PUBLICATION
26 July 2021
Macroeconomic impact of finalising Basel III
Several proposals are being discussed at European level for finalising Basel III. Our Macroprudential Bulletin finds that while implementing the original proposal may have temporary economic costs, these are outweighed by the long-term benefits, which other designs would significantly reduce.
Macroprudential Bulletin
MONETARY POLICY
22 July 2021
Latest ECB press conference
President Christine Lagarde and Vice-President Luis de Guindos explained the Governing Council’s latest monetary policy decisions and answered questions from journalists at a press conference on 22 July 2021.
Find out more
STRATEGY REVIEW
8 July 2021
Outcome of the ECB strategy review
Our new monetary policy strategy is a strong foundation that will help guide us in the conduct of monetary policy for years to come. It is the result of a thorough review launched in January 2020.
Find out more- 23 July 2021
- OTHER GOVERNING COUNCIL DECISIONEnglishOTHER LANGUAGES (22) +
- 23 July 2021
- PRESS RELEASEAnnexes
- 23 July 2021
- PAYMENT INSTRUMENTS AND SYSTEMSAnnexes
- 23 July 2021
- PAYMENT INSTRUMENTS AND SYSTEMS
- 23 July 2021
- PRESS RELEASERelated
- 23 July 2021
- SURVEY OF PROFESSIONAL FORECASTERS
- 22 July 2021
- MONETARY POLICY DECISIONEnglishOTHER LANGUAGES (22) +
- 22 July 2021
- Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 22 July 2021EnglishOTHER LANGUAGES (22) +
- 14 July 2021
- Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the virtual Financial Statements series hosted by the Peterson Institute for International Economics
- 11 July 2021
- Speech by Christine Lagarde, President of the ECB, at the International Climate Change Conference in Venice
- 8 July 2021
- Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 8 July 2021
- 3 July 2021
- Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the Petersberger Sommerdialog
- 13 July 2021
- Interview with Christine Lagarde, President of the ECB, conducted by Martin Arnold on 11 July 2021
- 10 July 2021
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Patrick Bernau and Dennis Kremer on 8 July and published on 10 July 2021
- 2 July 2021
- Interview with Christine Lagarde, President of the ECB, conducted by Marie Cécile Berenger
- 20 June 2021
- Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Martin Arnold on 14 June 2021
- 17 June 2021
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Paul Gordon on 17 June 2021
- 14 July 2021
- Blog post by Fabio Panetta, Member of the Executive Board of the ECBDetails
- Summary
- We have decided to launch a project to prepare for possibly issuing a digital euro. A digital euro will be successful if it adds value for people, merchants and financial intermediaries in the euro area, explains Executive Board member Fabio Panetta in The ECB Blog.
- 11 May 2021
- Blog post by Fabio Panetta, Member of the Executive Board of the ECBDetails
- Summary
- Climate change and sustainability are global challenges that require global solutions, especially in the financial sector, writes Executive Board member Fabio Panetta. We need international disclosure standards and principles to categorise sustainable activities.
- 1 April 2021
- Blog post by Philip R. Lane, Member of the Executive Board of the ECBDetails
- Summary
- The recent volatility of inflation can largely be attributed to the nature of the pandemic shock, writes Chief Economist Philip R. Lane. The increase in inflation during early 2021 does not constitute the basis for a sustained shift in inflation dynamics.
- 25 March 2021
- Blog post by Fabio Panetta, Member of the Executive Board of the ECB, and Ulrich Bindseil, ECB Director General Market Infrastructure and PaymentsDetails
- Summary
- At the ECB we are committed to understanding people’s needs and ensuring the digital euro would be widely accepted, writes Executive Board member Fabio Panetta with Ulrich Bindseil in The ECB Blog.
- 22 March 2021
- Blog post by Christine Lagarde, President of the ECBDetails
- Summary
- Our pandemic emergency purchase programme (PEPP) has provided crucial support to euro area citizens since its launch a year ago, writes President Christine Lagarde in The ECB Blog. The PEPP has been, and remains, at the core of our pandemic policy response.
- 26 July 2021
- WORKING PAPER SERIES - No. 2573Details
- Abstract
- We study the interaction between monetary and fiscal policies in a Ramsey-Sidrauski model augmented with environmental capital. Equilibrium solutions are studied through the “Green Golden Rule”. Despite the non-separability of money in utility and intertemporally non-separable preferences, money is environmentally neutral. Policy impacts the environment via the marginal rate of transformation rather than the marginal rate of substitution between consumption and environment. Fiscal policies, lump sum and distortionary, under a balanced budget, are also environmentally non-neutral. Only under a non-balanced budget, when deficits are monetized, is money environmentally non-neutral. In alternative approaches (Cash-in-Advance, Transactions Costs), money is environmentally non-neutral.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H23 : Public Economics→Taxation, Subsidies, and Revenue→Externalities, Redistributive Effects, Environmental Taxes and Subsidies
- 26 July 2021
- WORKING PAPER SERIES - No. 2572Details
- Abstract
- The secular decline in the equilibrium real interest rate observed over the past decades has materially limited the room for policy-rate reductions in recessions, and has led to a marked increase in the incidence of episodes where policy rates are likely to be at, or near, the effective lower bound on nominal interest rates. Using the ECB's New Area-Wide Model, we show that, if unaddressed, the effective lower bound can cause substantial costs in terms of worsened macroeconomic performance, as reflected in negative biases in inflation and economic activity, as well as heightened macroeconomic volatility. These costs can be mitigated by the use of nonstandard instruments, notably the joint use of interest-rate forward guidance and large-scale asset purchases. When considering alternatives to inflation targeting, we find that make-up strategies such as price-level targeting and average-inflation targeting can, if they are well-understood by the private sector, largely undo the negative biases and heightened volatility induced by the effective lower bound.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
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
- 26 July 2021
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 14Details
- Abstract
- This article assesses the economic costs and benefits of the Basel III finalisation package for the euro area and shows that the transitory costs of the reform are outweighed by its permanent long-term benefits. Implementing EU-specific modifications to the Basel III reform, such as the small and medium-sized enterprise (SME) supporting factor, credit valuation adjustment (CVA) exemptions and discretion with regard to the operational risk capital charge, reduce the already moderate transitory costs of the reform, although they also reduce its long-run benefits. Approaches that, in addition, modify the implementation of the output floor fail to further reduce the short-term economic costs of the reform while again decreasing its long-term benefits.
- JEL Code
- 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
- 23 July 2021
- MEP LETTER
- 23 July 2021
- MEP LETTER
- 23 July 2021
- OTHER PUBLICATION
- 23 July 2021
- OCCASIONAL PAPER SERIES - No. 258Details
- Abstract
- This paper assesses the macroeconomic implications of the Basel III finalisation for the euro area, employing a large-scale semi-structural model encompassing over 90 banks and 19-euro area economies. The new regulatory framework will influence banks’ reactions to economic conditions and, as a result, affect the ability of the banking system to amplify or dampen economic shocks. The assessment covers the entire distribution of conditional economic predictions to measure the cost and benefit of the reforms. Looking at the means of conditional forecasts of output growth provides an indication of the costs of the reform, namely a transitory reduction in euro area gross domestic product (GDP) and in lending to the non-financial private sector. Looking at the lower percentile of output growth forecasts, i.e. growth at risk, captures the long-term benefits of the Basel III finalisation package in terms of improved resilience and the ability of the banking system to supply lending to the real economy under adverse conditions. These permanent growth-at-risk benefits ultimately outweigh the short-term costs of the reform.
- JEL Code
- E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
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
- 23 July 2021
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2021Details
- Abstract
- This box summarises the main findings from contacts between ECB staff and representatives of 63 leading non-financial companies operating in the euro area. The exchanges took place between 28 June and 7 July 2021. According to these contacts, overall activity was growing strongly in the second quarter of 2021 and this was expected to continue in the third quarter, reflecting the gradual easing of lockdowns and travel restrictions, which benefited services, and the continued strong demand for manufactured goods. At the same time, shortages of inputs and transport bottlenecks were limiting activity somewhat in the manufacturing sector and generating pipeline pressures, some of which would feed through to final consumer prices and wages. These pressures should gradually ease over the next 6-18 months.
- JEL Code
- E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
- 23 July 2021
- SURVEY OF PROFESSIONAL FORECASTERSAnnexes
- 23 July 2021
- SURVEY OF PROFESSIONAL FORECASTERS
Related- 23 July 2021
- PRESS RELEASE
- 21 July 2021
- OTHER PUBLICATION
Interest rates
| Marginal lending facility | 0.25 % |
| Main refinancing operations (fixed rate) | 0.00 % |
| Deposit facility | − 0.50 % |
Inflation rate
Inflation dashboardReference rates
| USD | US dollar | 1.1787 | |
| JPY | Japanese yen | 130.05 | |
| GBP | Pound sterling | 0.85468 | |
| CHF | Swiss franc | 1.0826 |
Financial stability
Our tasks Institutional framework Financial Stability Review Macroprudential policy measuresMarket operations
Open market operations Asset purchase programmes Lendings of holdings under PSPPNOT AN EXPERT? CHECK EXPLAINER
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