The Bank for International Settlements has published BIS Papers No 157, a research volume examining how differences across households and firms affect monetary policy transmission in emerging market economies and how central banks can incorporate cross-sectional information into policy analysis. Drawing on a survey of central banks in 22 emerging market economies and contributed papers from participating authorities, the volume finds that most surveyed central banks view household and firm heterogeneity as beneficial for monetary policy, mainly to improve economic monitoring and forecasting and to understand transmission, including vulnerabilities that may constrain policy. It identifies key household characteristics for transmission analysis as debt (including adjustable-rate exposure), income and wealth, and highlights the role of hand-to-mouth households; for firms, it points to sector, size, leverage, funding currency, and export orientation, as well as informality as a factor that can weaken transmission. While the papers discuss distributional effects, the survey results indicate central banks generally treat these as less important than aggregate outcomes for rate-setting, and the volume highlights practical challenges including data gaps, bias and timeliness issues, privacy constraints, technical complexity in incorporating heterogeneity into models, and communications risks. The publication was prepared for a meeting of emerging market Deputy Governors organised by the BIS on 17–18 March 2025 and includes a BIS background paper, country contributions and the survey questionnaire.
Bank for International Settlements 2025-06-12
Bank for International Settlements publishes research volume on incorporating household and firm heterogeneity into emerging market monetary policy
The Bank for International Settlements has published BIS Papers No 157 on how household and firm heterogeneity affects monetary policy transmission in emerging market economies and how central banks can incorporate such information into policy analysis. Based on a survey of 22 emerging market central banks and country papers, it finds most authorities see heterogeneity as improving monitoring, forecasting and transmission analysis, with key factors including household debt, income and wealth, and firm sector, size, leverage, funding currency, export orientation and informality. The volume notes that distributional effects are generally secondary to aggregate outcomes for rate-setting and highlights data, modelling and communication challenges in integrating heterogeneity into policy frameworks.