The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks".The BIS carries out its work through its meetings, programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.
This paper studies the interaction between monetary policy and macroeconomic stability in a model with two distinguishing features. First, financing - cash flows - underpins all economic activity, with banks generating deposits by granting loans. Money is non-neutral as the policy interest rate anchors the real economy. Second, bank lending is subject to an endogenous boom-bust cycle due to externalities in the loan market. Together, these features imply that monetary policy may have long-lasting impact on the real economy through its in fluence on the financial cycle. In this 'finance-based' economy, there is no well-defined natural rate of interest to which the economy gravitates. The possibility of a 'low interest rate trap' emerges: monetary policy that leans insufficiently against the build-up of financial imbalances increases the vulnerability to financial busts over successive cycles. As a result, low rates can beget lower rates.
Prevailing explanations of persistently low interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side underestimates the effect of its own action on the other's inference, possibly leading to large and persistent changes in perceived r-star disconnected from fundamentals. Monetary policy, through its influence on the private sector's beliefs, endogenously determines r-star as a result. We simulate a calibrated model and show that this `hall-of-mirrors' effect can explain much of the decline in real interest rates since 2008.
This paper examines the impact of generative artificial intelligence (Gen AI) on labour productivity through a quasi-experiment involving software developers. In September 2023, Ant Group introduced CodeFuse, a large language model (LLM) designed to support coding tasks. While some programmer teams began using CodeFuse, others were not made aware of its release. Exploiting this natural variation in exposure, we identify comparable treatment and control groups of programmers to estimate the causal effect of Gen AI adoption on productivity. We find that the use of CodeFuse increases code output by over 50%. However, these productivity gains are statistically significant only among junior or entry-level staff; the impact on more senior developers is more limited. Importantly, most of the productivity gains stem not from the direct use of LLM-generated code, but from time savings that allow programmers to work more efficiently. Recognising that LLMs can inflate code volume, we assess robustness using alternative, task-based productivity measures and find a 22% increase in tasks completed. An ex-post survey of programmers supports these findings.
We document that the sectoral composition and marginal buyers of government debt differ notably across jurisdictions and over time. We use instrumental variables derived from monetary policy surprises to estimate the demand elasticities of various sectors. In the United States, commercial banks and mutual funds exhibit the most priceelastic demand, whereas the foreign official sector has a price-inelastic demand. Based on these estimates and under certain assumptions, we find that a 1% increase in the Central Bank holdings of U.S. Treasuries results in an around 8- to 13-basis-point drop in longterm yields depending on the market composition. Elasticities of individual sectors do not differ in a statistically significant manner when the Central Bank share in the Treasury market increases or decreases. However, different market compositions during various quantitative easing (QE) and quantitative tightening (QT) programs have led to an asymmetric effect with the impact of QE on yields being greater than that of QT. Our results suggest that, overall, the demand for U.S. Treasuries is considerably more elastic than for equities, corporate bonds, and emerging market sovereign bonds found in the literature. We also repeat the analysis for other jurisdictions and compare estimates for different sectors.
This paper examines the credit supply effects of sale-of-business (SoB) bank resolutions under the post-Global Financial Crisis regulatory framework, focusing on the resolution of a major Spanish bank. We provide the first micro-level evidence of how an SoB resolution reshapes credit allocation. The acquiring bank preserved lending relationships, prioritizing support for riskier inherited borrowers most exposed to competing banks' retrenchment. This stabilization was achieved despite tighter capital conditions, as the acquiring bank strategically reallocated credit within its broader portfolio, shifting away from more capital-intensive exposures. By preserving credit and real outcomes for inherited borrowers, the SoB resolution demonstrates the potential of this tool to limit disruptions to the real economy, contingent on the acquirer's strategic alignment and capital capacity. Our results highlight the interplay between franchise-preservation incentives and capital constraints in shaping credit reallocation during bank resolutions.
