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3-Apr-2025 Global or regional safe assets: Evidence from bond substitution patterns An important channel of monetary policy transmission both domestically and internationally is through the portfolio rebalancing of international investors between safe and riskier assets. In this paper, I characterise this rebalancing in international bond markets by directly estimating the demand for global government and corporate bonds by mutual funds domiciled in the US and the euro area between 2007 and 2020. This includes both how much funds adjust their bond holdings in response to changes in the respective bond returns ("own elasticities") as well as what other bonds they rebalance to ("substitution elasticities"). To do this, I combine broader and more granular data on investor bond holdings than previous literature with a methodology tailored to allow flexible substitution between different bonds. Request summary
26-Mar-2025 Word2Prices: embedding central bank communications for inflation prediction Machine learning tools that transform texts into numbers, capturing their meaning and sentiment, expand the range of economic analyses. Central bank communications are particularly important: their speeches, press conferences and other texts contain information about the economy. But to evaluate this information for prediction tasks, machine learning tools need to decode texts in real time. In this paper, we assess a lightweight machine learning model called Word2Vec, re-trained at each quarter. The task is simple yet challenging: do central bank speeches help to predict inflation out of sample? Request summary
20-Mar-2025 Monetary policy and the secular decline in long-term interest rates: A global perspective The global secular decline in long-term interest rates over the past three decades has been mainly linked to structural forces affecting the balance of saving and investment. We highlight US monetary policy announcements as a major factor contributing to the secular downward trend in long-term interest rates.  Request summary
19-Mar-2025 Consumer financial data and non-horizontal mergers Access to data is a critical competitive factor within and beyond the financial system. Data access may be achieved through regulatory interventions, such as open banking, or through mergers. We assess how mergers among data-rich firms can impact competition, drawing on examples from the payments and technology sectors. We review how competition authorities are considering data in merger assessments, identifying limitations and proposing new metrics to support data valuation. Request summary
17-Mar-2025 Predicting financial market stress with machine learning Understanding and predicting financial market stress is crucial for maintaining economic stability. Episodes of market stress can disrupt credit availability, influence asset prices and hinder economic growth. Traditional measures of financial conditions, such as financial stress indices (FSIs) and financial conditions indices (FCIs), often fail to distinguish between general market sentiment and specific vulnerabilities, reducing their predictive power. In our paper, we explore the potential of machine learning to provide more accurate and timely predictions of financial market stress, focusing on key US markets. Request summary
14-Mar-2025 The role of geopolitics in international trade International trade has been important for global economic growth for many years. Recently, however, global trade has slowed at the same time as geopolitical tensions have increased. We look at the connection between these developments by studying trade data from 47 economies for around 5,000 sectors between 2017 and 2023.  Request summary
13-Mar-2025 Climate Minsky moments and endogenous financial crises Does the transition to net zero decrease financial stability and, if so, by how much? Answering these questions is crucial for financial regulation over the next decades, which may be characterised by a shift away from emission intensive technologies. Ambitious carbon taxes would negatively affect the macroeconomy and asset prices by causing a sharp and permanent drop in the productivity of emission intensive assets. Climate policy could then give rise to climate Minsky moments, in which a sudden reduction in asset prices raises the concern that financial intermediaries are unable to repay depositors, triggering a financial crisis. Request summary
12-Mar-2025 Geopolitics meets monetary policy: decoding their impact on cross-border bank lending Geopolitical tensions have soared in recent years. Our paper identifies and quantifies the effects of this geopolitical fragmentation and its interaction with monetary policy transmission in cross-border bank lending. Request summary
4-Mar-2025 Monetary policy along the yield curve: why can central banks affect long-term real rates? Long-term real interest rates are typically thought to be determined by real factors like productivity growth, demographics, income inequality and shifts in the demand and supply of safe assets. However, long-term real rates seem to be very sensitive to changes in central bank policy rates. Conventional New Keynesian economic models suggest this should not happen, as setting the policy rate away from the natural rate (r*) for a prolonged period would significantly affect current economic activity and, therefore, inflation.  Request summary
4-Mar-2025 Monetary policy along the yield curve: can central banks affect long-term real rates? Long-term real interest rates are typically thought to be determined by real factors like productivity growth, demographics, income inequality and shifts in the demand and supply of safe assets. However, long-term real rates seem to be very sensitive to changes in central bank policy rates. Conventional New Keynesian economic models suggest this should not happen, as setting the policy rate away from the natural rate (r*) for a prolonged period would significantly affect current economic activity and, therefore, inflation.  Request summary