Dear friends of the International and Monetary Economics Network
Our network is growing rapidly. If you’d like to share this newsletter, new readers can subscribe HERE. You can also follow us on LinkedIn and other social media channels. Overall, we now reach more than 50,000 subscribers and followers. You can also join a growing number of active members on Substack. We will further expand our activities and contributions to debates on international economics, monetary policy, and related topics. We are always open to collaborations. Please feel free to contact us.
————————————————
In our webinars and in-person events, members of the network or guests are invited to present. If you’re interested, please contact us or fill out this form. We welcome high-quality presentations by senior and junior economists from academic, finance, or policy-oriented backgrounds. High-quality projects that present bold new ideas are always welcome.
Webinar: Structural Changes in Investment and the Waning Power of Monetary Policy (Jacob Weber, Federal Reserve Bank of New York)
- May 19, 16:00 – 17:00 (Central European Summer Time)
- Online, in English
- Link to Paper
Registration HERE
Abstract: „We argue that secular change in both the production and composition of investment goods has weakened investment’s role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes weakening this channel: (i) labor’s share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy.“
Jacob Weber is a research economist in Macroeconomic and Monetary Studies at the Federal Reserve Bank of New York.
————————————————
Webinar: Japanese Yen – A New Exchange Rate Equilibrium or an Undervalued Currency? (Jonathan Davies)
- May 21, 16:30 – 17:30 Central European Summer Time
- Online via Zoom, link will be sent
Registration HERE
Jonathan Davies has over thirty years‘ experience as a financial market strategist and portfolio manager. He read Philosophy, Politics and Economics at Oxford University followed by Master’s Degree in Economics at the University of London. For most of his career, Jonathan has worked at UBS across both its Investment Banking and Asset Management divisions, with roles based in the UK, Switzerland, the US, and France.
————————————————
Webinar: Forecasting the Economic Effects of AI (Ezra Karger: Federal Reserve Bank of Chicago and Forecasting Research Institute)
- May 27, 17:00 – 18:00 (Central European Summer Time)
- Link to Paper
Registration HERE
This working paper was published in March 2026 and was widely discussed among academics and the media, including by the New York Times and The Economist.Ezra Karger is a senior economist at the Federal Reserve Bank of Chicago. He spends much of his time on forecasting research, developing methods for forecasting unresolvable questions, conducting large surveys of experts on topics like the economic effects of AI with collaborators at the Forecasting Research Institute, and constructing high-frequency indices that track policy-relevant economic indicators with colleagues at the Federal Reserve.
————————————————
You can still register for our next webinar on May 12.
Webinar: Monetary Dynamics in Dollarized Economies: The Case of Ecuador (Juan Pablo Erraez, Inter-American Development Bank; Juan Lorenzo Maldonado, Aequus Economics)
- May 12, 16:00 – 17:00 (Central European Summer Time)
- Online, in English
- Link to Banco Central del Ecuador Paper
Registration HERE
The paper „explores the interaction between balance of payments flows, central bank operations, and private credit creation, emphasizing the role of high-powered money in sustaining domestic liquidity. The paper highlights the risks from central bank balance sheet expansion and non-monetary mechanisms such as cross-holdings of claims between deposit-taking institutions and fiscal spending financed by domestic debt. It argues that monetary stability in dollarized regimes depends critically on institutional arrangements and reserve adequacy, offering insights for policymakers, analysts, and investors seeking to understand macroeconomic vulnerabilities in similar settings.“
————————————————
US Economy: In the first quarter of 2026, the United States economy grew by an annualized 2.0 percent, roughly in line with expectations. Glad to see that our IMEN nowcast (1.7 percent) came quite close to the official reading.
Particularly noteworthy is the solid growth in business investment. Investments related to AI are likely to have been a key contributing factor. Private consumption grew at a solid pace, supported in part by tax refunds. Private consumption is unlikely to serve as a strong growth driver in coming months. Higher inflation (driven primarily by fuel prices) is weighing on demand. In March, inflation (as measured by the BEA’s PCE price index) stood at 0.7 percent compared to February. Year-on-year, inflation in March was 3.5 percent relative to March 2025 (core inflation: 3.2 percent). Based on the figures released today, we did not change our expectations for an interest rate cut by the Federal Reserve in June.
Nowcasts for the second quarter of 2026 currently point to a continued expansion of the U.S. economy:
————————————————
No surprise!
The Fed keeps interest rates unchanged as expected by most economists, including those in our network.
“Federal Reserve officials left interest rates unchanged, but revealed a deepening division over the outlook for policy amid increased uncertainty caused by the conflict in the Middle East.”
“Jerome Powell said he intends to remain at the central bank as a member of its Board of Governors”————————————————
No surprise!
The ECB decided to keep the three key ECB interest rates unchanged as expected by most economists, including those in our network.
The media statement says: “The Governing Council will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, its interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.”
————————————————
The situation in the Middle East made the macroeconomic outlook highly uncertain. In our Global Economy Flash May 2026, we outline our perspective on the global macroeconomy. The IMEN forecast for global GDP growth in 2026 has been lowered to 2.8 percent. In 2025, the world economy has shown resilience amid headwinds, but the dampening effects of high oil prices, supply chain stress, geopolitical uncertainty, and potential food shortages are considerable. We also stress that „inflation in the United States has been elevated for several years, which could structurally raise inflation expectations.“
————————————————
Our recent poll within the IMEN network about the future direction of oil prices reflects the significant degree of uncertainty we currently face. However, expectations for extreme outcomes seem to have decreased somewhat. You can join us on Substack to receive invitations to participate in these polls.
————————————————
The Swiss government has proposed stricter capital requirements for systemically important banks (see the reports on swissinfo or Bloomberg). While Finance Minister Karin Keller-Sutter described these rules as essential for financial stability and taxpayer protection, UBS has criticized them as „extreme“ and has warned they could harm the bank’s competitiveness. The extent of the economic harm caused by these proposed measures to UBS remains controversial, with assessments ranging from minor to substantial. The Swiss business journalist and macroeconomist Fabio Canetg has published a number of podcast episodes on this topic (see here and here).
————————————————
IMEN Treasure Trove – What Caught Our Eye (Selection): Macroeconomic policies for AI, GDP-Flash estimates, financial liberalizations, and much more…
Highly recommended!
„Macroeconomic Policies for AI“ by Luca Fornaro and Martin Wolf
„We provide a macroeconomic framework to study monetary and fiscal policies for AI. Advances in AI expand firms’ ability to automate production. While higher automation boosts productivity and potential output, it also reduces workers’ share of income. Since workers have a high propensity to consume, advances in AI may depress aggregate demand and lead to a slump. Expansionary monetary policy can convert an AI slump into an AI boom, but in doing so it faces two challenges. In the short run, AI worsens the inflation-employment trade off faced by the central bank. In the medium run, monetary policy may be constrained by the zero lower bound, since weak demand lowers the natural rate. Employment subsidies and cuts in labor taxes can usefully complement monetary policy, by reducing firms’ cost of labor and inflation, as well as supporting workers’ income and aggregate demand.“
————————————————
Super interesting!
„Monetary Policy According to Households: Perceptions, Reactions, and Channels“ by Francesco Grigoli, Damiano Sandri, Yuriy Gorodnichenko, and Olivier Coibion.
„This paper studies how households perceive the transmission of monetary policy and how these perceptions affect their decisions. Using a large-scale survey of over 25,000 U.S. households combined with randomized information treatments, we measure how households expect changes in the federal funds rate to affect economic conditions and their own behavior. Households report that higher interest rates lead them to reduce their spending, particularly on durable goods. However, the mechanisms underlying this response differ markedly from those in standard macroeconomic models. Respondents expect monetary tightening to raise borrowing costs and inflation. In turn, consumption function estimates identified using information treatments reveal that households respond to higher expected inflation by reducing consumption. Household inflation expectations also emerge as a central driver of portfolio reallocations following monetary policy changes.“
————————————————
Very valuable!
„How an Oil Refinery Works“ by Brian Potter.
„Refining is an expensive undertaking not necessarily because the processes are so complex, but because the volume of material that has to be processed is so high.“
————————————————
Super interesting!
„Foreign Investors in Local-Currency Bond Markets: Implications for Bond Yields and Exchange Rates“ by Pierre De Leo, Lorena Keller, Giuliano Simoncelli, Mauricio Villamizar‐Villegas, and Tomas Williams.
„When foreign investors acquire local-currency bonds, they must also exchange foreign for local currency. In a model with intermediation frictions, foreign inflows thus generate correlated movements in intermediaries’ bond and currency positions, and, in turn, in term and currency premia. Using data from Colombia’s bond and foreign exchange markets, we show that this mechanism accounts for key empirical patterns in intermediaries’ positions, bond yields, and exchange rates—including during inflow episodes, and in response to asset purchase policies. Consistent with the model, countries with more prevalent unhedged foreign investor flows exhibit stronger positive comovement between bond and currency returns.“
————————————————
Highly relevant!
„The Macroeconomic Effects of Tariffs: Insights from 180 Years of U.S. Trade Policy“ by Tamar den Besten, Regis Barnichon, Diego R. Känzig, and Aayush Singh.
„We study the macroeconomic effects of tariff policy using U.S. historical data from 1840–2024. We construct a narrative series of plausibly exogenous tariff changes – based on major legislative actions, multilateral negotiations, and temporary surcharges – and use it as an instrument to identify a structural tariff shock. Tariff increases are contractionary: imports fall sharply, exports decline with a lag, and output and manufacturing activity drop persistently. The shock transmits through both supply and demand channels. Prices rise in the full sample but fall post-World War II, a pattern consistent with changes in the monetary policy response and with stronger international retaliation and reciprocity in the modern trade regime.“
————————————————
Highly relevant!
„GDP-Flash Estimates: An International Assessment“ by Philipp Wegmüller, Jan P.A.M. Jacobs, and Marc Burri.
„We compile a harmonised real-time vintage dataset of quarterly GDP releases for 12 countries as well as the European Union and euro area aggregates, and evaluate the quality of flash estimates relative to later releases and more mature benchmarks. We document substantial cross-country heterogeneity in revision behaviour, with revision magnitudes increasing markedly during periods of elevated volatility. We further show that revision-aware state-space methods can, in some settings and depending on the evaluation benchmark, improve upon the raw flash release as an approximation to more mature GDP growth. Overall, the results highlight the trade-off between timeliness and precision in early national-accounts data and show that the real-time reliability of flash GDP depends importantly on benchmark choice, revision dynamics, and national compilation practices.“
————————————————
Super interesting food for thought!
„The macroeconomic effects of bank regulation: New evidence from a high-frequency approach“ by Thomas Drechsel and Ko Miura.
„Bank regulation supports financial stability, but might constrain economic activity. This paper estimates the macroeconomic effects of bank regulation using a high-frequency identification approach. We measure market surprises in a bank stock price index during a narrow time window around Federal Reserve speeches that discuss the US banking system and its regulation. We then develop a sign restriction procedure to elicit the variation in these market surprises that can be interpreted as news about bank regulation. News that bank regulation will be tighter than expected mitigates risk in the banking sector, but reduces economic activity by increasing banks’ funding costs and tightening loan supply. A 10 basis point regulation-induced peak reduction in bank risk premiums is accompanied by a 15 basis point peak increase in the unemployment rate. Compared to previous studies, these magnitudes suggest a relatively high macroeconomic cost of tightening bank regulation, at least in the short run.“
————————————————
Super interesting!
„Stabilization vs. Growth“ by Miguel Faria-e-Castro, Pascal Paul, and Juan M. Sánchez.
„Should firms in financial distress be saved to stabilize an economy, even if less productive ones are kept alive, possibly reducing economic growth? To assess this fundamental stabilization-vs.-growth trade-off, we develop a new dynamic general equilibrium model with business cycles, endogenous growth, and innovation externalities. We discipline key parameters using microeconomic data and an instrumental-variable approach that links firm productivity growth to R&D expenditure. Based on the calibrated model, we find that economies that save distressed firms with credit guarantees, debt restructuring, or loan evergreening experience lower volatility but also slower growth. Even though welfare is higher in an economy without such interventions, the various „soft credit“ regimes can still arise as equilibrium outcomes when a benevolent government intervenes in credit markets under discretion.“
————————————————
U.S. economy: Rising public debt and discussions surrounding the Fed and its independence. It’s high time to have another look at interesting books like this one!
„A Monetary and Fiscal History of the United States, 1961–2021“ by Alan S. Blinder.
„Focusing on the most significant developments and long-term changes, Blinder traces the highs and lows of monetary and fiscal policy, which have by turns cooperated and clashed through many recessions and several long booms over the past six decades. From the fiscal policy of Kennedy’s New Frontier to Biden’s responses to the pandemic, the book takes readers through the stagflation of the 1970s, the conquest of inflation under Jimmy Carter and Paul Volcker, the rise of Reaganomics, and the bubbles of the 2000s before bringing the story up through recent events―including the financial crisis, the Great Recession, and monetary policy during COVID-19.“
————————————————
Food for thought!
„Measuring Policymakers‘ Uncertainty“ by Ateeb Akhter Shah Syed, Mohsin Waheed, Kalim Hyder Bukhari Syed, and Sarah Saleh.
„…we find that policymakers from emerging markets, being small-open economies, react differently to the rise in policymakers‘ uncertainty stemming from an onset of a crisis of financial nature than the developed ones. This result is important for policymaking as the policymakers‘ own uncertainty provides insights into policy responses in developed versus the emerging markets economies.“
————————————————
Super interesting!
„Retrospectives: The Great Dollar-Shortage Debate“ by Harris Dellas and George S. Tavlas.
„The dollar shortage debate—Paul Samuelson called it „the big open question of our time“—dominated international macroeconomics in the 15 years following the end of World War II. There were two main views regarding its cause: financial frictions that limited capital flows to Western Europe (Kindleberger); and overvalued fixed exchange rates versus the US dollar (Friedman). According to Kindleberger the dollar shortage was attenuated by two real factors that contributed to current account deficits: a large technological gap between the United States and Europe; and European impatience to improve living standards. Kindleberger believed that the current account deficit would prove chronic because of the persistence of the productivity gap, a view that was challenged by Bloomfield who argued that it would dissipate through income growth in Europe. We argue that Kindelberger’s analytical framework is closely connected to the modern intertemporal approach to current account determination; and, also, that the international reserve function of the US dollar—the Triffin dilemma—did not play a role in the dollar shortage.“
————————————————
Super interesting!
„Financial Liberalizations, Booms, and Crashes“ by Maximilian Grimm, Moritz Schularick, and Emil Verner.
„Financial liberalization is often seen as a way to deepen credit markets and stimulate economic growth, but it may also fuel credit booms that end in crisis. We construct a new cross-country database of banking regulation policies covering 21 regulatory indicators for 18 advanced economies since World War II. We distinguish liberalizations that directly relax constraints on credit supply from broader financial reforms. Liberalizations that directly affect credit supply lead to substantial expansions in private credit. Credit expansion is concentrated in non-tradable sectors and is not accompanied by higher interest rates or credit spreads in the short run, consistent with an outward shift in credit supply. Real GDP rises over the following 2 to 4 years, but the gains are temporary. On average, GDP returns to trend in the medium run, and there is an increase in the risk of financial crisis and worse downside growth outcomes. Only liberalizations that directly expand credit supply generate these boom-bust dynamics. Based on these estimates, financial liberalization is welfare-improving for coefficients of relative risk aversion below 7.2, a moderately high value.“
————————————————
We are always open to collaborations. Please feel free to contact us.
Kommentar verfassen