Financial institutions

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.

FEDS Paper: Assessing Maximum Employment

08/22/2025 Federal Reserve Central banks

Christopher Foote, Shigeru Fujita, Amanda Michaud, and Joshua MontesWe suggest a core set of indicators for evaluating the position of the labor market relative to maximum employment. The unemployment rate remains the key indicator of the cyclical position of the labor market, as it is time-tested, is highly correlated with other indicators, and has practical measurement advantages. But other indicators can provide complementary evidence to get a fuller picture of the labor market.

FEDS Paper: Reviews of Foreign Central Banks’ Monetary Policy Frameworks: Approaches, Issues, and Outcomes

08/22/2025 Federal Reserve Central banks

Grey Gordon, Julio Ortiz, and Benjamin SilkWe examine the experience of conducting reviews of monetary policy frameworks in the major advanced foreign economies since the Federal Open Market Committee's 2019–20 review. We find that periodic reviews are becoming the norm and have often been motivated by similar developments and challenges as those facing the Federal Reserve.

FEDS Paper: The Origins, Structure, and Results of the Federal Reserve’s 2019–20 Review of Its Monetary Policy Framework

08/22/2025 Federal Reserve Central banks

François Gourio, Benjamin K. Johannsen, and David López-SalidoIn this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review.

Heterogeneous intermediaries in the transmission of central bank corporate bond purchases

08/21/2025 European Central Bank Central banks

This paper studies the role of financial intermediaries in the transmission of central bank corporate bond purchases to bond yields. Contrary to standard expectations, we find that mutual funds—typically viewed as price-elastic investors—amplify, rather than dampen, the effects of these interventions on bond spreads.

Heterogeneous intermediaries in the transmission of central bank corporate bond purchases

08/21/2025 European Central Bank Central banks

How to conduct joint Bayesian inference in VAR models?

08/20/2025 European Central Bank Central banks

When economic analysis requires simultaneous inference across multiple variables and time horizons, this paper shows that conventional pointwise quantiles in Bayesian structural vector autoregressions significantly understate the uncertainty of impulse responses. The performance of recently proposed joint inference methods, which produce noticeably different error band estimates, is evaluated, and calibration routines are suggested to ensure that they achieve the intended nominal probability coverage.

Unlocking growth? EU investment programmes and firm performance

08/19/2025 European Central Bank Central banks

This study evaluates the effectiveness of EU Cohesion Policy as an investment programme, employing a novel dataset that links firm-level data from Orbis with project-level information from the Kohesio database. It focuses on two key questions: (1) Which firms receive EU funding? (2) How does receiving EU funding affect firm performance? By applying a logit model and a local projection difference-in-differences approach, we provide new insights into the allocation mechanisms of EU Cohesion Policy funds and their firm-level impact.

Macroprudential and monetary policy interaction: the role of early activation of the countercyclical capital buffer

08/18/2025 European Central Bank Central banks

Amid changes in the global macro-financial environment, macroprudential policy within the banking union and beyond has increasingly prioritised the proactive enhancement of resilience. This article argues that this shift towards a more pre-emptive implementation of macroprudential policy has enhanced its complementarity with monetary policy.

FEDS Paper: Options on Interbank Rates and Implied Disaster Risk(Revised)

08/14/2025 Federal Reserve Central banks

Hitesh Doshi, Hyung Joo Kim, and Sang Byung SeoThe identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter the short-run and long-run components of disaster risk.

Financial institutions

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