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: 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: 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: 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: 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.

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.

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.

Financial institutions

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