Central banks

IFDP Paper: Why are Manufacturing Plants Smaller in Developing Countries? Theory and Evidence from India

08/25/2025 Federal Reserve Central banks

Anil K. Jain and Siddharth KothariPoorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This paper presents empirical evidence and a theoretical model to show that this relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants. First, using data for India, we show that richer households buy higher price goods and larger plants produce higher price products.

The macroeconomic impact of trade policy: a new identification approach

08/25/2025 European Central Bank Central banks

This paper examines the effects of trade policy shocks on the US economy using a novel identification strategy that combines narrative information on trade policy changes with stock market data. We introduce a new data set of daily trade policy statements from 2007 to 2019, allowing us to capture a comprehensive range of trade policy actions. By analyzing stock price reactions of trade-exposed and non-trade-exposed firms around these statements, we can identify unanticipated trade policy shocks.

IFDP Paper: Explaining World Savings

08/22/2025 Federal Reserve Central banks

Colin Caines and Amartya LahiriSaving rates are significantly different across countries and remain different for long periods of time. This paper provides an explanation for this phenomenon. We formalize a model of a world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average consumption of a reference group.

FEDS Paper: Monetary Policy, Uncertainty, and Communications

08/22/2025 Federal Reserve Central banks

Vaishali Garga, Edward Herbst, Alisdair McKay, Giovanni Nicolò, and Matthias PaustianWe review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy.

FEDS Paper: Accounting for Uncertainty and Risks in Monetary Policy

08/22/2025 Federal Reserve Central banks

Michael Bauer, Travis Berge, Giuseppe Fiori, Francesca Loria, and Molin ZhongThis paper discusses the measurement, assessment, and communication of risks and uncertainty that are relevant for monetary policy.

FEDS Paper: Implications of Inflation Dynamics for Monetary Policy Strategies

08/22/2025 Federal Reserve Central banks

Hess Chung, Callum Jones, Antoine Lepetit, and Fernando M. MartinThis paper considers robust monetary policy strategies both in situations of low demand and low inflation and when economic developments pose a tradeoff between inflation and output stabilization. We proceed in two parts.

FEDS Paper: Pandemic and War Inflation: Lessons from the International Experience

08/22/2025 Federal Reserve Central banks

Anna Lipińska, Enrique Martínez García, and Felipe SchwartzmanThis paper examines the drivers of the 2020–23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks’ responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia’s invasion of Ukraine.

FEDS Paper: Inflation since the Pandemic: Lessons and Challenges

08/22/2025 Federal Reserve Central banks

Ina Hajdini, Adam Shapiro, A. Lee Smith, and Daniel VillarThis paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response.

FEDS Paper: Retrospective on the Federal Reserve Board Staff’s Inflation Forecast Errors since 2019

08/22/2025 Federal Reserve Central banks

Ekaterina Peneva, Jeremy Rudd, and Daniel VillarThis paper examines the Board staff’s inflation forecast misses over the years following the COVID-19 outbreak, focusing on a timeline of what staff members knew when and lessons learned along the way.

FEDS Paper: Labor Market Dynamics, Monetary Policy Tradeoffs, and a Shortfalls Approach to Pursuing Maximum Employment

08/22/2025 Federal Reserve Central banks

Brent Bundick, Isabel Cairó, and Nicolas Petrosky-NadeauThis paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound.

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