Kim Ristolainen - Research

Working Papers

To Change or Not to Change the Inflation Target: Credibility is the Question. with Ambrocio, G., Ferrero, A., Jokivuolle, E. and McClung, N.

CEPR Discussion Papers DP 21368 , 2026

Abstract: We study the tradeoff between a lower frequency of zero lower bound (ZLB) episodes and a loss of credibility for a central bank in relation to an increase of its inflation target. First, we present novel evidence on the relevance of both sides of the tradeoff for changing the inflation target from a survey of economists. Second, we analyze the ZLB-credibility tradeoff in a New Keynesian model featuring an occasionally-binding constraint on the nominal interest rate and a share of agents who form their expectations adaptively, which is negatively related to the degree of credibility of the central bank. For a given level of the inflation target, the ZLB frequency is higher for lower levels of credibility. A target raise aiming to reduce the ZLB frequency may backfire if a simultaneous loss of credibility occurs.

Quantifying Minsky Cycles

Bank of Finland Research Discussion Papers 3, 2026

Abstract: We develop a novel sentiment measure from survey forecasts that captures the component of beliefs arising from the systematic misaggregation of public information relative to a machine benchmark based on the same information set. We extend this sentiment measure historically for a panel of 78 countries using machine learning models trained on BERT embeddings of historical news articles (1903–2020). The backcasted sentiment shows that shocks in median sentiment predict credit booms in the non-tradable corporate sector, which prior research has linked to financial crises. We further find that this sentiment component is shaped by memory-related dynamics, as the time elapsed since major crises and the share of young-to-old people in the population predict surges in optimism even when recent economic developments are controlled for. Taken together, the findings provide new historical evidence consistent with the Minsky–Kindleberger view on financial crises.

Exchange Rate Narratives with Cormun, V.

Revise & Resubmit, Journal of International Money and Finance

Presentations: Santa Clara University, SUERF I ECB I Bank of Finland I Bank of Italy Workshop, 2024 Annual Meeting Society for Economic Dynamics, The 9th annual conference of the Society for Economic Measurement, 2025 ASSA Annual Meeting, Kiel-CEPR Junior Workshop on Publishing in Top Macro & Finance Journals, WEAI 2025, Insightful Minds in International Macro.

Abstract: We combine Wall Street Journal news, topic modeling, and generative AI to extract economic narratives associated with fluctuations in the U.S. dollar exchange rate since the late 1970s. We identify six largely non-overlapping narratives whose prominence shifts over time, spanning fiscal and monetary policy, financial markets, geopolitical tensions, and technological change. When incorporated into standard exchange rate regressions as proxies for investor attention, these narratives substantially increase the explanatory power of macroeconomic aggregates. The results are consistent with mechanisms in which the perceived relevance of different exchange rate drivers evolves over time, helping reconcile the weak and unstable relationship between exchange rates and observable macroeconomic variables.