe use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending.

Monetary policy and the firm-level labor share: a story about capital

02/12/2025 European Central Bank Central banks

We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights.

Distressed assets and fiscal-monetary support: are AMCs a third way?

02/12/2025 European Central Bank Central banks

Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies.

Housing wealth across countries: the role of expectations, institutions and preferences

02/11/2025 European Central Bank Central banks

Homeownership rates and holdings of housing wealth differ immensely across countries. Using micro data from five economies, we estimate a life-cycle model with illiquid housing in which households face a discrete–continuous choice between renting and owning a house. We use the model to decompose the cross-country differences in the homeownership rate and the value of housing wealth into three groups of explanatory factors: house price expectations, the institutional set-up of the housing market and preferences. We find that all three groups of factors matter, although preferences less so.

Digital money and finance: a critical review of terminology

02/11/2025 European Central Bank Central banks

The digitalisation of payments has accelerated over the last decades with the internet and ever faster and cheaper computing. Now, many believe that decentralised finance (“DeFi”) offers fundamentally new possibilities for trading, payments and settlement. Moreover, for a few years central banks have launched work on what has been called retail and wholesale central bank digital currencies (“CBDC”). Concurrent to the rise of innovative technologies has been the advent of new terminology, which is widely used, but which often seems to be biased, confusing, or is used inconsistently.

Carbon pricing, border adjustment and renewable energy investment: a network approach

02/07/2025 European Central Bank Central banks

An increase of e100 per tonne in the EU carbon price reduces the carbon footprint but lowers GDP due to higher energy costs and carbon leakage. Using a dynamic multi-sector, multi-country model augmented with an energy block that includes endogenous renewable energy investment, we analyze the macroeconomic and emissions effects of a carbon price. Investment in renewable energy mitigates electricity price increases in the medium term, leading to a smaller GDP loss (up to -0.4%) and a larger emissions reduction (24%) in the EU.

FEDS Paper: Shedding Light on Survey Accuracy—A Comparison between SHED and Census Bureau Survey Results

02/06/2025 Federal Reserve Central banks

Kabir Dasgupta, Fatimah Shaalan, and Mike ZabekThe annual Survey of Household Economics and Decisionmaking (SHED) receives substantial research attention for topics related to household finances and economic well-being. To assess the reliability of data from the SHED, we compare aggregate statistics from the SHED with prominent, nationally representative surveys that use different survey designs, sample methodologies, and interview modes.

Bank Rate reduced to 4.5% - February 2025

02/06/2025 Bank of England Central banks

The Bank of England’s Monetary Policy Committee is responsible for making decisions about Bank Rate.

Banking networks and economic growth: from idiosyncratic shocks to aggregate fluctuations

02/06/2025 European Central Bank Central banks

This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the US with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns.

Non-homothetic housing demand and geographic worker sorting

02/06/2025 European Central Bank Central banks

Housing expenditure shares decline with income. A household’s income determines its sensitivity to housing costs and drives its location decision. Has spatial skill sorting increased because low income individuals are avoiding increasingly expensive regions? I augment a standard quantitative spatial model with flexible non-homothetic preferences to estimate the effect of the national increase in the relative supply of high skilled workers that has put upward pressure on housing costs in skill-intensive cities.

Central banks

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