Central banks

This study examines the drivers of inflation levels, inflation variability, and growth variability collectively representing long-term central bank performance across 37 advanced economies in the Great Moderation era. A key finding is that central bank performance is consistently linked to the overall quality of institutions, while central bank-specific factors such as independence, exchange rate regimes, or inflation targeting show no significant impact. The analysis is extended to the 2022 inflation resurgence, using pre-2022 country characteristics.

Business cycles with pronounced inflation can have sectoral origins and often feature a growing share of price-adjusting firms. Rationalizing such phenomena requires enhancing our modeling toolkit. We do that by building a non-linear equilibrium multi-sector framework featuring a general input-output network and optimal decisions on the timing and size of price adjustments. The interaction of our ingredients creates equilibrium cascades: large movements in aggregates trigger price adjustment decisions on the extensive margin.

Anushka MitraThe unemployment rate remains elevated long after recessions, a persistence that standard search-and-matching models cannot explain. I show that noise shocks—expectational errors due to the noise in received signals about aggregate shocks—account for much of this sluggishness. Using a structural VAR, I find that absent noise shocks unemployment would have recovered to its pre-recession level six quarters earlier over 1968–2019.

Viktors StebunovsA cornerstone of the law-and-finance literature is that stronger institutions reduce financial intermediation costs. Using global data on cross-border payment costs, I show this relationship can reverse in heavily regulated sectors. Anti-money laundering risks have larger cost effects in advanced economies with strong enforcement than in developing countries with weak enforcement, despite the former having lower underlying risks.