Dear friends of the International and Monetary Economics Network
Our network is growing fast. In 2026, we will further expand our activities and contributions to debates on international economics, monetary policy, and related topics.
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Short title, interesting content!
“Inflation“ by John H. Cochrane.
“I focus on analyzing historical episodes. Why did inflation surge and then largely go away in 2021-2022? Why was inflation so quiet when interest rates were stuck at zero? Why did quantitative easing have no effect on inflation, but the same policy in 2021-2022 seemingly produce huge inflat? And so forth. Academic economics is usually devoted to formal testing. But as I have thought about these issues over the years, I find that exploring episodes is more illuminating, at least as a first step. Episodes also make it easier to understand a theory, and make for a far better lecture than slides full of equations.”
This book stems from the Ninth Karl Brunner Distinguished Lecture, delivered at the SNB in Zurich in October 2025. You can watch it here. John Cochrane delivered a similar distinguished lecture at the University of Bern. A summary can be found here.
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Super interesting!
“How Do Central Bank Governor Turnovers Affect Uncertainty and Lending Globally?“ by Kristle Romero Cortés and Mandeep Singh.
“This paper studies how predictable transitions in central bank leadership generate uncertainty about the future policy environment and shape the international allocation of bank credit. Exploiting the institutional timing of fixed-term central bank governor appointments, we show that cross-border loan volumes increase by approximately $90 million, while total lending remains broadly unchanged. …These findings highlight governor turnovers as a distinct source of economic policy uncertainty with global credit implications.”
Our interview with the two authors is also highly recommended. For instance, their perspective on the Powell-to-Warsh transition:
“From the perspective of our paper, what matters most is not the eventual policy outcome but the period of uncertainty surrounding the Powell-to-Warsh transition. Even now, while the successor is now known, markets and banks are still trying to understand how Warsh will behave in practice, how independent he will be, how he will communicate, and how closely he will align with the administration. That uncertainty can influence financial decisions before any policy change actually occurs.”
The full interview can be found HERE
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Highly recommended!
“Financial Repression in the XXIst Century“ by Ricardo Reis.
“Large stocks of public and external debt tempt policymakers to extract resources from their creditors. This article characterizes three broad forms of financial repression that serve this purpose. The first consists of direct taxation of the financial sector through levies on financial transactions, banks’ income, or pension-fund assets. The second is a sudden and sufficiently persistent devaluation of the currency. The third raises the demand for the non-monetary services provided by different types of government liabilities while keeping their supply scarce, thereby creating yield discounts. Reviewing historical experience, including recent years, the article concludes that each of these revenue sources can occasionally be large, but that policies designed to exploit them often fail. Financial repression is an alluring but ultimately illusory temptation: yielding to it typically generates substantial efficiency losses while producing only limited revenue.”
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Super interesting food for thought!
“Supply Chain Uncertainty, Energy Prices, and Inflation“ by Alfonso Merendino and Tommaso Monacelli.
“…we show that higher supply chain uncertainty increases the sensitivity and persistence of inflation to transitory energy shocks, and relate these findings to the 2021–23 inflation episode. Our findings call for a reconsideration of the so-called “look-through” approach of monetary policy to supply shocks.”
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Super interesting!
“Heaven or Earth? The Evolving Role of Global Shocks for Domestic Monetary Policy“ by Kristin Forbes, Jongrim Ha, and M. Ayhan Kose.
“Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through” their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks-particularly global supply shocks-have significant implications for modeling monetary policy and designing central bank frameworks.”
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Super interesting!
“Global Trade, Tariff Uncertainty and the U.S. Dollar“ by Ṣebnem Kalemli-Özcan, Can Soylu, and Muhammed A. Yildirim.
“We analyze how tariff uncertainty affects exchange rates, motivated by the U.S. dollar’s depreciation after the 2025 tariff announcements. Standard macro-trade models predict that unilateral tariffs appreciate the implementing country’s currency, but we show this result can be overturned by policy uncertainty. We build a two-country general equilibrium model with risk-averse agents and segmented financial markets, where tariff volatility enters uncovered interest parity through a risk-premium wedge. Higher tariff uncertainty increases precautionary savings and risk premia, leading to immediate currency depreciation even as tariffs rise.”
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Thought-provoking and highly relevant!
“The Doom Loop: Why the World Economic Order Is Spiraling into Disorder“ by Eswar S. Prasad.
“In The Doom Loop, economist Eswar Prasad argues that the very forces that we long believed could stabilize the world order are fueling its destabilization. …Prasad argues that we are caught in a destructive feedback loop between economics, domestic politics, and geopolitics. The Doom Loop offers a clear-eyed and bracing account of a world spiraling into disorder, and makes it clear that old solutions cannot pull us out—we need radically new solutions to solve the world’s problems.”
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Food for thought!
“Central bank digital currency and monetary sovereignty“ by Lucrezia Reichlin.
“Calls for a digital euro increasingly invoke monetary sovereignty, often on the grounds that Europe must retain control over its payment systems. This column argues that this reasoning conflates two distinct elements within the monetary system: money and payments. Sovereignty has never depended on universal access to public money or control over payment rails, but on legal authority over the unit of account and the capacity of the central bank balance sheet to absorb risk. Private money anchored by public backstops is the historical norm. The main competitive challenge today arises at the level of broad money, where stablecoins compete with bank deposits rather than with cash or central bank money. In this context, the digital euro is best understood as a symbolic response to payment-system dependence and fiscal fragmentation, rather than a functional requirement for monetary sovereignty.”
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Highly relevant!
“Industrial Policies, Global Imbalances and Technological Hegemony“ by Ambrogio Cesa-Bianchi, Andrea Ferrero, Luca Fornaro, and Martin Wolf.
“We provide a framework that connects industrial policies to global imbalances and technological hegemony, and describe some empirical facts consistent with our model. We study the international spillovers triggered by industrial policies promoting high-tech sectors. Since high-tech goods and services are typically traded internationally, these policies boost the supply of tradable goods. Moreover, industrial policies lead to trade surpluses if the government pursues an unbalanced policy mix, such that domestic demand does not rise as much as supply. These surpluses are absorbed by the rest of the world, which in response runs trade deficits. Absent policy interventions, trade deficits reduce the competitiveness of the domestic tradable sector, stifling innovation and productivity growth. Innovation policies can help the rest of the world to mitigate these negative spillovers.”
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US Labor Market: The January figures released by the Bureau of Labor Statistics looked better than feared.
130,000 new jobs were created — more than expected. Most of the gains came from the healthcare and social services sectors. This fairly strong concentration somewhat clouds the overall picture, although it may reflect a structural trend in which these sectors continue to add jobs.
Unemployment declined slightly (from 4.4% to 4.3%), and labor force participation edged up. This is a positive sign.
As expected, there were significant downward revisions to job growth in 2025, though they were less dramatic than feared. According to the revised data, hardly any new jobs were created last year.
Immigration policy under Trump and the retirement of the Baby Boomer generation are significantly weighing on potential monthly job growth. However, assessing the true underlying strength of the U.S. labor market will likely remain challenging for some time.
What does this mean for the Federal Reserve? On balance, the labor market currently looks somewhat better than feared. The January inflation figures, due to be released soon, will be particularly important for upcoming interest rate decisions. If they show persistently elevated inflation, the likelihood of near-term rate cuts would decline further.
Kay Haigh (Goldman Sachs Asset Management) says: “The labor market is showing some tentative signs of re-tightening, although there remains a way to go. The FOMC’s gaze instead will turn to the inflation picture with the economy continuing to perform above expectations. We still see room for two more cuts this year; however, an upside surprise in the CPI on Friday could tilt the balance of risks in a hawkish direction.”
Claudia Sahm (New Century Advisors and ) says: “Good news in January, but the downward revisions are huge. More than a million fewer jobs than previously estimated by the end of 2025. And four months last year with outright declines in payrolls.”
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Global Economy Flash: Seemingly resilient amid headwinds, yet fragile
- Global GDP growth remains solid and global trade has proven more resilient than expected. However, higher tariffs and rising protectionism will weigh on global growth and trade in 2026 and 2027.
- We expect global economic output to increase by 3.1 percent in 2026. For 2027, we currently anticipate a slight acceleration to 3.2 percent.
- The US economy benefits from the AI boom, but the rest of the economy is less strong. However, US households benefit from the easing of fiscal and monetary policies. Inflation remains too high, and we should worry about the independence of the Fed.
- The Chinese economy depends on exports and manufacturing, while domestic demand continues to struggle.
- The Euro area remains on a solid growth path despite structural challenges and high debt in some countries. The German fiscal stimulus will gradually lift growth in Germany and also spill over to other European countries.
- Monetary and fiscal policy: Fiscal policy is mostly expansionary, while monetary policy is becoming increasingly divergent.
- The Swiss economy remains resilient with modest growth rates. The pharmaceutical sector will be less of a growth driver than in the past.
- Many (mostly downside) risks, among them: Conflicts and geopolitical tensions have the potential to escalate, supply chains for critical raw materials are fragile, the AI boom could end abruptly, and potential public debt crises.
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In case you missed our last Macro Bites:
Macro Bite: An AI-Macro Observatory – Just in Case
Macro Bite: Euro area – How are you doing?
Macro Bite: The Puzzling U.S. Economy and Underestimated Europe
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In our webinars and in-person events, members of the network or guests are invited to present. Interested persons can contact us.
Webinar: EU Industrial Policy in a Fracturing Global Economy (Peter Obinger, Austrian Federal Economic Chamber)
- March 5, 12:00 – 13:00 Central European Time
- Online via Zoom
- In English
Industrial policy is back in fashion. In recent years, European countries have increasingly turned to industrial policy against the backdrop of geopolitical fragmentation, supply chain risks, or the green transition. Well-targeted industrial policy has the potential to correct market failures and bring about benefits. At the same time, even carefully designed industrial policies risk generating negative production externalities in other countries and may not be welfare-enhancing for the implementing country.
Peter Obinger is an economist at the Economic Policy Department of the Austrian Federal Economic Chamber, where he specialises in industrial and energy policy. He also serves as an editor for “Wirtschaftspolitische Blätter” one of Austria’s largest applied economic policy journals.
REGISTRATION HERE
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Too-Big-To-Fail Regulation: What’s Next? (Too-Big-To-Fail Regulierung: Wie geht es weiter?)
Public lecture by Vera Imfeld (Head Banking Unit, State Secretariat for International Finance)
- March 17, 18:30 – 19:30 Central European Time
- Fabio Canetg is the moderator of this event.
- University of Bern, main building, room HS 101, Hochschulstrasse 4, Bern
- In German, followed by a reception
REGISTRATION HERE
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You can still register for our next webinar on February 18:
Webinar: Stablecoins for Switzerland? (Christian Bieri, CEO Swiss Stablecoin AG)
- February 18, 12:00 – 13:00 Central European Time
- Online via Zoom
- In German
The webinar will mainly cover a general overview of innovations in the financial sector and the perspective of the Swiss Stablecoin AG on the proposed amendment to the Financial Institutions Act. This bill is aimed at improving the framework conditions for the market development, the attractiveness of the Swiss financial centre and integration of innovative financial technologies (e.g., stablecoins, crypto) into the existing financial system.
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We are always open to collaborations. Please feel free to contact us.
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