Research

CBDC and business cycle dynamics in a New Monetarist New Keynesian model
with Katrin Assenmacher and Annukka Ristiniemi
2023, ECB Working Paper No 2811

To study implications of an interest-bearing CBDC on the economy, we integrate a New Monetarist-type decentralised market that explicitly accounts for the means-of-exchange function of bank deposits and CBDC into a New Keynesian model with financial frictions. The central bank influences the store-of-value function of money through a conventional Taylor rule while it affects the means-of-exchange function of money through CBDC operations. Peak responses to monetary policy shocks remain similar in the presence of an interest-bearing CBDC, implying that monetary transmission is not impaired. At the same time however, the provision of CBDC helps smooth responses to macroeconomic shocks. By supplying CBDC, the central bank contributes to stabilising the liquidity premium, thereby affecting bank funding conditions and the opportunity costs of money, which dampens and smoothes the reaction of investment and consumption to macroeconomic shocks.

Banking Crises Under a Central Bank Digital Currency (CBDC)
single authored
2024, CBDC Special Issue, Journal of Economics and Statistics (Jahrbücher für Nationalökonomie und Statistik)

One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is offset by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is offset by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency.

Coordination under loss contracts
with Steffen Ahrens and Ciril Bosch-Rosa
2023, Games and Economic Behavior

In this paper we study the effects that loss contracts – prepayments that can be clawed back later – have on group coordination when there is strategic uncertainty. To do so, we investigate the choices made by experimental subjects in a minimum effort game. In control sessions, incentives are formulated as a classic gain contract, while in treatment sessions, incentives are framed as an isomorphic loss contract. Contrary to most results in the loss contract literature, in our setup loss contracts backfire by reducing the minimum effort of groups and worsening the coordination between group members. Such results suggest that the success off loss contracts is context dependent and offer an explanation as to why loss contracts are not implemented more often in the wild.

Policy and other publications

Policy expectation errors during the recent tightening cycle – insights from the ECB’s survey of Monetary Analysts
with Yıldız Akkaya Blake, Claus Brand and Diogo Sá
2024, ECB Economic Bulletin Box

Clients with a migrant background: The role of risk preferences in retail banking
with Nicolaus Heinen and Timo Alberts
2015, Deutsche Bank Research, Current Issues

Work in progress

Amplification of monetary policy in times of heightened interest rate volatility
with Yıldız Akkaya Blake, Thaïs Masseï and Annukka Ristiniemi

A statistical approach to identify ECB monetary policy (WP coming soon)
with Yıldız Akkaya Blake, Claus Brand and Luís Fonseca