Posts by Collection

e-HKD Pilot Programme

The e-HKD Pilot Programme is a key component of the HKMA's three-rail approach in paving the way for a possible implementation of a retail central bank digital currency (CBDC). The pilot programme enables HKMA's collaboration with the industry to examine innovative use cases and maximise Hong Kong's readiness for a potential e-HKD. The Hongkong and Shanghai Banking Corporation Limited (HSBC) was one of the institutions selected to participate. Collaborating with the Hong Kong University of Science and Technology (HKUST), HSBC sought to explore possible e-HKD every-day payment use cases, focusing on programmability as a value-add feature of digital currency as well as payment rail efficiency. HSBC and HKUST constructed a one-week pilot on the HKUST campus, which included 148 students and 5 merchants. Read more

Infrequent but long-lived zero lower bound episodes and the optimal rate of inflation

Published in Annual Review of Economics, 2016

Countries rarely hit the zero lower bound (ZLB) on interest rates, but when they do, these episodes tend to be very long-lived. These two features are difficult to incorporate jointly into macroeconomic models using typical representations of shock processes. We introduce a regime-switching representation of risk premium shocks into an otherwise standard New Keynesian model to generate a realistic distribution of ZLB durations. We discuss what different calibrations of this model imply for optimal inflation rates. Read more

The Spatial Transmission of US Banking Panics: Evidence from 1870-1929

Published in Oxford Bulletin of Economics and Statistics, 2026

We study the propagation of localized banking panics across the United States, employing digitized state-level balance sheet data on the National Banks for the 1870-1929 period. Geographically localized panics result in the robust spillover outside the state borders where they originate, leading to moderately persistent credit contractions and the accumulation of liquid assets. We provide a tractable model illustrating a key trade-off: while interbank markets, e.g., the pyramidal reserve structure of the banking system during the National Banking Era, allow banks to access cheaper funding, they spread the effects of panics throughout the country as observed in the data. Read more

Higher-Order Forward Guidance

Published in Journal of Economic Theory, 2026

This paper develops a business cycle model with endogenous financial volatility at the Zero Lower Bound (ZLB), highlighting forward guidance as a key mechanism for coordinating market behavior and improving welfare. We show that central banks can reduce excess volatility by credibly pledging future stabilization, or alternatively, by withholding such pledges to direct the economy toward favorable outcomes with lower volatility, revealing a trade-off. We also find that partial uncertainty about future policy dominates strict commitments. Finally, fiscal measures that promote risky asset investments can boost economic activity at the ZLB by increasing aggregate household financial wealth. Read more

Consumer Perceptions and Willingness to Adopt rCBDCs Before and After the e-HKD Pilot

Published in Distributed Ledger Technologies: Research and Practice, 2026

This study explores public perceptions of retail central bank digital currency (rCBDC) adoption through a pilot e-HKD payment system in Hong Kong. Surveys conducted before and after participants used the prototype revealed initially positive attitudes, with perceptions shifting significantly after the experience, particularly regarding security, ease of use, and promotional features. The findings highlight the importance of consumer perceptions, their susceptibility to change through exposure, and the need for cautious interpretation of survey data in this area. Read more

How Monetary Policy Is Made: Lessons From Historical FOMC Discussions

We construct a new dataset of FOMC meeting transcripts (1966–1990) to measure individual policy preferences and the reasoning behind them. We document substantial heterogeneity in how participants justify their views, and show that beliefs about the effects of monetary policy—especially the perceived slope of the Phillips curve—play a central role. We also show that the Chair plays a distinctive role in reconciling these views and limiting dissent by curtailing dissenters’ influence in subsequent meetings. Read more

Endogenous Firm Entry and the Monetary Policy ‘Room’

We present a business cycle model featuring endogenous firm entry. Entry-induced short-run shifts in supply shape the economy's response to both supply and demand shocks. In particular, rising aggregate demand spurs entry, expanding supply and reinforcing demand through entrants' investment expenditures. Monetary policy influences both aggregate demand and the entry decisions of financially constrained firms, shaping cycle dynamics in economies with high entry potential. Equilibrium firm entry is characterized by the 'policy room', a sufficient statistic for monetary policy effectiveness in both the model and empirical data. Read more

Yield-Curve Control Policy under Inelastic Financial Markets

We develop a New Keynesian framework that incorporates the term structure of financial markets, emphasizing the role of government and central bank balance sheet composition in monetary policy transmission. Our model accounts for microfounded market segmentation across asset classes and maturities based on finite and estimable asset demand elasticities. We show that unconventional policy interventions, such as large-scale asset purchase programs and yield-curve control policies, effectively stabilize the economy during normal periods and at the zero lower bound, albeit by extending ZLB episodes and reducing the efficacy of future short-term rate adjustments. Read more

Efficiency, Risk and the Gains from Trade in Interbank Markets

We propose a model of the financial sector that captures complex relationships between highly heterogeneous agents in the market for loanable interbank funds and develops the bank-to-bank component of the macroeconomics financial transmission channel. Financial institutions trade funds due to heterogeneous capacity to provide liquidity, but trade is subject to frictions and uncertainty. The model provides a tractable framework to study the trade-off between efficiency and volatility in the financial sector, and its contribution to business cycles fluctuations. Read more

Self-fulfilling Volatility and a New Monetary Policy

We demonstrate that macroeconomic models with nominal rigidities feature multiple global solutions supporting alternative equilibria traditionally overlooked in the literature. In these equilibria, conventional Taylor rules give rise to self-fulfilling aggregate volatility, propelling the economy into crises (booms) characterized by elevated (reduced) aggregate risk. This outcome stems from the inability of conventional rules to target the expected growth rate of output, which is determined not only by the policy rate but also by the strength of the precautionary savings channel. We propose a new policy rule that targets both conventional mandates and aggregate volatility, reestablishing determinacy and achieving full stabilization. Read more

Liquid Staking and the Control-Exposure Wedge

Proof-of-stake deters attacks by keeping validator stake exposed to slashing and depreciation losses. Liquid staking lets operators obtain voting power using pooled stake while reducing their own exposure by selling liquid staking tokens (LSTs) and shifting uncovered slashing losses onto token holders. We study the security implications of this control-exposure wedge and the protocol design problem it creates. Competitive LST pricing can partly deter attack by lowering the resale value of claims when risk rises, but it cannot fully restore deterrence because liquid staking participants do not internalize ETH-wide depreciation losses. A fee-charging protocol prefers the no-attack regime because it maximizes total stake, yet collateral requirements alone do not generally make that outcome unique. Robust security may therefore require additional tools, including permissioned participation, screening or reserve capacity. Read more

Gender Gap, Structural Change and Female Comparative Advantage: A Quantitative Analysis of China

This paper presents a theoretical framework to reconcile the declining female labor force participation (FLFP) rate and the diverging gender gap in workforce participation in China with the expansion of the service sector and with the increasing female comparative advantage in the market sectors. We argue that two factors jointly shape the trajectory of FLFP rate and gender gap in labor force participation: (i) the interaction between structural change and female comparative advantage dynamics, and (ii) the change of female comparative advantage in the market sectors relative to home production. The framework predicts that FLFP rate drops when women have comparative advantage in diminishing sectors and vice versa, and that a rise in female comparative advantage in the market sectors narrows gender differences in labor force participation. Read more

Informational Experiment on Consumer’s Perception of Central Bank Digital Currency as Liquidity Assets

Recommended citation: Dordal i Carreras, Marc, Kohei Kawaguchi and Si Yuan Jin. “Informational Experiment on Consumer’s Perception of Central Bank Digital Currency as Liquidity Assets.” In Progress (2026). Read more

Implementing the Optimal Staked Share for Proof-of-Stake Ethereum

We develop a model of Proof-of-Stake (PoS) Ethereum in which ETH serves both as a liquid asset and as consensus collateral, so ledger security rises with the market value of staked ETH. This link creates a central trade-off: increasing token issuance enhances incentives to stake and thus strengthens security, but it also dilutes the liquidity value of ETH, reducing the value at stake. Under Ethereum’s current stake-dependent issuance rule, the balanced-growth path yields zero long-run ETH supply growth, rendering long-run outcomes largely insensitive to adjustments in issuance policy. Motivated by this result, we study two simple rule changes on token issuance and base-fee update that produce a unique interior balanced-growth equilibrium and establish a transparent mapping from the issuance rule to the long-run staked share and ETH price growth. We then characterize the protocol designer’s optimal staked share and the associated issuance rule and show how they vary with protocol designer's objectives and PoS transaction capacity. Read more