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Working Paper
Stablecoins: Growth Potential and Impact on Banking
Liao, Gordon Y.; Caramichael, John (2022-01-31)
Stablecoins have experienced tremendous growth in the past year, serving as a possible breakthrough innovation in the future of payments. In this paper, we discuss the current use cases and growth opportunities of stablecoins, and we analyze the potential for stablecoins to broadly impact the banking system. The impact of stablecoin adoption on traditional banking and credit provision can vary depending on the sources of inflow and the composition of stablecoin reserves. Among the various scenarios, a two-tiered banking system can both support stablecoin issuance and maintain traditional ...
International Finance Discussion Papers , Paper 1334

Working Paper
Nonlinear Unemployment Effects of the Inflation Tax
Ait Lahcen, Mohammed; Baughman, Garth; Rabinovich, Stanislav; van Buggenum, Hugo (2021-06-29)
We argue that long-run inflation has nonlinear and state-dependent effects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks – ...
Finance and Economics Discussion Series , Paper 2021-040

Working Paper
Search-Based Models of Money and Finance: An Integrated Approach
Wright, Randall; Trejos, Alberto (2014-03-19)
Many applications of search theory in monetary economics use the Shi-Trejos-Wright model, hereafter STW, while applications in finance use Duffie-Grleanu-Pederson, hereafter DGP. These approaches have much in common, and both claim to be about liquidity, but the models also differ in a fundamental way: in STW agents use assets as payment instruments when trading goods; in DGP there are no gains from exchanging goods, but agents trade because they value assets differently with goods serving as payment instruments. We develop a framework nesting the two. This clarifies the connection between ...
Working Papers , Paper 709

Working Paper
International Dollar Flows
Banegas, Ayelen; Judson, Ruth; Sims, Charles; Stebunovs, Viktors (2015-09-09)
Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, ...
International Finance Discussion Papers , Paper 1144

Working Paper
Financial Stability Implications of CBDC
Carapella, Francesca; Chang, Jin-Wook; Infante, Sebastian; Leistra, Melissa; Lubis, Arazi; Vardoulakis, Alexandros (2024-04-12)
A Central Bank Digital Currency (CBDC) is a form of digital money that is denominated in the national unit of account, constitutes a direct liability of the central bank, and can be distinguished from other central bank liabilities. We examine the positive and negative implications for financial stability of a CBDC under different design options. We base our analysis on the lessons derived from historical case studies as well as on analytical frameworks useful to characterize the mechanisms through which a CBDC can affect financial stability. We further discuss various policy tools that can ...
Finance and Economics Discussion Series , Paper 2024-021

Report
Coordination and Crisis in Monetary Unions
Amador, Manuel; Aguiar, Mark; Gopinath, Gita; Farhi, Emmanuel (2015-05-11)
We study fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over-borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of ...
Staff Report , Paper 511

Working Paper
Optimal Taxes Under Private Information: The Role of the Inflation
Gomis-Porqueras, Pedro; Waller, Christopher J. (2020-08-20)
We consider an overlapping generation framework with search and private information to study optimal taxation. Agents sequentially trade in markets that are characterized by different frictions and trading protocols. In frictional decentralized markets, agents receive shocks that determine if they are going to be consumers or producers. Shocks are private information. Mechanism design is used to solve for the constrained optimal allocation. We then study whether a government can replicate the constrained optimal allocation with an array of policy instruments including fiat money. We show that ...
Working Papers , Paper 2017-014

Working Paper
Bubbly Recessions
Hanson, Andrew; Phan, Toan; Biswas, Siddhartha (2018-02-22)
We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...
Working Paper , Paper 18-5

Conference Paper
Designing Resilient Monetary Policy Frameworks for the Future : Economic Policy Symposium, Jackson Hole, Wyoming, August 25-27, 2016
Kansas City, Federal Reserve Bank (2016)
Proceedings - Economic Policy Symposium - Jackson Hole

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