Financial institutions

The signaling effects of fiscal announcements

09/15/2025 European Central Bank Central banks

Announcing a large fiscal stimulus may signal the government’s pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and are more noticeable during periods of high economic uncertainty. Analysis of a new dataset of daily stock prices and fiscal news in Japan supports these predictions.

The causal effect of inflation on financial stability, evidence from history

09/12/2025 European Central Bank Central banks

In contrast to the conventional Fisherian view that inflation reduces real debt positions, we show that significant increases in inflation are strongly associated with financial crises. In the spirit of Jordà et al. (2020), countries with free and fixed ex-change rates can be compared to difference out the confounding reaction of monetary policy. Across a dataset of 18 advanced economies over 151 years, we show that the impact of inflation extends beyond its indirect effect via monetary policy.

FEDS Paper: Pricing Tail Risks: Bank Equity Returns During the 2023 Bank Stress

09/05/2025 Federal Reserve Central banks

Matthew P. Seay and Shawn M. KimbleDid bank equity prices reflect growing sector imbalances before the 2023 failure of Silicon Valley Bank? We find that banks with higher reliance on uninsured deposits, or with higher marked-to-market leverage, had lower equity returns prior to SVB's collapse. Although markets priced uninsured deposits and high leverage individually, their interaction was not reflected in market prices prior to SVB’s failure.

IFDP Paper: De-Dollarization? Diversification? Exploring Central Bank Gold Purchases and the Dollar’s Role in International Reserves

09/05/2025 Federal Reserve Central banks

Colin WeissI examine how governments have managed their holdings of gold and dollar reserves in recent decades, a period when gold’s share of aggregate international reserves rose and the dollar’s share fell. Using data on central banks’ reserve currency composition and official sector purchases of U.S. assets, I argue that gold reserve accumulation is generally not associated with de-dollarization of international reserves at the country level, except in a few prominent cases.

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