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Introduction 2. Monetary policy and equity markets: conceptual issues and data 1 3. Overall stock market reaction to monetary policy 1 4. Industry effects, the credit channel and Tobin's q 1 4.1 Industry-specific effects 1 4.2 Firm-specific effects 1 5. Propensity score matching 2 5.1 Algorithm of propensity score matching 2 5.2 Empirical results 2 6. Conclusions
Proper conduct of monetary policy requires understanding the monetary transmission mechanism, to monitor the economy, make decisions on the stance of policy, and explain the policy actions to the public. Hence, gathering evidence on the monetary transmission mechanism in the euro area has been a priority for the Eurosystem. This 2003 book presents the results of a multi-year collaborative project conducted by the Eur…
The ‘credit channel’ theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight-money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds--enhances the effects of monetary policy on the real economy. The authors document the responses of GDP and its components to monetary policy shocks and desc…
Abstract We introduce an affine term structure model with observed macroeconomic factors for credit spread curves under the unconventional monetary policy regime in Japan. Empirical results based on the model selection using Japanese data demonstrate that the credit spread curves are dominated by the monetary policy and suggest that global economic forces, such as the U.S. Treasury yield and Baa-Aaa credit spread, pl…
We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets—i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of…
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stabilit…
Agent skills, structured packages of procedural knowledge and executable resources that agents dynamically load at inference time, have become a reliable mechanism for augmenting LLM agents. Yet inference-time skill augmentation is fundamentally limited: retrieval noise introduces irrelevant guidance, injected skill content imposes substantial token overhead, and the model never truly acquires the knowledge it merely…
We propose Process-Aware Policy Optimization (PAPO), a method that integrates process-level evaluation into Group Relative Policy Optimization (GRPO) through decoupled advantage normalization, to address two limitations of existing reward designs. Outcome reward models (ORM) evaluate only final-answer correctness, treating all correct responses identically regardless of reasoning quality, and gradually lose the advan…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers the modeling of the liability liquidity risk (or funding liquidity), the second dimension is dedicated to the modeling of the asset liquidity risk (or market liquidity), whereas the third dimension considers the management of the asset-liability liquidi…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate funding liquidity risk and contagion are available but they require not only banks' bilateral exposures data but also balance sheet data with sufficient granularity, which are hardly a…
Using micro-level data, we construct a credit spread index with considerable predictive power for future economic activity. We decompose the credit spread into a component that captures firm-specific information on expected defaults and a residual component–– the excess bond premium. Shocks to the excess bond premium that are orthogonal to the current state of the economy lead to declines in economic activity and ass…
ABSTRACT We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity i…
Abstract This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and …
The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in cre…
A growing number of contributions in the literature have identified a puzzle in the European carbon allowance (EUA) market. Specifically, a persistent cost-of-carry spread (C-spread) over the risk-free rate has been observed. We are the first to explain the anomalous C-spread with the credit spread of the corporates involved in the emission trading scheme. We obtain statistical evidence that the C-spread is cointegra…
The arrival of public information in the U.S. Treasury market sets off a two‐stage adjustment process for prices, trading volume, and bid‐ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The spread widens dramat…
We address the problem of executing large client orders in continuous double-auction markets under time and liquidity constraints. We propose a model predictive control (MPC) framework that balances three competing objectives: order completion, market impact, and opportunity cost. Our algorithm is guided by a trading schedule (such as time-weighted average price or volume-weighted average price) but allows for deviat…
We audit whether candle-based machine-learning models can turn predictions of cryptocurrency extrema or short-horizon outcomes into positive Binance Spot paper policies after assumed costs. Numerical results come from scripted fixed-seed model runs and deterministic simulators; human-supervised AI agents supported the July 20 evidence-integrity revision through literature retrieval, separately tasked critique, artifa…
The ECB balance sheet reflects the scale of European Central Bank asset holdings and helps track euro-area liquidity, policy transmission, and duration absorption.
The Fed balance sheet reflects the scale of Federal Reserve asset holdings and is a major driver of reserves, liquidity conditions, and policy transmission.
A Financial Conditions Index aggregates variables such as rates, credit spreads, equities, and the dollar to measure how supportive or restrictive the market environment is for growth and risk assets.
The 3M10Y Treasury curve compares 10-year Treasury yields with 3-month Treasury bill yields and is closely watched as a recession and policy-cycle indicator.
The 2s10s Treasury curve measures the spread between 10-year and 2-year Treasury yields and is a key indicator of growth expectations, policy path, and term structure dynamics.
The term structure of interest rates across maturities, used to read growth, liquidity, and stress expectations.
Funding stress signal derived from FX swap pricing distortions and balance sheet constraints.
Federal Funds Rate — The effective overnight policy rate anchor that transmits through the entire USD funding stack and global risk appetite.
Neutral Rate Estimate — Estimates of the equilibrium real policy rate that separates restrictive from accommodative stance.
Forward Guidance — How central bank language shapes term premium and front-end rate expectations before actual policy moves.
Quantitative Tightening Pace — The speed of balance-sheet runoff and its impact on reserves, collateral markets, and term funding.
Yield Curve Control — Official caps on benchmark yields and the distortions they create in RV and cross-market hedging.
Macroprudential Policy — Countercyclical tools that alter credit creation before traditional monetary policy reacts.
Countercyclical Capital Buffer — Bank capital requirements that tighten or ease through the credit cycle.
Emergency Liquidity Facility — Standing and ad-hoc facilities that reveal where stress is concentrated in the financial system.
Standing Repo Facility — The Fed backstop for repo market dysfunction and dealer balance-sheet pressure.
Foreign Exchange Intervention — Official buying or selling of currency to manage disorderly moves and imported inflation.
Output Gap — Estimated distance of GDP from potential output, informing policy reaction functions.
Consumer Confidence Index — Household expectations that influence spending, labor supply, and political pressure on policy.
CPI Shelter Component — The largest CPI bucket, lagged versus spot rents, creating policy communication traps.
Inflation Expectations Survey — Household and market-based expectations that can de-anchor if policy credibility erodes.
Primary Dealer Survey — Desk-level policy expectations that front-run official communications.
Capital Controls — Official restrictions on cross-border flows that reprice FX basis and investability.
Bank Capital Ratio — Loss-absorbing equity buffer determining lending capacity and dividend policy.
Fiscal Dominance (Macro Policy).
Monetary Dominance (Macro Policy).
Global Dollar Liquidity (Macro Policy).
Personal Trading Policy (Systems).
Negative Real Rates (Macro Policy).
Financial Repression (Macro Policy).
Debt Sustainability (Macro Policy).
Primary Deficit (Macro Policy).
Interest Growth Differential (Macro Policy).
Impossible Trinity — Cannot have fixed FX, open capital, and independent policy.
Capital Account Openness (Macro Policy).
Geopolitical Risk Premium (Macro Policy).
The 2s10s Treasury curve measures the spread between 10-year and 2-year Treasury yields and is a key indicator of growth expectations, policy path, and term structure dynamics.
The 3M10Y Treasury curve compares 10-year Treasury yields with 3-month Treasury bill yields and is closely watched as a recession and policy-cycle indicator.
Automatic Stabilizer ASEAN (Macro Policy).
Automatic Stabilizer Australia (Macro Policy).
Automatic Stabilizer Brazil (Macro Policy).
Automatic Stabilizer Canada (Macro Policy).
Automatic Stabilizer CEEMEA (Macro Policy).
Automatic Stabilizer China (Macro Policy).
Automatic Stabilizer easing (Macro Policy).
Automatic Stabilizer EM Asia (Macro Policy).
Automatic Stabilizer Euro Area (Macro Policy).
Automatic Stabilizer India (Macro Policy).
Automatic Stabilizer Indonesia (Macro Policy).
Automatic Stabilizer Japan (Macro Policy).
Automatic Stabilizer Korea (Macro Policy).
Automatic Stabilizer LatAm (Macro Policy).
Automatic Stabilizer Mexico (Macro Policy).
Automatic Stabilizer Nordics (Macro Policy).
Automatic Stabilizer Poland (Macro Policy).
Automatic Stabilizer reflation (Macro Policy).
Automatic Stabilizer risk-off (Macro Policy).
Automatic Stabilizer risk-on (Macro Policy).
Automatic Stabilizer South Africa (Macro Policy).
Automatic Stabilizer stagflation (Macro Policy).