How does the state dependence of financial market conditions—such as interest rate levels, liquidity, and intermediary inelasticity—shape the transmission of monetary policy to asset prices like house prices and exchange rates?
• The main paper (Burgert, Eugster, Otten) finds that house prices in 29 OECD countries respond more strongly and persistently to interest rate shocks than previously estimated, with the effect amplified when rates are low, during recessions, when credit is tight, and when a prior housing boom is followed by a medium-term decline.
• Related papers on liquidity state dependence (Bank of England, BIS) show that monetary policy shocks move long-term bond yields only when market liquidity is high and arbitrageurs are well-capitalized, operating through real term premia—contrasting with the main paper’s focus on credit and cyclical conditions but reinforcing the theme of nonlinear transmission.
• The paper on inelastic intermediaries (Eugster, Rosso, Yesin) demonstrates that the rise of mutual funds and ETFs, which trade only in response to flows, reduces aggregate price elasticity and amplifies exchange rate sensitivity to capital flows, paralleling the main paper’s finding that preexisting market structure (e.g., tight credit) magnifies interest rate effects on house prices.
• The Bank of Italy paper on uncertainty and data dependence shows that higher central bank uncertainty about forecasts increases markets’ reliance on macroeconomic data releases over central bank communication, linking to the main paper’s emphasis on how preexisting conditions (e.g., recession, low rates) alter the sensitivity of asset prices to policy.
• Cross-cutting themes include the critical role of financial market frictions (liquidity, intermediary behavior, credit conditions) in determining the strength and timing of monetary transmission, and the implication that policymakers must account for state-dependent elasticities to avoid underestimating the impact of rate changes during stressed or low-rate environments.
• The collective findings suggest that standard linear models of monetary policy transmission are insufficient; instead, the effectiveness of policy hinges on the prevailing cyclical, liquidity, and institutional context, with implications for macroprudential regulation and forward guidance design.
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References
1. [MAIN] WP - 2024-02-05 - Matthias Burgert, Johannes Eugster and Victoria Otten: The interest rate sensitivity of house prices: international evidence on its state dependence — 🇨🇭 Swiss National Bank — https://www.snb.ch/en/publications/research/working-papers/2024/working_paper_2024_01
2. [REL#1] WP - 2022-12-23 - Johannes Eugster and Giovanni Donato: The exchange rate elasticity of the Swiss current account — 🇨🇭 Swiss National Bank — https://www.snb.ch/n/mmr/reference/working_paper_2022_14/source/working_paper_2022_14.n.pdf
3. [REL#2] No. 1513 - Uncertainty, data dependence and interest rate volatility — 🇮🇹 Bank of Italy — https://www.bancaditalia.it/pubblicazioni/temi-discussione/2025/2025-1513/index.html
4. [REL#3] WP - 2025-12-17 - Johannes Eugster, Giovanni Rosso and Pinar Yesin: The rise of inelastic intermediaries and exchange rate dynamics — 🇨🇭 Swiss National Bank — https://www.snb.ch/en/publications/research/working-papers/2025/working_paper_2025_17
5. [REL#4] The liquidity state-dependence of monetary policy transmission — 🇬🇧 Bank of England — https://www.bankofengland.co.uk/working-paper/2023/the-liquidity-state-dependence-of-monetary-policy-transmission
6. [REL#5] The liquidity state dependence of monetary policy transmission — 🌐 Bank for International Settlements — https://www.bis.org/publ/work1289.htm
• The main paper (Burgert, Eugster, Otten) finds that house prices in 29 OECD countries respond more strongly and persistently to interest rate shocks than previously estimated, with the effect amplified when rates are low, during recessions, when credit is tight, and when a prior housing boom is followed by a medium-term decline.
• Related papers on liquidity state dependence (Bank of England, BIS) show that monetary policy shocks move long-term bond yields only when market liquidity is high and arbitrageurs are well-capitalized, operating through real term premia—contrasting with the main paper’s focus on credit and cyclical conditions but reinforcing the theme of nonlinear transmission.
• The paper on inelastic intermediaries (Eugster, Rosso, Yesin) demonstrates that the rise of mutual funds and ETFs, which trade only in response to flows, reduces aggregate price elasticity and amplifies exchange rate sensitivity to capital flows, paralleling the main paper’s finding that preexisting market structure (e.g., tight credit) magnifies interest rate effects on house prices.
• The Bank of Italy paper on uncertainty and data dependence shows that higher central bank uncertainty about forecasts increases markets’ reliance on macroeconomic data releases over central bank communication, linking to the main paper’s emphasis on how preexisting conditions (e.g., recession, low rates) alter the sensitivity of asset prices to policy.
• Cross-cutting themes include the critical role of financial market frictions (liquidity, intermediary behavior, credit conditions) in determining the strength and timing of monetary transmission, and the implication that policymakers must account for state-dependent elasticities to avoid underestimating the impact of rate changes during stressed or low-rate environments.
• The collective findings suggest that standard linear models of monetary policy transmission are insufficient; instead, the effectiveness of policy hinges on the prevailing cyclical, liquidity, and institutional context, with implications for macroprudential regulation and forward guidance design.
————————————————————
References
1. [MAIN] WP - 2024-02-05 - Matthias Burgert, Johannes Eugster and Victoria Otten: The interest rate sensitivity of house prices: international evidence on its state dependence — 🇨🇭 Swiss National Bank — https://www.snb.ch/en/publications/research/working-papers/2024/working_paper_2024_01
2. [REL#1] WP - 2022-12-23 - Johannes Eugster and Giovanni Donato: The exchange rate elasticity of the Swiss current account — 🇨🇭 Swiss National Bank — https://www.snb.ch/n/mmr/reference/working_paper_2022_14/source/working_paper_2022_14.n.pdf
3. [REL#2] No. 1513 - Uncertainty, data dependence and interest rate volatility — 🇮🇹 Bank of Italy — https://www.bancaditalia.it/pubblicazioni/temi-discussione/2025/2025-1513/index.html
4. [REL#3] WP - 2025-12-17 - Johannes Eugster, Giovanni Rosso and Pinar Yesin: The rise of inelastic intermediaries and exchange rate dynamics — 🇨🇭 Swiss National Bank — https://www.snb.ch/en/publications/research/working-papers/2025/working_paper_2025_17
5. [REL#4] The liquidity state-dependence of monetary policy transmission — 🇬🇧 Bank of England — https://www.bankofengland.co.uk/working-paper/2023/the-liquidity-state-dependence-of-monetary-policy-transmission
6. [REL#5] The liquidity state dependence of monetary policy transmission — 🌐 Bank for International Settlements — https://www.bis.org/publ/work1289.htm
How do modern industrial policies and central bank liquidity tools interact with global trade rules, retaliatory protectionism, and financial stability?
• The main paper (PIIE) argues that modern industrial policies—particularly subsidies and strategic state intervention—increasingly clash with WTO rules, creating legal uncertainty and trade friction, and finds that the WTO's dispute settlement system is ill-equipped to handle the scale and complexity of current industrial policy measures.
• Related papers on China (VOX EU) show that Chinese firms receiving subsidies face disproportionately higher antidumping and countervailing duties, empirically confirming that industrial policy triggers retaliatory protectionism, while the trade spillovers paper (VOX EU) demonstrates that large emerging economies' subsidies generate significant cross-border trade effects, fueling tit-for-tat responses.
• The central bank liquidity papers (Bank of Canada, SF Fed) connect by highlighting how central banks have expanded balance sheet tools for financial stability, which parallels the expansion of state intervention in industrial policy—both representing a post-2008 shift toward more active government roles in markets, but with different institutional frameworks and accountability.
• A cross-cutting theme is the tension between national policy autonomy and international rules: industrial policy seeks domestic economic goals but provokes trade retaliation, while central bank liquidity policy operates largely outside WTO disciplines, revealing gaps in global governance for state intervention.
• Implications include that without WTO reform, industrial policy will increasingly lead to protectionist spirals, and that central banks' expanded roles may face similar legitimacy challenges as trade policy if their actions are perceived as favoring specific sectors or distorting competition.
• The synthesis suggests a need for coordinated international frameworks that address both trade-distorting subsidies and the financial stability tools of central banks, as the boundaries between monetary policy, industrial policy, and trade policy are blurring in practice.
————————————————————
References
1. [MAIN] Modern industrial policy and the WTO — 🇺🇸 Peterson Institute for International Economics — https://www.piie.com/publications/working-papers/modern-industrial-policy-and-wto
2. [REL#1] Industrial policy and retaliatory protection under the WTO: Lessons from China — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/industrial-policy-and-retaliatory-protection-under-wto-lessons-china
3. [REL#2] Industrial policy for development — 🇺🇸 Peterson Institute for International Economics — https://www.piie.com/events/2026/industrial-policy-development
4. [REL#3] Central Bank Liquidity Policy in Modern Times — 🇨🇦 Bank of Canada Discussion Papers — https://www.bankofcanada.ca/2024/06/staff-discussion-paper-2024-6/
5. [REL#4] Modern Central Banking: Monetary Policy Implementation and Communication — 🇺🇸 Federal Reserve Bank of San Francisco: Economic Letter — https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/11/modern-central-banking-monetary-policy-implementation-and-communication/
6. [REL#5] Trade spillovers of industrial policy — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/trade-spillovers-industrial-policy
• The main paper (PIIE) argues that modern industrial policies—particularly subsidies and strategic state intervention—increasingly clash with WTO rules, creating legal uncertainty and trade friction, and finds that the WTO's dispute settlement system is ill-equipped to handle the scale and complexity of current industrial policy measures.
• Related papers on China (VOX EU) show that Chinese firms receiving subsidies face disproportionately higher antidumping and countervailing duties, empirically confirming that industrial policy triggers retaliatory protectionism, while the trade spillovers paper (VOX EU) demonstrates that large emerging economies' subsidies generate significant cross-border trade effects, fueling tit-for-tat responses.
• The central bank liquidity papers (Bank of Canada, SF Fed) connect by highlighting how central banks have expanded balance sheet tools for financial stability, which parallels the expansion of state intervention in industrial policy—both representing a post-2008 shift toward more active government roles in markets, but with different institutional frameworks and accountability.
• A cross-cutting theme is the tension between national policy autonomy and international rules: industrial policy seeks domestic economic goals but provokes trade retaliation, while central bank liquidity policy operates largely outside WTO disciplines, revealing gaps in global governance for state intervention.
• Implications include that without WTO reform, industrial policy will increasingly lead to protectionist spirals, and that central banks' expanded roles may face similar legitimacy challenges as trade policy if their actions are perceived as favoring specific sectors or distorting competition.
• The synthesis suggests a need for coordinated international frameworks that address both trade-distorting subsidies and the financial stability tools of central banks, as the boundaries between monetary policy, industrial policy, and trade policy are blurring in practice.
————————————————————
References
1. [MAIN] Modern industrial policy and the WTO — 🇺🇸 Peterson Institute for International Economics — https://www.piie.com/publications/working-papers/modern-industrial-policy-and-wto
2. [REL#1] Industrial policy and retaliatory protection under the WTO: Lessons from China — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/industrial-policy-and-retaliatory-protection-under-wto-lessons-china
3. [REL#2] Industrial policy for development — 🇺🇸 Peterson Institute for International Economics — https://www.piie.com/events/2026/industrial-policy-development
4. [REL#3] Central Bank Liquidity Policy in Modern Times — 🇨🇦 Bank of Canada Discussion Papers — https://www.bankofcanada.ca/2024/06/staff-discussion-paper-2024-6/
5. [REL#4] Modern Central Banking: Monetary Policy Implementation and Communication — 🇺🇸 Federal Reserve Bank of San Francisco: Economic Letter — https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/11/modern-central-banking-monetary-policy-implementation-and-communication/
6. [REL#5] Trade spillovers of industrial policy — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/trade-spillovers-industrial-policy