Episodes
How Central Banks Are Using Instant Payment Systems
Episode 159 of Monetary Policy Explained dives into the quiet revolution of real-time payment systems. Lucas and Luna unpack how central banks from Brazil to India are building instant payment rails, why the Fed's FedNow finally launched after years of delay, and what this means for banks, businesses, and everyday consumers. They drill into the case of Pix, Brazil's instant payment system that has reshaped the country's payments landscape in just a few years, and compare it with India's UPI.…
Why Central Banks Are Watching the Labor Market
Episode 158 of Monetary Policy Explained with Fexingo. Central banks talk about inflation targets and interest rates, but the labor market is where the real action is. In this episode, Lucas and Luna break down why the Federal Reserve, the European Central Bank, and the Bank of Japan obsess over jobs data, and how a single payrolls number can move markets. They unpack the concept of maximum employment, the Fed's dual mandate, and how the Beveridge curve reveals the health of the economy. Using…
How Central Banks Use Digital Currencies to Reshape Payments
Central banks around the world are quietly building their own digital currencies, and the implications go far beyond faster payments. In this episode, Lucas and Luna unpack the 'why' behind central bank digital currencies, or CBDCs, focusing on a specific case: the Bahamas' Sand Dollar, the world's first fully deployed CBDC. They explore how it was designed to improve financial inclusion in a nation of scattered islands, what it means for commercial banks, and why other central banks from China…
Why Central Banks Care About Climate Stress Tests
In this episode of Monetary Policy Explained, Lucas and Luna explore a fresh angle in central banking: climate stress tests. With regulators increasingly asking banks to model how extreme weather and the transition to a low-carbon economy could hit their balance sheets, the hosts break down the logic behind these exercises and the numbers that matter. They explain how the Bank of England's 2021 exercise, the Federal Reserve's 2023 pilot scenario, and the European Central Bank's 2022…
Why Central Banks Care About Payment Systems
Central banks don't just set interest rates and print money. Behind the scenes, they run and regulate the plumbing that moves trillions of dollars every day — the payment systems that clear cheques, settle card transactions, and transfer funds between banks. In this episode, Lucas and Luna explore why central banks treat payment infrastructure as a core responsibility, from real-time gross settlement systems to the slow move toward instant payments. They dig into a concrete example: the Federal…
Why Central Banks Care About Bank Profitability
Episode 154 of Monetary Policy Explained digs into a quiet but crucial topic: why central banks care about bank profitability. Lucas and Luna walk through the mechanics of how rate hikes can squeeze net interest margins, using the 2023 U.S. regional banking stress as a concrete case. They explore the trade-off central banks face between fighting inflation and keeping banks healthy, with examples from Europe's negative rate era and Japan's yield curve control. The episode explains concepts like…
How Central Banks Use Currency Swaps in a Crisis
When funding markets freeze and dollars are scarce overseas, central banks don't just sit back. They activate a quiet, powerful tool: currency swap lines. In this episode, Lucas and Luna explain how the Federal Reserve's dollar swap network became the backbone of the global financial system during the 2008 crisis and the 2020 pandemic panic. You'll learn how swaps work, why the Fed expanded them to nine major central banks in March 2020, and why the IMF's alternative facility, the Flexible…
The Stealth Tool Behind Every Central Bank Move
Central banks don't just set interest rates and hope for the best — they shape the money market minute by minute with a tool most people have never heard of: open market operations. In episode 152 of Monetary Policy Explained, Lucas and Luna unpack how the Federal Reserve and other central banks use these quiet buying and selling operations to steer short-term rates, keep the financial system liquid, and transmit policy into the real economy. They walk through a recent example where a seemingly…
Why Central Banks Care About the Output Gap
Episode 151 of Monetary Policy Explained with Fexingo: Lucas and Luna dig into the output gap — the difference between what an economy can produce and what it actually produces. They explain how central banks estimate it, why it matters for interest rate decisions, and why it's so hard to measure in real time. Using the post-pandemic recovery as a case study, they show how misreading the output gap led to policy mistakes. They also touch on the role of potential GDP, the Phillips curve, and how…
Why Central Banks Keep Their Reserves in Other People's Currencies
Why do central banks hold trillions in foreign currencies like the dollar, euro, and yen? In this episode, Lucas and Luna unpack the mechanics and the motives: from trade settlement and import cover to the subtle power of 'exorbitant privilege' and the quiet costs of holding someone else's money. Using the People's Bank of China's massive dollar pile and the European Central Bank's yuan purchases as real-world anchors, they walk through how reserve currencies get chosen, why gold is making a…
Why Central Banks Care About Term Premia
In this episode of Monetary Policy Explained, Lucas and Luna unpack the term premium — the extra yield investors demand for holding long-term bonds instead of rolling short-term ones. They walk through how the term premium affects mortgage rates, corporate borrowing, and the transmission of monetary policy, and why central banks watch it as a signal of market confidence. Using the ten-year Treasury as their anchor, they explain what widening or narrowing term premia mean for the economy…
How Central Banks Anchor Inflation Expectations
In this episode of Monetary Policy Explained, Lucas and Luna dig into one of the quietest but most powerful tools central banks have: anchoring inflation expectations. They explain why expectations matter more than actual inflation numbers, how the European Central Bank's 2 percent target shapes wage negotiations and bond yields, and what happens when those expectations become unanchored. Using the 1970s as a cautionary tale and the Volcker shock as the cure, they walk through the transmission…
How Central Banks Use TLTROs to Lend to Banks
In this episode of Monetary Policy Explained, Lucas and Luna dive into the targeted longer-term refinancing operations, or TLTROs, that the European Central Bank used to keep credit flowing during the eurozone crisis. They explain how these cheap, long-term loans to banks work, why they were targeted at business and household lending, and the tricky economics of weaning banks off them without sparking a credit crunch. Using the example of Italy's banks, they show how TLTROs acted as a bridge…
How Central Banks Use Emergency Lending Facilities
When banks suddenly need cash, central banks don't wait for the next policy meeting. In this episode, Lucas and Luna dive into the mechanics of emergency lending—from the discount window to the Bank of England's 'Contingent Term Repo Facility' and the Federal Reserve's Bank Term Funding Program. They explain how these facilities work, why they're designed to be used, and how they differ from the Fed's normal repo operations. With August 2026 as the backdrop, they discuss why emergency…
Why Central Banks Hold Foreign Exchange Reserves
Central banks hold trillions in foreign exchange reserves, but why? In this episode, Lucas and Luna unpack the real reasons behind these stockpiles — from smoothing currency swings to ensuring import stability — using concrete examples like China's massive dollar holdings and Switzerland's franc defense. They walk through the trade-offs of holding reserves, the cost of diversification into gold, and why the 'exorbitant privilege' of the dollar keeps the system dollar-heavy. If you've ever…
Why Central Banks Are Buying Gold Again
Central banks have been buying gold at the fastest pace in decades, and it's not just about hedging against inflation. In this episode, Lucas and Luna unpack the real drivers behind the gold rush: diversification out of dollar reserves, geopolitical shifts, and the search for a neutral asset. They look at the latest data from the World Gold Council, discuss why central banks like China and Poland are leading the charge, and explore what this means for the dollar, interest rates, and the global…
Why Central Banks Are Watching the Housing Market
In this episode, Lucas and Luna explore how central banks view the housing market as a key transmission channel for monetary policy. They focus on the recent rise in house prices and what it means for inflation and financial stability. Using the example of the Federal Reserve's Beige Book reports, they discuss how home prices and rents feed into core inflation measures, and why central banks now pay close attention to housing as a leading indicator. The episode also covers the role of housing…
When Central Banks Buy Government Bonds for Their Own Account
In this episode, Lucas and Luna unpack the quiet but powerful tool central banks use to shape long-term borrowing costs: buying government bonds for their own account. They trace how the Bank of Japan has held its foot on the accelerator for decades, why the Federal Reserve's balance sheet shrinks even as it continues buying Treasuries, and what it means for investors when the world's biggest buyer steps back. With a concrete example from the 2020 pandemic and a look at the current QT in 2026…
Why Central Banks Spend Billions Defending Their Currency
In October 2022, the Bank of Japan spent roughly 70 billion dollars in a single day buying yen—a record intervention. But it barely moved the exchange rate. Why do central banks keep trying? This episode drills into the mechanics of currency intervention: sterilized vs. unsterilized, the balance sheet impact, and the track record. Lucas explains how intervention works in practice, using the Bank of Japan's playbook and comparing it to the Swiss National Bank's approach. Luna asks why the odds…
Why Central Banks Are Stockpiling Gold
Central banks have been buying gold at the fastest pace in decades—over 1,000 tonnes annually in both 2024 and 2025. Lucas and Luna dig into the drivers behind this historic accumulation, from de-dollarization and sanctions risk following the freeze of Russian reserves to the search for a neutral reserve asset. They highlight the leading buyers, including the People's Bank of China and the National Bank of Poland, and explain how gold fits into modern monetary policy. Along the way, they…
Why Central Banks Go Negative with Interest Rates
In this episode, Lucas and Luna explore the controversial monetary policy tool of negative interest rates. They focus on the European Central Bank's experience from 2014 to 2022, when its deposit facility rate fell to minus 0.5 percent. The hosts explain how negative rates are supposed to stimulate lending by penalizing banks for holding excess reserves, but also discuss the side effects: squeezed bank margins, increased risk-taking, and the challenge of cash hoarding. They examine why the ECB…
How Central Banks Use Macroprudential Policy to Curb Credit Bubbles
Central banks aren't just raising interest rates. In 2026, they're increasingly using macroprudential tools like loan-to-value caps and countercyclical capital buffers to tame housing booms and prevent financial crises. Lucas and Luna break down how the Reserve Bank of New Zealand tightened mortgage rules this year, why Sweden's central bank is watching household debt ratios, and what the European Central Bank's stress tests reveal about commercial real estate exposure. You'll learn the…
How Central Banks Use Forward Guidance to Manage Expectations
In this episode, Lucas and Luna dive into forward guidance—one of the most powerful communication tools central banks have. Using the Federal Reserve's 2013 'taper tantrum' as a cautionary tale, they explain how promises about future policy rates and asset purchases shape financial conditions today. The hosts break down the difference between Delphic and Odyssean guidance, why the Bank of Japan's yield curve control is a form of forward guidance on steroids, and how the ECB tried to anchor…
How Central Banks Are Executing Quantitative Tightening
As of mid-2026, the Federal Reserve has shrunk its balance sheet by over $1.5 trillion from the 2022 peak, and the European Central Bank is accelerating its own unwind. In this episode, Lucas and Luna break down the mechanics of quantitative tightening: how central banks let bonds mature without reinvesting, why the pace matters for money market rates, and what happens when reserves get scarce. They also compare the Fed's cautious approach to the ECB's more aggressive timeline and touch on the…
How Central Banks Estimate the Neutral Rate of Interest
In late 2025, the New York Fed's estimate of R-star—the neutral rate of interest—fell to 0.75 percent, the lowest since the pandemic. But what is R-star, and why does it matter? In this episode, Lucas and Luna unpack the theory behind this unobservable variable, from the Laubach-Williams model to the ongoing debate over whether rates are actually as restrictive as they seem. They explore how central banks use the neutral rate in the Taylor rule, why estimates vary so widely, and what a…
How Central Banks Are Testing Digital Currencies
China's digital yuan now reaches over 200 million wallets. But central banks from the Eurozone to Nigeria are racing to build their own digital currencies. In this episode, Lucas and Luna explore how central bank digital currencies could transform monetary policy transmission — from real-time data on spending to negative interest rate capabilities — and what risks lurk beneath the surface, including privacy concerns and the potential for bank disintermediation. They anchor the conversation in…
How Central Banks Use the Taylor Rule to Set Interest Rates
What formula do central bankers actually consult when setting interest rates? The Taylor Rule, devised by economist John Taylor in 1993, prescribes a policy rate based on inflation, the output gap, and the neutral rate. In this episode, Lucas and Luna unpack how the rule works, why the Federal Reserve pays lip service to it but rarely follows it to the letter, and how its simplicity masks deep disagreements over key inputs like the neutral rate and potential GDP. They walk through real-world…
How Political Pressure Is Testing Central Banks
In March 2026, the Turkish lira hit a new low after President Erdogan appointed a dovish central bank governor. This episode dives into the theory of central bank independence, why it matters for inflation control, and the political pressures threatening it worldwide. Lucas and Luna explore the time inconsistency problem, the empirical evidence linking independence to lower inflation, and real-world examples from Turkey, Japan, and the United States. They also examine the tension between…
How Central Banks Use Dollar Swap Lines to Stabilize Funding
When dollar funding seizes up, central banks don't just watch. They activate swap lines. This episode walks through how the Federal Reserve, the Bank of England, and the European Central Bank use currency swap arrangements to keep global dollar markets functioning. We look at the mechanics—how a swap line actually works, not just the theory—and why the standing swap lines established in 2020 remain a critical tool today. Lucas and Luna also discuss a real 2022 episode where the Bank of Japan…
Why Central Banks Are Watching the Reverse Repo Facility
Episode 130 of Monetary Policy Explained with Fexingo. Lucas and Luna dive into the Federal Reserve's overnight reverse repo facility — a once-obscure tool that has become a key indicator of liquidity in the financial system. They explain how the facility works, why its usage surged to over $2 trillion in 2021 and then collapsed to near zero by 2024, and what that reversal signals about bank reserves, money market funds, and the Fed's balance-sheet runoff. Using concrete data from the New York…
Why Central Banks Are Watching the Savings Glut
In episode 129 of Monetary Policy Explained with Fexingo, Lucas and Luna explore why central banks are fixated on the global savings glut — and how it's distorting interest rates, inflation targets, and policy transmission. Using the post-pandemic savings surge as a case study, they explain why excess household liquidity makes rate hikes less effective and why central banks like the Federal Reserve are now tracking savings rates as a leading indicator. The episode dives into data from the U.S.…
Why Central Banks Are Watching the Wage-Price Spiral
In this episode of Monetary Policy Explained, Lucas and Luna drill into one of 2026's most debated concepts: the wage-price spiral. They explore whether the classic 1970s-style feedback loop — wages up, prices up, wages up again — is actually re-emerging in today's economy. The specific case? The German public-sector wage deal earlier this year, where unions secured an 8.5 percent increase over 24 months. Lucas breaks down why the European Central Bank is watching that deal closely, how it…
Why Central Banks Are Watching the Output Gap Again
In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the output gap — the difference between actual GDP and potential GDP — and why central banks are paying closer attention to it in mid-2026. They break down why the output gap matters for inflation forecasting, how it's measured (production function vs. statistical filters), and why the Federal Reserve and ECB are debating its current size. Specific focus on how a negative output gap in the eurozone is…
Why Central Banks Are Watching the Term Premium Again
Episode 126 of Monetary Policy Explained with Fexingo: Lucas and Luna break down the term premium — the extra yield investors demand for holding long-term bonds — and why central banks from the Fed to the ECB are obsessing over it in mid-2026. They walk through the term premium's rise from negative territory during quantitative easing to about 40 basis points today, using the ten-year US Treasury as the anchor case. Lucas explains how the term premium signals bond market stress, fiscal…
Why Central Banks Devalue Their Own Currency
Central banks rarely say it out loud, but deliberately weakening the exchange rate is one of their oldest tools. In this episode, Lucas and Luna unpack competitive devaluation — why the Bank of Japan leaned into yen weakness through 2024 and 2025, how the Swiss National Bank capped the franc for years, and what happens when every central bank tries to devalue at once. They walk through the specific mechanics: selling reserves, setting negative rates, and using forward guidance to signal a…
How Central Banks Use Inflation Expectations Surveys
In Episode 124 of Monetary Policy Explained with Fexingo, Lucas and Luna explore how central banks rely on inflation expectations surveys — from the University of Michigan Survey of Consumers to the Survey of Professional Forecasters. They discuss why the Federal Reserve watches the 5-year-5-year-forward breakeven rate, how expectations became de-anchored in the 1970s, and what the latest July 2026 data signals for the Fed's next move. The conversation also covers the difference between…
How Central Banks Use the Shapiro-Stiglitz Efficiency Wage Model
Today, Lucas and Luna explore how central banks incorporate the Shapiro-Stiglitz efficiency wage model into their understanding of labor markets and inflation. The model suggests that firms pay above-market-clearing wages to reduce shirking, creating involuntary unemployment even in equilibrium. Lucas explains how this framework helps central banks interpret the non-accelerating inflation rate of unemployment (NAIRU) and why wage-setting behavior matters for policy. They discuss a 2025 Bank of…
How Central Banks Use the Discount Window
In Episode 122 of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the central bank discount window—a tool that lets banks borrow overnight in emergencies. They walk through how the Federal Reserve's discount rate works, why stigma kept banks away from it during the 2008 crisis, and how the Fed redesigned the window after the Silicon Valley Bank collapse in 2023. Lucas explains the difference between primary and secondary credit, why the discount rate is set above the federal…
Why Central Banks Watch the Loan-to-Deposit Ratio
Episode 121 of Monetary Policy Explained with Fexingo dives into the loan-to-deposit ratio (LDR) and why central banks monitor it as a signal of bank funding stability. Lucas and Luna unpack a real example from the 2023 regional banking crisis in the US, where high LDRs at Silicon Valley Bank and First Republic signaled vulnerability to deposit runs. They explain how the LDR connects to the money multiplier, reserve requirements, and why a ratio above 100% means a bank is funding loans with…
How Central Banks Use the Credit Impulse to Predict Growth
Episode 120 of Monetary Policy Explained with Fexingo dives into the credit impulse – the change in new credit creation relative to GDP. Lucas and Luna unpack why the Bundesbank and the Bank of Japan are tracking this leading indicator, using a concrete example from Germany: a sharp drop in the credit impulse in late 2025 preceded a 0.3% GDP contraction in Q1 2026. They explain how the credit impulse differs from total debt levels, why it tends to lead economic turning points by two to four…
Why Central Banks Are Watching Bank Funding Costs
Lucas and Luna explore why central banks are increasingly focused on bank funding costs as a leading indicator of financial stability and monetary policy transmission. Using the 2023 regional banking turmoil as a reference point, they examine how the spread between bank deposit rates and risk-free rates has narrowed, squeezing net interest margins and signaling potential credit tightening. The hosts discuss how the Federal Reserve now monitors the Bank Funding Cost Index from the Office of…
How Central Banks Set Inflation Targets
Episode 118 of Monetary Policy Explained with Fexingo dives into the history and mechanics of inflation targeting, using the Reserve Bank of New Zealand's 1989 pioneering move as the anchor. Lucas and Luna explore why central banks picked the 2 percent target, how it was exported globally via the Maastricht Treaty and the Bank of England's 1992 adoption, and whether the framework is showing its age in the post-pandemic era. They discuss the role of the Taylor Rule in formalizing targeting, the…
How Central Banks Are Watching the Labor Market Tightness
Central banks monitor labor market tightness via the ratio of job vacancies to unemployed workers. This episode dives into the specifics: the JOLTS data, the Beveridge curve, and the recent flattening. As of mid-2026, the U.S. vacancy-to-unemployment ratio has fallen from its 2022 peak of 2-to-1 to about 1.2-to-1, but remains above pre-pandemic levels. Lucas and Luna discuss why the Fed focuses on this metric, how it influences wage growth and inflation, and what the current flattening of the…
How Central Banks Use Liquidity Coverage Ratios
Episode 116 of Monetary Policy Explained with Fexingo dives into the Liquidity Coverage Ratio — the post-2008 rule that forces banks to hold enough high-quality liquid assets to survive a 30-day stress scenario. Lucas and Luna walk through how the LCR reshaped bank balance sheets, why it matters for money markets, and what happens when central banks tighten policy in a world where banks must hoard Treasuries. They anchor the discussion to the 2023 banking turmoil and the 2026 rate environment…
How Central Banks Use the Money Supply Curve
In this episode of Monetary Policy Explained, Lucas and Luna dig into the money supply curve: what it is, why central banks care about it, and how it shapes policy decisions. Using the real-world example of the ECB's October 2025 recalibration of its liquidity operations, they explain the difference between the vertical and upward-sloping views of the money supply curve and what recent balance-sheet runoff data tells us about which model central banks actually follow. Listeners will learn how…
How Central Banks Determine the Neutral Rate of Interest
In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the concept of the neutral rate of interest—often called R-star. They explore why central banks are currently scrutinizing the neutral rate more than ever in July 2026, as the post-pandemic economy reshapes estimates. The hosts break down how the neutral rate is estimated using models from Laubach and Williams, and the Holston-Laubach-Williams approach, referencing specific data from the New York Fed and the San…
Why Central Banks Are Watching the Neutral Rate Again
In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dig into R-star — the neutral rate of interest — and why it matters more than ever in mid-2026. They use the recent Federal Reserve Summary of Economic Projections as a case study, showing how the median longer-run fed funds rate estimate has drifted upward since pre-pandemic levels. Lucas explains how neutral rate estimates inform rate decisions, why they are unobservable and model-dependent, and what a higher R-star…
How Central Banks Use the Phillips Curve
In this episode, Lucas and Luna explore how central banks use the Phillips curve to gauge the trade-off between inflation and unemployment. They break down why the curve has flattened over the past two decades, using the U.S. experience from the 1970s to today as a case study. The conversation digs into the breakdown of the traditional relationship after the 2008 financial crisis, the role of anchored inflation expectations, and how the Federal Reserve still relies on a modified version of the…
How Central Banks Use Overnight Index Swaps to Read Markets
Episode 111 of Monetary Policy Explained with Fexingo. Lucas and Luna dive into the world of overnight index swaps, or OIS. They explain how the OIS rate strips out credit risk, making it a pure measure of expected central bank policy rates. Using the June 2026 FOMC meeting as a concrete anchor, they walk through how traders and policymakers parse the OIS curve to gauge rate expectations, and why a 75-basis-point gap between the fed funds rate and OIS signaled market stress in March 2020. They…
How Central Banks Use Reserve Requirements as a Policy Tool
In this episode of Monetary Policy Explained, Lucas and Luna dive into an often-overlooked but powerful tool in the central bank toolkit: reserve requirements. While many assume reserve requirements are a relic of the past, they are quietly making a comeback in places like China and emerging markets. The hosts unpack how reserve requirements interact with interest on reserves and quantitative easing, using the People's Bank of China's recent adjustments as a concrete case study. They explain…
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