Federal Reserve

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.

FEDS Paper: Central bank preparedness for market-functioning asset purchases as a consideration for long-run balance sheet composition

09/05/2025 Federal Reserve Central banks

Rochelle M. Edge and Dan LiThis paper proposes an approach to enhance the Federal Reserve's readiness to undertake market-functioning asset purchases during Treasury market disruptions.

FEDS Paper: Local Estimation for Option Pricing: Improving Forecasts with Market State Information

08/27/2025 Federal Reserve Central banks

Hyung Joo Kim and Dong Hwan OhWe propose a novel estimation framework for option pricing models that incorporates local, state-dependent information to improve out-of-sample forecasting performance.

IFDP Paper: Real Exchange Rate and Net Trade Dynamics: Financial and Trade Shocks

08/27/2025 Federal Reserve Central banks

Marcos Mac Mullen and Soo Kyung WooThis paper studies the drivers of the US real exchange rate (RER), with a particular focus on its comovement with net trade (NT) flows. We consider the entire spectrum of frequencies, as the low-frequency variation accounts for 62 and 64 percent of the unconditional variance of the RER and NT, respectively.

IFDP Paper: Geopolitical Risk and Global Banking

08/27/2025 Federal Reserve Central banks

Friederike Niepmann and Leslie Sheng ShenHow do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those markets through foreign affiliates—unlike their response to other macro risks.

FEDS Paper: When Tails Are Heavy: The Benefits of Variance-Targeted, Non-Gaussian, Quasi-Maximum Likelihood Estimation of GARCH Models

08/27/2025 Federal Reserve Central banks

Todd PronoIn heavy-tailed cases, variance targeting the Student's-t estimator proposed in Bollerslev (1987) for the linear GARCH model is shown to be robust to density misspecification, just like the popular Quasi-Maximum Likelihood Estimator (QMLE). The resulting Variance-Targeted, Non-Gaussian, Quasi-Maximum Likelihood Estimator (VTNGQMLE) is shown to possess a stable limit, albeit one that is highly non-Gaussian, with an ill-defined variance.

IFDP Paper: Why are Manufacturing Plants Smaller in Developing Countries? Theory and Evidence from India

08/25/2025 Federal Reserve Central banks

Anil K. Jain and Siddharth KothariPoorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This paper presents empirical evidence and a theoretical model to show that this relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants. First, using data for India, we show that richer households buy higher price goods and larger plants produce higher price products.

IFDP Paper: Explaining World Savings

08/22/2025 Federal Reserve Central banks

Colin Caines and Amartya LahiriSaving rates are significantly different across countries and remain different for long periods of time. This paper provides an explanation for this phenomenon. We formalize a model of a world economy comprised of open economies inhabited by heterogeneous agents endowed with recursive preferences. Our assumed preferences imply increasing marginal impatience of agents as their consumption rises relative to average consumption of a reference group.

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.

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.

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