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.
————————————————————
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
How do US-China trade tensions, particularly tariffs imposed during the first and second Trump administrations, impact trade patterns, financial stability, and economic integration for the euro area and other regions?
• The main ECB paper finds that 2018 US tariffs on China significantly reduced Chinese exports to the US, but Chinese exporters diverted affected products (e.g., clothing, IT equipment) to alternative markets, notably the euro area, boosting China’s market share there; this trade diversion was a key channel through which euro area trade patterns were reshaped.
• Related papers extend this analysis: the ECB’s financial stability review warns that renewed trade tensions pose risks to euro area financial stability via supply chain disruptions and market volatility, while Rabobank’s papers on New Zealand/Australia and general Trump tariffs highlight similar trade diversion and competitive pressures for smaller open economies, contrasting with the euro area’s larger, more integrated market.
• The VOX EU/CEPR book on the second Trump administration provides a broader policy context, arguing that tariffs may undermine US growth and inflation goals, indirectly supporting the ECB’s finding that trade diversion benefits the euro area in the short term but introduces long-term uncertainty.
• The IMF article on Bulgaria’s euro adoption offers a contrasting perspective: despite trade tensions, Bulgaria’s successful euro area entry in 2026 demonstrates that regional economic integration can proceed even amid global trade fragmentation, suggesting resilience in the euro area’s expansion.
• Cross-cutting themes include trade diversion as a primary mechanism for spillover effects, the role of product-level granularity in understanding impacts, and the tension between short-term competitive gains for the euro area and long-term risks to financial stability and global trade architecture.
• Implications for policymakers: euro area authorities should monitor diverted Chinese imports for competitive pressures, prepare for financial stability risks from supply chain disruptions, and leverage regional integration (e.g., euro enlargement) as a buffer against US-China trade volatility.
————————————————————
References
1. [MAIN] The implications of US-China trade tensions for the euro area – lessons from the tariffs imposed by the first Trump Administration — 🇪🇺 The European Central Bank — https://www.ecb.europa.eu//press/economic-bulletin/focus/2025/html/ecb.ebbox202503_02~b2916b44db.en.html
2. [REL#1] Exclusive Trump Tariffs: The Implications for NZ & AUS — 🇳🇱 Rabobank — https://www.rabobank.com/knowledge/q011465272-trump-tariffs-the-implications-for-nz-aus
3. [REL#2] Risks to euro area financial stability from trade tensions — 🇪🇺 The European Central Bank — https://www.ecb.europa.eu//press/financial-stability-publications/fsr/special/html/ecb.fsrart202505_02~4603d3e42a.en.html
4. [REL#3] From Hyperinflation to the Euro — 🦖 IMF — https://www.imf.org/en/publications/fandd/issues/series/analytical-series/from-hyperinflation-to-the-euro-enoch
5. [REL#4] The economics of the second Trump administration — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/economics-second-trump-administration
6. [REL#5] Trump tariffs — 🇳🇱 Rabobank — https://www.rabobank.com/knowledge/q011464954-trump-tariffs
• The main ECB paper finds that 2018 US tariffs on China significantly reduced Chinese exports to the US, but Chinese exporters diverted affected products (e.g., clothing, IT equipment) to alternative markets, notably the euro area, boosting China’s market share there; this trade diversion was a key channel through which euro area trade patterns were reshaped.
• Related papers extend this analysis: the ECB’s financial stability review warns that renewed trade tensions pose risks to euro area financial stability via supply chain disruptions and market volatility, while Rabobank’s papers on New Zealand/Australia and general Trump tariffs highlight similar trade diversion and competitive pressures for smaller open economies, contrasting with the euro area’s larger, more integrated market.
• The VOX EU/CEPR book on the second Trump administration provides a broader policy context, arguing that tariffs may undermine US growth and inflation goals, indirectly supporting the ECB’s finding that trade diversion benefits the euro area in the short term but introduces long-term uncertainty.
• The IMF article on Bulgaria’s euro adoption offers a contrasting perspective: despite trade tensions, Bulgaria’s successful euro area entry in 2026 demonstrates that regional economic integration can proceed even amid global trade fragmentation, suggesting resilience in the euro area’s expansion.
• Cross-cutting themes include trade diversion as a primary mechanism for spillover effects, the role of product-level granularity in understanding impacts, and the tension between short-term competitive gains for the euro area and long-term risks to financial stability and global trade architecture.
• Implications for policymakers: euro area authorities should monitor diverted Chinese imports for competitive pressures, prepare for financial stability risks from supply chain disruptions, and leverage regional integration (e.g., euro enlargement) as a buffer against US-China trade volatility.
————————————————————
References
1. [MAIN] The implications of US-China trade tensions for the euro area – lessons from the tariffs imposed by the first Trump Administration — 🇪🇺 The European Central Bank — https://www.ecb.europa.eu//press/economic-bulletin/focus/2025/html/ecb.ebbox202503_02~b2916b44db.en.html
2. [REL#1] Exclusive Trump Tariffs: The Implications for NZ & AUS — 🇳🇱 Rabobank — https://www.rabobank.com/knowledge/q011465272-trump-tariffs-the-implications-for-nz-aus
3. [REL#2] Risks to euro area financial stability from trade tensions — 🇪🇺 The European Central Bank — https://www.ecb.europa.eu//press/financial-stability-publications/fsr/special/html/ecb.fsrart202505_02~4603d3e42a.en.html
4. [REL#3] From Hyperinflation to the Euro — 🦖 IMF — https://www.imf.org/en/publications/fandd/issues/series/analytical-series/from-hyperinflation-to-the-euro-enoch
5. [REL#4] The economics of the second Trump administration — 🇪🇺 VOX EU + CEPR — https://cepr.org/voxeu/columns/economics-second-trump-administration
6. [REL#5] Trump tariffs — 🇳🇱 Rabobank — https://www.rabobank.com/knowledge/q011464954-trump-tariffs
How do government-funded R&D, patent data, and related financial and technological factors shape innovation, economic growth, and macroeconomic stability?
• The main paper introduces the Government Patent Register (GPR), a new dataset covering US government-funded patents from 1900–2020, finding that prior data missed 30% of all such patents and nearly 200% of pre-1976 patents, enabling better analysis of historical innovation policy shocks like the Bayh-Dole Act.
• Related papers connect by examining complementary dimensions: the NBER chapter estimates economic effects of federally funded R&D, reinforcing the main paper’s focus on measuring public R&D impacts, while the NBER working paper on technological trajectories uses patent data across countries and time to link R&D, education, and defense spending to innovation capability.
• The BIS bulletin on commodity prices and monetary policy contrasts by addressing macroeconomic stability challenges from supply-driven shocks, highlighting how external factors (e.g., energy prices) can disrupt innovation-driven growth, while the Dutch central bank paper on foreign-funded credit shows how credit cycles, especially in emerging economies, interact with funding sources—paralleling the main paper’s concern with funding composition.
• Cross-cutting themes include the centrality of high-quality, long-run data (patent registers, credit flows, commodity prices) for understanding innovation and economic dynamics, and the interplay between public policy (R&D funding, patent rules, monetary policy) and private sector responses.
• Implications: Improved historical patent data can inform debates on optimal government R&D allocation and patent reform, while the broader literature suggests that innovation policy must account for macroeconomic shocks (commodity prices, credit cycles) and global technological competition to avoid middle-technology traps.
————————————————————
Sources: MAIN: New data, old debates: US government-funded R&D and patent policy · R1: Commodity prices and monetary policy: old and new challenges · R2: AI news shocks and the macroeconomy: evidence from UK patent data · R3: Estimating the Economic Effects of Federally Funded R&D · R4: Mapping Technological Trajectories: Evidence from Two Centuries of Patent Data · R5: Foreign funded credit: funding the credit cycle?
• The main paper introduces the Government Patent Register (GPR), a new dataset covering US government-funded patents from 1900–2020, finding that prior data missed 30% of all such patents and nearly 200% of pre-1976 patents, enabling better analysis of historical innovation policy shocks like the Bayh-Dole Act.
• Related papers connect by examining complementary dimensions: the NBER chapter estimates economic effects of federally funded R&D, reinforcing the main paper’s focus on measuring public R&D impacts, while the NBER working paper on technological trajectories uses patent data across countries and time to link R&D, education, and defense spending to innovation capability.
• The BIS bulletin on commodity prices and monetary policy contrasts by addressing macroeconomic stability challenges from supply-driven shocks, highlighting how external factors (e.g., energy prices) can disrupt innovation-driven growth, while the Dutch central bank paper on foreign-funded credit shows how credit cycles, especially in emerging economies, interact with funding sources—paralleling the main paper’s concern with funding composition.
• Cross-cutting themes include the centrality of high-quality, long-run data (patent registers, credit flows, commodity prices) for understanding innovation and economic dynamics, and the interplay between public policy (R&D funding, patent rules, monetary policy) and private sector responses.
• Implications: Improved historical patent data can inform debates on optimal government R&D allocation and patent reform, while the broader literature suggests that innovation policy must account for macroeconomic shocks (commodity prices, credit cycles) and global technological competition to avoid middle-technology traps.
————————————————————
Sources: MAIN: New data, old debates: US government-funded R&D and patent policy · R1: Commodity prices and monetary policy: old and new challenges · R2: AI news shocks and the macroeconomy: evidence from UK patent data · R3: Estimating the Economic Effects of Federally Funded R&D · R4: Mapping Technological Trajectories: Evidence from Two Centuries of Patent Data · R5: Foreign funded credit: funding the credit cycle?
ECB Study Shows 2018 US-China Tariffs Diverted Chinese Exports to Euro Area
• The main ECB paper finds that the 2018 US tariffs on China (raising effective rates by ~18pp) caused a sharp drop in China’s US import share, with tariff-affected goods—clothing, IT equipment, auto parts, furniture—redirected to the euro area, boosting China’s EA market share from 2019 onward.
• Rabobank’s analysis on NZ & AUS and its separate Trump tariffs report underscore that non-EA economies face similar trade diversion risks, with smaller open economies particularly exposed to US tariff spillovers via redirected Chinese exports and disrupted supply chains.
• The ECB’s financial stability paper warns that renewed trade tensions could amplify risks for euro area banks and asset markets through weaker corporate earnings, higher import costs, and volatility in trade-dependent sectors—a direct contrast to the main paper’s focus on trade volume shifts.
• The IMF’s piece on Bulgaria’s euro adoption highlights how trade fragmentation can push smaller EU economies toward deeper integration as a hedge, supporting the main paper’s implication that tariff shocks may accelerate regional currency bloc consolidation.
• VOX EU’s assessment of the second Trump administration argues that tariffs may undermine US growth and inflation goals, reinforcing the main paper’s finding that past US tariffs had limited success in reshoring production but succeeded in rerouting trade flows—with lasting consequences for third parties like the euro area.
Cross-cutting themes include trade diversion as a persistent mechanism, the euro area’s dual role as both a safe haven and a target for redirected exports, and the risk that escalating US-China tensions could fragment global supply chains further, raising costs and financial stability concerns across regions.
————————————————————
Sources: MAIN: The implications of US-China trade tensions for the euro area – lessons from the… · R1: Exclusive Trump Tariffs: The Implications for NZ & AUS · R2: Risks to euro area financial stability from trade tensions · R3: From Hyperinflation to the Euro · R4: The economics of the second Trump administration · R5: Trump tariffs
• The main ECB paper finds that the 2018 US tariffs on China (raising effective rates by ~18pp) caused a sharp drop in China’s US import share, with tariff-affected goods—clothing, IT equipment, auto parts, furniture—redirected to the euro area, boosting China’s EA market share from 2019 onward.
• Rabobank’s analysis on NZ & AUS and its separate Trump tariffs report underscore that non-EA economies face similar trade diversion risks, with smaller open economies particularly exposed to US tariff spillovers via redirected Chinese exports and disrupted supply chains.
• The ECB’s financial stability paper warns that renewed trade tensions could amplify risks for euro area banks and asset markets through weaker corporate earnings, higher import costs, and volatility in trade-dependent sectors—a direct contrast to the main paper’s focus on trade volume shifts.
• The IMF’s piece on Bulgaria’s euro adoption highlights how trade fragmentation can push smaller EU economies toward deeper integration as a hedge, supporting the main paper’s implication that tariff shocks may accelerate regional currency bloc consolidation.
• VOX EU’s assessment of the second Trump administration argues that tariffs may undermine US growth and inflation goals, reinforcing the main paper’s finding that past US tariffs had limited success in reshoring production but succeeded in rerouting trade flows—with lasting consequences for third parties like the euro area.
Cross-cutting themes include trade diversion as a persistent mechanism, the euro area’s dual role as both a safe haven and a target for redirected exports, and the risk that escalating US-China tensions could fragment global supply chains further, raising costs and financial stability concerns across regions.
————————————————————
Sources: MAIN: The implications of US-China trade tensions for the euro area – lessons from the… · R1: Exclusive Trump Tariffs: The Implications for NZ & AUS · R2: Risks to euro area financial stability from trade tensions · R3: From Hyperinflation to the Euro · R4: The economics of the second Trump administration · R5: Trump tariffs
French Firms Overshoot Inflation Bets, Wage Spiral Fails to Materialize
• The main paper (Gautier et al. 2025) uses a unique Banque de France quarterly survey (2020–2024) to show that French firms initially underreacted to rising inflation, then persistently overshot expectations during disinflation, before re-anchoring to the ECB’s 2% target by late 2024.
• Critically, firms’ wage expectations remained subdued and tracked actual wage growth, not inflation expectations—especially long-term ones—implying limited pass-through and no wage-price spiral, consistent with short-lived wage contracts (Werning 2022).
• The related euro area paper (Baumann et al. 2025) corroborates the anchoring theme, finding that disinflation gradually pulls down firms’ expectations, but warns of potential scarring from high-inflation experiences—contrasting with the French paper’s optimistic re-anchoring narrative.
• The Bank of England paper (Yotzov et al.) adds a high-frequency dimension: UK firms react to CPI releases within hours, especially when media coverage is high, suggesting media attention amplifies the under/overreaction pattern seen in France.
• The Bank of Canada note (Asghar et al.) supports the French finding that elevated inflation expectations can influence price-setting, but warns this may delay monetary policy transmission—a nuance the French paper downplays given its benign wage outcome.
• The Banque de France NLP paper (De Bandt et al.) offers a complementary real-time indicator of inflation perceptions from press articles, aligning with the survey-based evidence and highlighting how media shapes the expectation formation process documented in the main study.
Cross-cutting themes: firms’ expectations are sticky, media-driven, and respond more to recent inflation than distant targets; wage pass-through is weaker than feared; and anchoring is resilient but not automatic. The overarching takeaway: despite initial overshooting and media amplification, firm-level inflation expectations in advanced economies have proven more anchored and less wage-contagious than policymakers feared, reducing the risk of a 1970s-style spiral.
————————————————————
Sources: MAIN: How French firms navigated the inflation surge: Lessons for expectations and dec… · R1: Inflation expectations and anchoring during a disinflation episode: Evidence for… · R2: Using the Press to Construct a New Indicator of Inflation Perceptions in France · R3: The speed of firm response to inflation · R4: Firms react more to recent inflation than expected future inflation · R5: Firms’ inflation expectations and price-setting behaviour in Canada: Evidence fr…
• The main paper (Gautier et al. 2025) uses a unique Banque de France quarterly survey (2020–2024) to show that French firms initially underreacted to rising inflation, then persistently overshot expectations during disinflation, before re-anchoring to the ECB’s 2% target by late 2024.
• Critically, firms’ wage expectations remained subdued and tracked actual wage growth, not inflation expectations—especially long-term ones—implying limited pass-through and no wage-price spiral, consistent with short-lived wage contracts (Werning 2022).
• The related euro area paper (Baumann et al. 2025) corroborates the anchoring theme, finding that disinflation gradually pulls down firms’ expectations, but warns of potential scarring from high-inflation experiences—contrasting with the French paper’s optimistic re-anchoring narrative.
• The Bank of England paper (Yotzov et al.) adds a high-frequency dimension: UK firms react to CPI releases within hours, especially when media coverage is high, suggesting media attention amplifies the under/overreaction pattern seen in France.
• The Bank of Canada note (Asghar et al.) supports the French finding that elevated inflation expectations can influence price-setting, but warns this may delay monetary policy transmission—a nuance the French paper downplays given its benign wage outcome.
• The Banque de France NLP paper (De Bandt et al.) offers a complementary real-time indicator of inflation perceptions from press articles, aligning with the survey-based evidence and highlighting how media shapes the expectation formation process documented in the main study.
Cross-cutting themes: firms’ expectations are sticky, media-driven, and respond more to recent inflation than distant targets; wage pass-through is weaker than feared; and anchoring is resilient but not automatic. The overarching takeaway: despite initial overshooting and media amplification, firm-level inflation expectations in advanced economies have proven more anchored and less wage-contagious than policymakers feared, reducing the risk of a 1970s-style spiral.
————————————————————
Sources: MAIN: How French firms navigated the inflation surge: Lessons for expectations and dec… · R1: Inflation expectations and anchoring during a disinflation episode: Evidence for… · R2: Using the Press to Construct a New Indicator of Inflation Perceptions in France · R3: The speed of firm response to inflation · R4: Firms react more to recent inflation than expected future inflation · R5: Firms’ inflation expectations and price-setting behaviour in Canada: Evidence fr…
Iran War Oil Shock Threatens to Rekindle US Inflation
• The main paper uses a calibrated DSGE model to simulate oil price paths under various Iran War disruption scenarios, then maps these into monthly gasoline price shocks via a VAR model to estimate the impact on US headline inflation and expectations, finding that even moderate supply shortfalls could push inflation significantly higher through 2026-2027.
• The BIS working paper on inflation cycles provides a crucial cross-country context, showing that mean inflation cycles last 6-7 years and are highly synchronized across advanced economies—suggesting that an Iran-driven oil shock could amplify global inflationary co-movement, not just US price pressures.
• The San Francisco Fed’s Economic Letter on international influences reinforces this, finding that while US inflation is mostly domestic, international forces can contribute significantly during crises—directly supporting the main paper’s premise that a foreign supply shock (Iran war) can materially alter US inflation dynamics.
• The Bank of Japan’s review on underlying inflation contrasts with the main paper’s approach: the BOJ emphasizes filtering out temporary supply shocks to gauge trend inflation, while the Iran war paper focuses precisely on the transitory-but-persistent shock itself, highlighting the policy tension between reacting to temporary spikes versus ignoring them.
• The VoxEU update on the post-COVID inflation retreat (Ball et al. 2025) shows that the 2022-2025 disinflation was driven by reversals in labor tightness, energy prices, and expectations—all of which the Iran war could now reverse, especially the energy component, potentially stalling or reversing the progress made since 2022.
The Iran war paper demonstrates that geopolitical oil supply shocks remain a potent, under-modeled source of US inflation risk, capable of disrupting the post-pandemic disinflation narrative and forcing central banks to choose between fighting inflation and accommodating a supply-driven spike.
————————————————————
Sources: MAIN: Quantifying the impact of the Iran war on US inflation · R1: Inflation: Frontiers of Research and Policy, Spring 2026 · R2: Inflation cycles: evidence from international data · R3: The Concept and Measurement of Underlying Inflation · R4: International Influences on U.S. Inflation · R5: The rise and retreat of US inflation: An update
• The main paper uses a calibrated DSGE model to simulate oil price paths under various Iran War disruption scenarios, then maps these into monthly gasoline price shocks via a VAR model to estimate the impact on US headline inflation and expectations, finding that even moderate supply shortfalls could push inflation significantly higher through 2026-2027.
• The BIS working paper on inflation cycles provides a crucial cross-country context, showing that mean inflation cycles last 6-7 years and are highly synchronized across advanced economies—suggesting that an Iran-driven oil shock could amplify global inflationary co-movement, not just US price pressures.
• The San Francisco Fed’s Economic Letter on international influences reinforces this, finding that while US inflation is mostly domestic, international forces can contribute significantly during crises—directly supporting the main paper’s premise that a foreign supply shock (Iran war) can materially alter US inflation dynamics.
• The Bank of Japan’s review on underlying inflation contrasts with the main paper’s approach: the BOJ emphasizes filtering out temporary supply shocks to gauge trend inflation, while the Iran war paper focuses precisely on the transitory-but-persistent shock itself, highlighting the policy tension between reacting to temporary spikes versus ignoring them.
• The VoxEU update on the post-COVID inflation retreat (Ball et al. 2025) shows that the 2022-2025 disinflation was driven by reversals in labor tightness, energy prices, and expectations—all of which the Iran war could now reverse, especially the energy component, potentially stalling or reversing the progress made since 2022.
The Iran war paper demonstrates that geopolitical oil supply shocks remain a potent, under-modeled source of US inflation risk, capable of disrupting the post-pandemic disinflation narrative and forcing central banks to choose between fighting inflation and accommodating a supply-driven spike.
————————————————————
Sources: MAIN: Quantifying the impact of the Iran war on US inflation · R1: Inflation: Frontiers of Research and Policy, Spring 2026 · R2: Inflation cycles: evidence from international data · R3: The Concept and Measurement of Underlying Inflation · R4: International Influences on U.S. Inflation · R5: The rise and retreat of US inflation: An update
🔥1