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Insights / Research BriefSep 28, 2023

Monetary Policy and Innovation

Yueran Ma, Kaspar Zimmermann
Monetary policy has a substantial impact on innovation activities. After a tightening shock of 1 percentage point, spending on research and development declines by about 1%-3%, venture capital investment declines by about 25%, and patenting in important technologies declines by 9%.
Topics:  Monetary Policy
Insights / Research BriefSep 27, 2023

Monetary Policy and the Labor Market: A Quasi-Experiment in Sweden

John Coglianese, Maria Olsson, Christina Patterson
When Sweden’s central bank tightened monetary policy from 2010-2011 in response to concerns about financial stability, the economy contracted and the unemployment rate rose by 1 to 2 percentage points, driven by inflexible wage rates (or nominal wage rigidity), with unemployment increasing the most at the bottom of the income distribution.
Topics:  Monetary Policy
Insights / Research BriefSep 20, 2023

Households’ Response to the Wealth Effects of Inflation

Philip Schnorpfeil, Michael Weber, Andreas Hackethal
While many households know about inflation and its erosive effect on nominal assets, most are unaware of inflation’s erosive impacts on nominal debt. Once they receive information about debt erosion, households update their beliefs about their own real net wealth and even change their consumption choices.
Topics:  Monetary Policy
Insights / Research BriefAug 15, 2023

The Long-term Effects of Inflation on Inflation Expectations

Fabio Braggion, Felix von Meyerinck, Nic Schaub, Michael Weber
German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, suggesting that inflationary shocks have a long-lasting impact on attitudes toward inflation.
Topics:  Monetary Policy
Insights / Research BriefAug 01, 2023

Tell Me Something I Don’t Already Know: Learning in Low and High-Inflation Settings

Michael Weber, Bernardo Candia, Tiziano Ropele, Rodrigo Lluberas, Serafin Frache, Brent H. Meyer, Saten Kumar, Yuriy Gorodnichenko, Dimitris Georgarakos, Olivier Coibion, Geoff Kenny, Jorge Ponce
As inflation has recently risen in advanced economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to information about inflation and monetary policy.
Topics:  Monetary Policy
Insights / Research BriefJul 20, 2023

Price Level and Inflation Dynamics in Heterogeneous Agent Economies

Greg Kaplan, Georgios Nikolakoudis, Giovanni L. Violante
This work offers new insights into the effects of persistent fiscal deficits on US inflation, revealing that targeted income redistribution during COVID increased short-term inflation significantly. The largest sustainable primary deficit is 4.6% of GDP, or 40% higher than current levels, dependent on how deficit spending is distributed.
Topics:  Financial Markets, Monetary Policy
Insights / Research BriefJun 30, 2023

Monetary Policy Transmission Through Online Banks

Samuel Earnest, Isil Erel, Jack Liebersohn, Constantine Yannelis
Monetary transmission is significantly larger for online banks; compared to brick-and-mortar banks, a 100-basis point increase in the federal funds rate leads to an approximately-30-basis-point larger increase in deposit rates offered by online banks.
Topics:  Financial Markets, Monetary Policy
Insights / Research BriefSep 23, 2022

Perceptions about Monetary Policy

Michael D. Bauer, Carolin Pflueger, Adi Sunderam
This paper takes a new approach based on forecaster-level data to estimate a perceived monetary policy rule month-by-month from 1985 until 2021. It shows that this perceived rule varies, that even sophisticated forecasters need to learn about the monetary policy rule, and implications for monetary policy and financial markets. The Federal Reserve’s monetary policy rule is perceived differently over the policy cycle, with easings perceived as quick and surprising, and tightenings perceived as gradual and data-dependent; these perceptions affect the perceived risk of long-term bonds, or the risk premium in long-term interest rates. Learning about the monetary policy rule can therefore shed light on “conundrum” episodes, when economically relevant long-term rates appear disconnected from monetary policy.
Topics:  Monetary Policy