Why does the ECB conduct research?

28 September 2016

The ECB, like other major central banks, conducts research for two main reasons. First, thorough analysis forms the basis for our decisions in all policy areas – be it monetary policy or financial stability, banking supervision and macroprudential policy.

Second, by publishing papers, our researchers create links to the academic community, sparking discussion and debate on topics of relevance to the ECB. This feeds back into the research conducted by our staff, further strengthening the foundations on which future ECB decisions are made.

This has become all the more important as complex and new issues require sound analytical work. The effectiveness of non-standard measures and how monetary policy interacts with other policies (fiscal and structural) are relatively new issues that highlight how the value of good research has, if anything, increased.

What is the relationship between research and policy?

The ECB’s monetary policy decisions make headline news. Research provides both the analysis and the tools to explore the options behind those decisions. But one must be careful not to interpret any individual piece of research as a guide for the future policy of a central bank. By its nature, research may sometimes explore and propose unorthodox courses of action that may be useful to stimulate a debate, but may never be reflected in actual policy decisions.

Our researchers provide the Governing Council with the information they need to do their job as effectively as possible. Put simply, the better the research, the better the ECB’s decisions, and the better its ability to act effectively in order to maintain price stability. Therefore, high-quality research with a strong conceptual and empirical basis is vital as it provides the ECB with the tools it needs to conduct its single monetary policy for the people of the 19 euro area countries.

For example, the ECB has been at the forefront of the development of new types of econometric models that allow us to conduct economic forecasts and analyse the consequences of different policy scenarios. Models of this sort have subsequently been adopted by all major central banks.

Since the financial crisis it has become even more important that research contributes to finding new solutions for new challenges. One example is how research around low interest rates has shaped the monetary policy tool of forward guidance, where the central bank attempts to influence the behaviour of households and businesses by telling them what to expect from interest rates. Forward guidance is used by all major central banks.

Why do our papers have disclaimers on them?

The ECB’s output is based on the expertise of the people who work here. We depend on our researchers investigating new and innovative methodologies, especially in the current economic environment, and thinking freely. This is why research conducted at the ECB is published under the authors’ names – it does not necessarily represent the views or opinions of the ECB as an institution or of the Governing Council. It also does not necessarily reflect the full body of research that feeds into decisions, since some economic research remains internal to the ECB and, of course, policymakers also bring their own analysis and expertise.

How do we decide on research topics?

As research serves the ECB’s policy decisions, the topics are closely linked to current economic developments. With this approach, our researchers provide results that help the ECB to analyse the economic environment and develop appropriate policy responses. For example, they investigate why and how the transmission of our monetary policy was impaired by the financial crisis.

Beyond such current issues, our researchers also take a step back and examine more fundamental questions. How are monetary policy and macroprudential policy linked to each other? How do financial markets, households and firms form their expectations about future monetary policy actions and inflation? Why is global economic growth low and how long will it last? Answers to theoretical questions like these help us better understand the cause and effect of economic interactions and take the right decisions to fulfil our mandate.

The initiative for new research comes both from managers asking for answers and from staff members themselves.

Our research products

All our research products have an editorial board that ensures the research is of high quality. Staff submit their papers and those that meet the required standards are published.

Research Bulletin A monthly publication intended for a general audience. It features a selection of recent work on policy-relevant topics by ECB economists.
Working Paper Series This series publishes economic research relevant to the various tasks and functions of the ECB, and provides a conceptual and empirical basis for policy-making. The papers are work in progress and addressed to experts, so readers should be knowledgeable in economics.
Discussion papers differ from standard working papers in that they are more broadly accessible and offer a more balanced perspective. While partly based on original research, they place the analysis in the wider context of the literature on the topic and also explicitly consider the policy perspective.
Occasional Paper Series A series of papers on subjects related to the main tasks and functions of the ECB and the European System of Central Banks. The papers are addressed to a wide audience, but some prior knowledge of the topic may be required.
Legal Working Paper Series A series covering legal research and doctrine on issues relevant to the tasks and functions of the ECB and the European System of Central Banks. The papers are work in progress and addressed to experts, so readers should be knowledgeable in the legal field.
Statistics Paper Series This series is a channel for statisticians, economists and other professionals to publish innovative work in the area of statistics and related methodologies of interest to central banks.