Working Papers
2025
July 4, 2025
Missing Imports in the Euro Area: Domestic Monetary Policy, Cross-Border Synchronization, and Demand Composition
Description: This paper sheds new light on an overlooked channel of monetary transmission: the relationship between central bank interest rate policy and the economy’s trade position. It examines the impact of monetary policy on import dynamics through its effect on domestic demand composition. In 2023, the euro area faced a significant contraction in imports, despite resilient GDP growth, challenging traditional import elasticity models. While an import intensity-adjusted demand framework explains the Great Financial Crisis (GFC) trade-GDP disconnect, it fails to account for the euro area’s 2023 import shortfall, indicating that additional factors are at play. Incorporating lending rates into the regression significantly improves the model’s explanatory power for this recent period, underscoring the role of monetary policy in the recent decline in imports. Using local projection methods with high-frequency monetary policy shocks, we confirm that monetary tightening negatively impacts imports by suppressing demand components with higher import intensity. Furthermore, this effect is amplified when accounting for the cross-border synchronization of monetary policy.
July 4, 2025
Global Commodity Inflation Pass-through: Vulnerability of Small Island Developing States
Description: We examine the vulnerability of inflation in Small Island Developing States (SIDS) to global food and fuel inflation changes, drawing on a large panel of 168 countries, including 31 SIDS. Estimates using the local projections methodology of Jordà (2005) reveal that inflation in SIDS is nearly twice as responsive to international food commodity inflation shocks as in non-SIDS counterparts. There is also evidence of asymmetry in food inflation pass-through, with food-inflation increases having larger pass-through than equivalently sized food-inflation decreases. Results hold even in the presence of country-specific fixed-effects and other control variables, most notably the weight of food and oil in a country’s CPI basket, further strengthening the finding that there is something SIDS-specific leading to higher food inflation pass-through. In the case of shocks to international crude oil inflation, the disparity between SIDS and non-SIDS is less apparent. Our results can be interpreted as indicating that market structures, dependence on imports, and the health of supply chains impact food-inflation passthrough, and should thus be priority areas for policymakers in SIDS.
July 4, 2025
Understanding Inflation Dynamics in Afghanistan
Description: Over the past two decades, Afghanistan experienced three main periods of deflation, with the lastest being the longest. This paper investigates the macroeconomic factors influencing inflation dynamics in the short and long run, considering both domestic and external factors. Utilizing quarterly data and employing Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) methodologies, the paper finds that the exchange rate is the primary long-term price driver due to Afghanistan's reliance on imports and foreign aid, followed by money supply and international commodity prices. In the short run, inflation is persisent, and broad money have a significant impact on inflation compared to external factors.
July 4, 2025
A Macroeconomic Framework for Long-Term Resilience and Growth
Description: This paper describes a macroeconomic framework integrating disasters in the analysis of growth and long-term economic resilience. The framework is a dynamic growth model incorporating endogenous human and physical capital accumulation, fiscal policy interventions, and public debt dynamics. The model allows for flexible analyses of slow and fast onset climate impacts and fiscal policy reforms to foster sustainable long-term growth and adaptation, including enhanced spending on resilient investment and non-structural adaptation options. Focusing on adaptation policies, specifically on investing in resilient infrastructure, we present the country cases of Benin and Jamaica, examining tradeoffs and synergies in macro-fiscal policies for addressing sustainable long-term growth and the impacts of disasters.
July 4, 2025
Estimated Monthly National Accounts for the United States
Description: I jointly estimate monthly series for GDP and eight subcomponents for the US since 1950. The series match 1) quarterly national accounts equivalents, 2) exact data on monthly consumption, and 3) past relationships with other monthly indicators. I estimate the Kalman filter parameters by GMM, allowing fast calculation of confidence intervals for monthly estimates including parameter uncertainty, and validate the confidence intervals. After 1970 standard errors are tight, less than 0.3pp of GDP, and point estimates informative, with standard deviations four times the standard error. I provide confidence intervals for recessions and show that output peaks line up well with the onset of NBER recessions, but troughs often predate NBER equivalents.
July 4, 2025
Global Financial Spillovers of Chinese Macroeconomic Surprises
Description: We study how Chinese macroeconomic surprises affect global financial markets. Exploiting forecast errors around key data releases and a 60-minute window around the release, we show that positive industrial production (IP) surprises lead to immediate increases in Chinese and Asia-Pacific stock returns, global long-term yields, and commodity prices highly demanded by China. A complementary identification strategy, which builds on different time zones, confirms positive spillovers to international equity markets, with stronger effects in countries more exposed to Chinese trade. Our results highlight the role of both Hedging Premia and Growth Expectations in driving asset price comovement. The findings highlight China’s growing influence in global markets and position it as a driver of the Global Financial Cycle.
July 4, 2025
Strategies for Africa's Climate Resilience: Trade and Practices
Description: Africa is vulnerable to the impacts of climate change despite its minimal contribution to global greenhouse gas emissions. The continent’s burden manifests in shifting weather patterns which threatens food security and economic stability, compounded by a growing population. This paper is a novel attempt at understanding whether trade in “green goods" and engaging in “green practices" can reduce negative environmental outcomes in the region. Using local projections methods, we find that increasing trade in “green goods" decreases the harmful effect on the environment in the medium-term. In the medium-term, there are cumulative improvements in ecological footprint by about 4%, decreases in net CO2 emissions embedded in trade by about 60-100% of total domestic production, and decreases in PM2.5 air pollution by about 1%. We also construct a novel Green Practices Index for Sub-Saharan Africa to benchmark individual country performance and facilitate regional cooperation on green practices. We find that engaging in green practices decreases harmful environmental outcomes by about 0.3-1.5% in the medium-term.
June 27, 2025
What Are Empirical Monetary Policy Shocks? Estimating the Term Structure of Policy News
Description: Empirical monetary policy shocks (EMPS) contain information about monetary policy both today and in the future. We define the term structure of monetary policy news as the marginal impact of an EMPS on the policy residual at each horizon. Policy news at different horizons has different effects, so knowing the term structure is necessary in order to use an EMPS to evaluate theory. We develop an IV method to estimate this term structure. We find that EMPS in the literature do not represent textbook policy surprises. Instead, they represent a mix of information about policy at many horizons, and this mix varies depending on how the EMPS is identified. We use the estimated term structures to construct synthetic forward guidance and surprise shocks, and estimate their macroeconomic effects. Surprise interest rate hikes are contractionary with little effect on prices, while long-term forward guidance is deflationary.
June 27, 2025
Repo Market Volatility and the U.S. Debt Ceiling
Description: Recurring debt ceiling standoffs cause political disruptions and economic costs. We quantify one type of cost which is receiving growing attention: the spillover to short-term funding markets. Using high-frequency aggregate as well as granular money market fund specific data, we find that flows in and out of the Treasury General Account triggered by the debt ceiling mechanism can create large swings in the repo spread and distort the supply of repo funding for the Treasury market. Applying our estimates to the expected debt ceiling lift-off in summer 2025 implies that the repo spread could fluctuate by 20-30 basis points around the lift-off date. A higher level of aggregate bank reserves and overnight reverse repo balance at the Fed can dampen the impact on funding spreads appreciably.
June 27, 2025
Integrating Fragmented Networks: The Value of Interoperability in Money and Payments
Description: Payments technologies pose an economic dilemma: network effects can lead to a small number of dominant platforms, but efforts to increase choice can risk market fragmentation. We examine whether interoperability can help resolve this tension, using data from India’s Unified Payments Interface—the world’s largest fast payment system by volume—as well as from a major pre-existing fintech firm. When the two networks became interoperable, overall usage of digital payments rose. Consistent with a model of payment choice that we propose, this increase was driven by regions where digital payments were more fragmented across platforms ex ante. Our model implies that the unification of networks increased total usage of digital payments by more than 50% in the year after integration.