Central banks

FEDS Paper: Monetary Policy Strategy and the Anchoring of Long-Run Inflation Expectations

04/09/2025 Federal Reserve Central banks

Michael T. KileySince the 1990s, monetary policy research has highlighted the properties of policy rules that stabilize inflation and economic activity, the role of inflation targeting in anchoring expectations, and the constraints posed by the effective lower bound (ELB). This paper combines these themes by examining whether explicitly responding to long-run inflation expectations improves policy effectiveness.

Do central bank reforms lead to more monetary discipline?

04/09/2025 European Central Bank Central banks

This paper investigates the impact of reforms altering legal central bank independence (CBI) on monetary policy discipline and credibility, two key mechanisms shaping price stability. Using a sample of 155 countries over more than 50 years (1972–2023), we show that reforms improving CBI strengthen monetary discipline and the credibility of central banks. Larger reforms enhance monetary discipline with a lag, achieving their full effect after ten years. Central bank reforms have a greater impact on monetary discipline in countries that have not reversed earlier reforms.

FEDS Paper: Energy Consumption and Inequality in the U.S.: Who are the Energy Burdened?

04/04/2025 Federal Reserve Central banks

Octavio M. Aguilar and Cristina Fuentes-AlberoUsing a broad definition of energy consumption that includes both residential energy use and gasoline for transport, we identify 20% of households in the PSID as energy burdened (EB) based on a twice-the-median, income-based threshold. Logit analysis shows that being nonwhite, being single with dependents, receiving public assistance, having no post-secondary education, and being unemployed increase the probability of being EB.

PRA takes action against a former Notified Non-Executive Director of Wyelands Bank Plc for breaches of the PRA’s Individual Conduct Rule 2

04/02/2025 Bank of England Central banks

The Prudential Regulation Authority has fined Mr George Jay Hambro, a former Notified Non-Executive Director of Wyelands Bank Plc, £72,000 for breaching Individual Conduct Rule 2 in relation to three matters between 3 July 2017 and 19 February 2020. Mr Hambro has expressed regret for his failings.

Interest rate control and the transmission of monetary policy

04/02/2025 European Central Bank Central banks

We study how short-term interest rate volatility affects the transmission of monetary policy. To identify exogenous changes in volatility, we exploit the pronounced heteroskedasticity visible in the time-series of euro area short-term rates over the past two and a half decades. Interacting the exogenous variation in volatility with high-frequency-identified monetary policy shocks, we find that increases in volatility dampen the effects of monetary policy on output and prices.

Word2Prices: embedding central bank communications for inflation prediction

04/01/2025 European Central Bank Central banks

Word embeddings are vectors of real numbers associated with words, designed to capture semantic and syntactic similarity between the words in a corpus of text. We estimate the word embeddings of the European Central Bank’s introductory statements at monetary policy press conferences by using a simple natural language processing model (Word2Vec), only based on the information and model parameters available as of each press conference. We show that a measure based on such embeddings contributes to improve core inflation forecasts multiple quarters ahead.

FEDS Paper: The Evolution of Inflation Targeting from the 1990s to 2020s: Developments and New Challenges

03/31/2025 Federal Reserve Central banks

Michael T. Kiley and Frederic S. MishkinSince the initial launch of inflation targeting in the early 1990s in New Zealand and a few other countries, inflation targeting has become the predominant monetary policy strategy in large advanced and emerging market economies. Inflation targeting has been remarkably successful in anchoring inflation, likely owing to core elements of the framework across central banks.

Pages

Subscribe to Central banks