CONFERENCE
6 December 2021
Fifth ESRB annual conference
The ESRB annual conference will take place on 8 December to celebrate the tenth anniversary of the ESRB. Senior policymakers and central bankers will discuss the challenges that lie ahead for macroprudential policy. Check out the programme and follow the conference online.
Programme
INTERVIEW
30 November 2021
We need to remain vigilant
The factors behind the high rate of inflation we’re experiencing will not last and we should see them fade next year, Vice-President Luis de Guindos told Les Echos on 24 November. But there’s a risk that inflation will not go down as quickly and as much as we predicted.
Interview
EXPLAINERS
16 November 2021
Why is inflation currently so high?
After years of very low inflation, euro area prices are rising at the fastest pace in more than a decade. Why is this happening, and what does it have to do with droughts in Brazil, shipping containers and the pandemic? Find out what we expect to happen to inflation next year.
Explainer- 7 December 2021
- PRESS RELEASE
- 7 December 2021
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 7 December 2021
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 6 December 2021
- PRESS RELEASEEnglishOTHER LANGUAGES (22) +
- 2 December 2021
- MFI INTEREST RATE STATISTICS
- 30 November 2021
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 30 November 2021
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 29 November 2021
- Lectio Magistralis by Christine Lagarde, President of the ECB, at the Accademia Nazionale dei Lincei
- 29 November 2021
- Presentation by Isabel Schnabel, Member of the Executive Board of the ECB, at a meeting organised by Bundesverband der Deutschen Industrie (BDI)
- 26 November 2021
- Keynote speech by Christine Lagarde, President of the ECB, at the ECB Legal Conference 2021
- 25 November 2021
- Speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, ECB Legal Conference 2021
- 25 November 2021
- Presentation by Isabel Schnabel, Member of the Executive Board of the ECB, at a meeting organised by Wirtschaftsrat der CDU
- 7 December 2021
- Entretien accordé par Christine Lagarde, Présidente de la BCE, à Fabio Fazio, le 28 Novembre et publié le 7 Décembre 2021
- 30 November 2021
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Guillaume Benoit, Édouard Lederer and Thibaut Madelin on 24 November and published on 30 November
- 29 November 2021
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Mitri Sirin on 29 November 2021
- 26 November 2021
- Interview with Christine Lagarde, President of the ECB, conducted by Gerald Braunberger, Dennis Kremer and Christian Siedenbiedel on 23 November and published on 26 November 2021
- 23 November 2021
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Carolynn Look and Alexander Weber on 22 and published on 23 November 2021
- 19 November 2021
- Blog post by Fabio Panetta, Member of the Executive Board of the ECBDetails
- Summary
- To continue playing its role as the anchor of the monetary system, central bank money will need to respond to evolving needs, says Executive Board member Fabio Panetta. This means that we must intensify the work on central bank digital currencies.
- 4 November 2021
- Blog post by Christine Lagarde, President of the ECBEnglishOTHER LANGUAGES (16) +Details
- Summary
- The COP26 summit is a vital opportunity to set out a clear path towards a zero-carbon world, President Lagarde writes in a blog post. While the road ahead may seem daunting, she argues that a credible transition path will need clear signposts to break it up into more manageable stages.
- 14 September 2021
- Blog post by Isabel Schnabel, Member of the Executive Board of the ECBDetails
- Summary
- While rising inflation understandably worries people, current inflation rates should be interpreted with caution, writes Executive Board member Isabel Schnabel.
- 31 August 2021
- Contribution by Isabel Schnabel, Member of the Executive Board of the ECB, to the International Monetary Fund’s magazine Finance and DevelopmentDetails
- Summary
- The existential threat posed by climate change implies that central banks must not stand on the sidelines in the fight against global warming, writes Executive Board member Isabel Schnabel. Our ambitious climate action plan outlines how the ECB will contribute within its mandate.
- 19 August 2021
- Philip R. Lane, Member of the Executive Board of the ECBDetails
- Summary
- Our revised forward guidance is a fundamental step in fulfilling our commitment to 2% inflation, writes Chief Economist Philip R. Lane. He also discusses the three conditions that should be met before interest rates are raised.
- 7 December 2021
- WORKING PAPER SERIES - No. 2625Details
- Abstract
- This paper studies the dynamics of unemployment (u) and its natural rate (u*), with u* measured by real-time estimates for 29 countries from the OECD. We find strong evidence of hysteresis: an innovation in u causes u* to change in the same direction, and therefore has permanent effects. For our baseline specification, a one percentage point deviation of u from u* for one year has a long-run effect of 0.16 points on both variables. When we allow asymmetry, we find, perhaps surprisingly, that decreases in u have larger long-run effects than increases in u.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
- 7 December 2021
- WORKING PAPER SERIES - No. 2624Details
- Abstract
- I propose a new model, conditional quantile regression (CQR), that generates density forecasts consistent with a specific view of the future evolution of some variables. This addresses a shortcoming of existing quantile regression-based models, for example the at-risk framework popularised by Adrian et al. (2019), when used in settings, such as most forecasting processes within central banks and similar institutions, that require forecasts to be conditional on a set of technical assumptions. Through an application to house price inflation in the euro area, I show that CQR provides a viable alternative to existing approaches to conditional density forecasting, notably Bayesian VARs, with considerable advantages in terms of flexibility and additional insights that do not come at the cost of forecasting performance.
- JEL Code
- C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets
- 6 December 2021
- WORKING PAPER SERIES - No. 2623Details
- Abstract
- This paper attempts to gauge the effects of various fiscal and monetary policy rules on macroeconomic outcomes in the euro area. It consists of two major parts – a historical assessment and an assessment based on an extended scenario until 2030 – and it builds on the ECB-BASE –a semistructural model for the euro area. The historical analysis (until end-2019, `pre-pandemic´) demonstrates that a consistently countercyclical fiscal policy could have created a fiscal buffer in good economic times and it would have been able to eliminate a large portion of the second downturn in the euro area. In turn, the post-pandemic simulations until 2030 reveal that certain combinations of policy rules can be particularly powerful in reaching favourable macroeconomic outcomes (i.e. recovering pandemic output losses and bringing inflation close to the ECB target). These consist of expansionary-for-longer fiscal policy, which maintains support for longer than usually prescribed, and lower-for-longer monetary policy, which keeps the rates lower for longer than stipulated by a standard reaction function of a central bank. Moreover, we demonstrate that in the current macroeconomic situation, fiscal and monetary policies reinforce each other and mutually create space for each other. This provides a strong case for coordination of the two policies in this situation.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
- 6 December 2021
- WORKING PAPER SERIES - No. 2622Details
- Abstract
- We introduce frictional financial intermediation into a HANK model. Households are subject to idiosyncratic and aggregate risk and smooth consumption through savings and consumer loans intermediated by banks. The banking friction introduces an endogenous countercyclical spread between the interest rate on savings and on loans. This interacts with incomplete markets because borrowers and savers face different intertemporal prices, and induces a time-varying mass point of high MPC households. Aggregate shocks through their impact on the spread give rise to consumption inequality. We show this mechanism to be empirically relevant. Ex-ante macro prudential regulation reduces welfare by reducing consumption smoothing.
- JEL Code
- C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy - Network
- ECB Lamfalussy Fellowship Programme
- 3 December 2021
- WORKING PAPER SERIES - No. 2621Details
- Abstract
- We assess how firm expectations about future production impact current production and pricing decisions. Our analysis is based on a large survey of firms in the German manufacturing sector. To identify the causal effect of expectations, we rely on the timing of survey responses and match firms with the same fundamentals but different views about the future. Firms that expect their production to increase (decrease) in the future are 15 percentage points more (less) likely to raise current production and prices, compared to firms that expect no change in production. In a second step, we show that expectations also matter even if they turn out to be incorrect. Lastly, we aggregate expectation errors across firms and find that they account for about 15 percent of aggregate fluctuations.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E71 : Macroeconomics and Monetary Economics
- 3 December 2021
- LEGAL WORKING PAPER SERIES - No. 21Details
- Abstract
- Given the urgent need to dramatically reduce greenhouse gas emissions, and concern regarding insufficient climate action and ambition across the globe, NGOs and individuals are increasingly turning to the courts to force States, public authorities, and private entities to increase their climate action and ambition and hold them accountable through climate-related litigation. The three contributions in this legal working paper discuss various aspects of such climate change litigation around the world. The papers examine the evolution of climate-related cases, the scope of such cases and the varying grounds on which they have been based. They also focus in some detail on certain key judgments addressing novel issues, as well as a recent climate-related case brought against a national central bank. The papers were originally presented at the Legal Colloquium on “Climate change litigation and central banks – Action for the environment”, organised by the European Central Bank on 27 May 2021.
- JEL Code
- K32 : Law and Economics→Other Substantive Areas of Law→Environmental, Health, and Safety Law
K33 : Law and Economics→Other Substantive Areas of Law→International Law
K39 : Law and Economics→Other Substantive Areas of Law→Other
K41 : Law and Economics→Legal Procedure, the Legal System, and Illegal Behavior→Litigation Process
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 2 December 2021
- OTHER PUBLICATION
- 2 December 2021
- WORKING PAPER SERIES - No. 2620Details
- Abstract
- This paper investigates how the monetary policy transmission channels change once the economy is in a low interest rate environment. We estimate a nonlinear model for the euro area and its five largest countries over the period 1999q2-2019q1 and allow for the effects of monetary policy shocks to be state dependent. Using smooth transition local projections, we examine the impulse responses of investment, savings, consumption, and the output gap to an expansionary monetary policy shock under normal and low interest rate regimes. We find evidence for a macroeconomic reversal rate related to the substitution effects becoming weaker relative to the income effects in a low interest rate regime. In this regime the effects of monetary policy shocks are either less powerful or reverse sign compared with a normal rate regime.
- JEL Code
- E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 2 December 2021
- WORKING PAPER SERIES - No. 2619Details
- Abstract
- Endogeneity of the labour market slack in reduced-form Phillips Curves (PCs) is usually addressed either by including proxies for omitted supply shocks, or by using instrumental variables. Using the Kiviet (2020) Kinky Least Squares estimator, we find evidence that supply-shock proxies should not be omitted from PCs, and that many popular instrumental variables seem to be invalid. We estimate a standard backward-looking wage Phillips Curve by Kinky Least Squares and find that unless a large negative correlation between the slack variable and the error term is assumed, the coefficient of the slack variable is significantly negative.
- JEL Code
- C1 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
- 1 December 2021
- OTHER PUBLICATION
- 1 December 2021
- WORKING PAPER SERIES - No. 2618Details
- Abstract
- How do banks set their target capital ratio? How do they adjust to reach it? This paper answers these questions using an original dataset of capital ratio targets directly announced to investors by European banks, materially improving data quality compared to usual estimated implicit target. It provides the following key lessons. First, targets are affected by capital requirements and a procyclical behavior consistent with market pressure. Second, banks do not distinguish between the different types of capital requirements for setting their targets, suggesting weak usability of the regulatory buffers. Third, the distance between actual CET1 ratio and the target is a valuable predictor of future balance-sheet adjustment, suggesting that banks actively drive their capital ratios toward their announced targets, through capital accumulation and portfolio rebalancing. Fourth, this adjustment occurs both above and below targets, but banks below target adjust faster, suggesting stronger pressure. These results provide important lessons for policymakers regarding the design of the prudential framework and the effectiveness of countercyclical policies.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 1 December 2021
- OCCASIONAL PAPER SERIES - No. 286Details
- Abstract
- Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC might crowd out private payment solutions beyond what would be desirable from the perspective of the comparative advantages of private and public sector money. This paper discusses success factors for CBDC and how to avoid the risk of crowding out. After examining ways to prevent excessive use as a store of value, the study emphasises the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users. Finding an adequate functional scope – neither too broad to crowd out private sector solutions, nor too narrow to be of limited use – is challenging in an industry with network effects, like payments. The role of the incentives offered to private sector service providers involved in distributing, using and processing CBDC (banks, wallet providers, merchants, payment processors, acquirers, etc.) is discussed, including fees and compensation.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 : Financial Economics→General Financial Markets
- 29 November 2021
- SURVEY OF MONETARY ANALYSTS
- 26 November 2021
- WORKING PAPER SERIES - No. 2617Details
- Abstract
- Price inflation in the euro area has been stable and low since the Global Financial Crisis, despite notable changes in output and unemployment. We show that an increasing share of high markup firms is part of the explanation of why inflation remained stubbornly stable and low in the euro area over the past two decades. For this purpose, we exploit a rich firm-level database to show that over the period 1995–2018 the aggregate markup in the euro area has been on the rise, mainly on account of a reallocation towards high-markup firms. We document significant heterogeneity in markups across sectors and countries and, by linking these markup developments to the evolution of sectoral level producer and consumer price inflation, we find that (i) inflation in high-markup sectors tends to be less volatile than in low-markup sectors and (ii) inflation in high-markup sectors responds significantly less to oil supply, global demand and euro area monetary policy shocks.
- JEL Code
- D2 : Microeconomics→Production and Organizations
D4 : Microeconomics→Market Structure and Pricing
N1 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations
O3 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights - Network
- Price Micro Setting Analysis Network (PRISMA)
- 25 November 2021
- WORKING PAPER SERIES - No. 2616Details
- Abstract
- This paper shows that newspaper articles contain timely economic signals that can materially improve nowcasts of real GDP growth for the euro area. Our text data is drawn from fifteen popular European newspapers, that collectively represent the four largest Euro area economies, and are machine translated into English. Daily sentiment metrics are created from these news articles and we assess their value for nowcasting. By comparing to competitive and rigorous benchmarks, we find that newspaper text is helpful in nowcasting GDP growth especially in the first half of the quarter when other lower-frequency soft indicators are not available. The choice of the sentiment measure matters when tracking economic shocks such as the Great Recession and the Great Lockdown. Non-linear machine learning models can help capture extreme movements in growth, but require sufficient training data in order to be effective so become more useful later in our sample.
- JEL Code
- C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
C45 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Neural Networks and Related Topics
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
C82 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Macroeconomic Data, Data Access
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
- 25 November 2021
- WORKING PAPER SERIES - No. 2615Details
- Abstract
- To what extent can Quantitative Easing impact productivity growth? We document a strong and heterogeneous response of corporate R&D investment to changes in debt financing conditions induced by corporate debt purchases under the ECB’s Corporate Sector Purchase Program. Companies eligible for the program increase significantly their investment in R&D, relative to similar ineligible companies operating in the same country and sector. The evidence further suggests that by subsidizing the cost of debt, corporate bond purchases by the central bank stimulate innovation through a wealth transfer to innovative companies with low debt levels, rather than by supporting credit constrained firms.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G10 : Financial Economics→General Financial Markets→General
O3 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights
- 24 November 2021
- OCCASIONAL PAPER SERIES - No. 285Details
- Abstract
- Climate change has profound effects not only for societies and economies, but also for central banks’ ability to deliver price stability in the future. This paper starts by documenting why climate change matters for monetary policy: it impacts the economic variables relevant to setting the monetary policy stance, it interacts with fiscal and structural responses and it can generate dislocations in financial markets, which are impossible for monetary policy to ignore. Next, we survey several possible ways central banks can respond to climate change. These range from protective actions to more proactive measures aimed at mitigating climate change and supporting green finance and the transition to sustainable growth. We also discuss the constraints and trade-offs faced by central banks as they respond to climate risks. Finally, focusing on the specific challenges faced by inflation-targeting central banks, we consider how certain design features of this regime might interact with, and evolve in response to, the climate challenge.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 24 November 2021
- SURVEY ON THE ACCESS TO FINANCE OF ENTERPRISES IN THE EURO AREAAnnexes
- 24 November 2021
- SAFE QUESTIONNAIRE
Related- 24 November 2021
- PRESS RELEASE
- 24 November 2021
- RESEARCH BULLETIN - No. 89Details
- Abstract
- The outbreak of the coronavirus (COVID-19) pandemic led to heightened uncertainty and a “dash-for-cash” in March 2020. Investors moved out of risky assets and into safe assets. The mutual fund sector in particular was hit by unprecedented investor redemptions and faced fire sale pressure as a result. Typically, banks that engage in securities trading – dealer banks – absorb such bond sales, supporting market liquidity, but regulation may limit their ability to do so by requiring them to maintain a certain leverage ratio. In recent research, we analyse the role of bank leverage constraints as an amplifier of bond market illiquidity during the March 2020 crisis. Our analysis links mutual funds bond holdings to dealer banks and their leverage constraints. We document that mutual funds that were holding more bonds exposed to dealer bank constraints in their portfolio faced bigger selling pressure in March 2020. We provide supplementary evidence that bank leverage constraints affect bond liquidity, using the introduction of leverage ratio regulation in the euro area.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 22 November 2021
- WORKING PAPER SERIES - No. 2614Details
- Abstract
- We develop early warning models for financial crisis prediction by applying machine learning techniques to macrofinancial data for 17 countries over 1870–2016. Most nonlin-ear machine learning models outperform logistic regression in out-of-sample predictions and forecasting. We identify economic drivers of our machine learning models using a novel framework based on Shapley values, uncovering nonlinear relationships between the predic-tors and crisis risk. Throughout, the most important predictors are credit growth and the slope of the yield curve, both domestically and globally. A flat or inverted yield curve is of most concern when nominal interest rates are low and credit growth is high.
- JEL Code
- C40 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→General
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F30 : International Economics→International Finance→General
G01 : Financial Economics→General→Financial Crises
Interest rates
| Marginal lending facility | 0.25 % |
| Main refinancing operations (fixed rate) | 0.00 % |
| Deposit facility | − 0.50 % |
Inflation rate
Inflation dashboardExchange rates
| USD | US dollar | 1.1256 | |
| JPY | Japanese yen | 127.83 | |
| GBP | Pound sterling | 0.84933 | |
| CHF | Swiss franc | 1.0414 |
Financial stability
Our tasks Institutional framework Financial Stability Review Macroprudential policy measuresMarket operations
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