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Nakitte

Institutional research & analysis

Source: Federal Reserve

CENTRAL BANK

Working PaperJune 5, 2026

FEDS Paper: Settlement Speed and Financial Stability(Revised)

Agostino Capponi and Jin-Wook Chang This paper investigates how settlement speed affects financial stability in payment networks, accounting for netting benefits, liquidity costs, and counterparty risks. Faster settlement reduces crisis likelihood but amplifies crisis severity. The net welfare effect depends on network topology and proximity to default threshold points—settlement times at which the number of defaulting agents changes discontinuously. The optimal settlement speed is not univer...

Federal Reserve1 min read
Working PaperJune 4, 2026

FEDS Paper: Slow Learning

Lawrence J. Christiano, Martin Eichenbaum, and Benjamin K. Johannsen This paper provides an analytic characterization of the speed of convergence under learning to a rational expectations equilibrium (REE) for a large class of multivariate models. We show that learning is slower when people's beliefs about model outcomes are more self-fulfilling. The paper also investigates which features of a model economy make beliefs more self-fulfilling, using variants of the simple new-Keynesian model an...

Federal Reserve1 min read
Working PaperJune 4, 2026

FEDS Paper: Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks(Revised)

Edmund Crawley and William L. Gamber We estimate how much household spending responds directly to changes in interest rates. We develop a Bayesian procedure that uses the empirical impulse responses to macroeconomic shocks to discipline the consumer block of a HANK model. The procedure can be applied shock-by-shock or pooled jointly. We apply this method in two ways using 10 macroeconomic shocks: a structural model with sticky expectations over both income and interest rates, and a non-parame...

Federal Reserve1 min read
Working PaperJune 3, 2026

FEDS Paper: The Role of Inflation Perceptions in Consumer Inflation Expectations: Evidence from the Euro Area

Matthieu Bussière, Johanna Gilbert, and Olesya Grishchenko Using data on euro-area household inflation forecasts from the European Commission Consumer Survey, we show that households' perceptions of recent price changes play a key role in the formation of their inflation expectations. Such a relationship remains robust when we account for specific inflation components, household characteristics, and macroeconomic conditions, even though the perceptions-expectations relationship is heterogeneo...

Federal Reserve1 min read
Working PaperJune 2, 2026

FEDS Paper: The Fragility of Perfectly Safe Digital Money

Elizabeth C. Klee, Arazi Lubis, Chase P. Ross, Sharon Y. Ross, and Alexandros P. Vardoulakis Digital money differs from previous forms of money in an important way: it unbundles trust. Instead of relying on a trustworthy institution to settle payments, it relies on decentralized verification, whose cost is priced separately through congestion-sensitive gas fees. This arrangement creates a novel fragility from the interaction of two opposing forces: network externalities, which make digital mo...

Federal Reserve1 min read