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INTERVIEW

A clear and credible inflation target

We want inflation at 2% over the medium term, not below, Executive Board member Fabio Panetta tells Corriere della Sera. We will respond forcefully to shocks pushing inflation below our target and only raise rates once we are convinced inflation can be firmly anchored at 2%.

Interview
ACCOUNT 29 July 2021

Account of the strategy review meeting

The Governing Council unanimously supported the formulation of the new price stability objective, according to the account of the concluding discussion of the strategy review. Members are committed to the 2% target and consider negative and positive deviations equally undesirable.

Account
PUBLICATION 29 July 2021

Cash in the pandemic

Cash remains safe to use. People used less cash when the pandemic hit, partly for fear of infection. Our colleagues joined forces with researchers from Ruhr University Bochum and found that the risk of transmission via banknotes and coins is very small.

Occasional paper
EXPLAINERS 28 July 2021

What is the PEPP?

The pandemic emergency purchase programme (PEPP) was introduced in March 2020 to counter the economic impact of the coronavirus crisis. It lowers borrowing costs and increases bank lending in the euro area to help people and businesses to weather the crisis. But how does it work?

Explainer
29 July 2021
MONETARY POLICY ACCOUNT
28 July 2021
PRESS RELEASE
28 July 2021
EURO AREA ECONOMIC AND FINANCIAL DEVELOPMENTS BY INSTITUTIONAL SECTOR (FULL)
Annexes
28 July 2021
EURO AREA ECONOMIC AND FINANCIAL DEVELOPMENTS BY INSTITUTIONAL SECTOR (FULL)
28 July 2021
EURO AREA ECONOMIC AND FINANCIAL DEVELOPMENTS BY INSTITUTIONAL SECTOR (FULL)
27 July 2021
WEEKLY FINANCIAL STATEMENT
Annexes
27 July 2021
WEEKLY FINANCIAL STATEMENT - COMMENTARY
27 July 2021
MONETARY DEVELOPMENTS IN THE EURO AREA
Annexes
22 July 2021
Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 22 July 2021
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
Annexes
14 July 2021
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
Annexes
3 July 2021
29 July 2021
Interview with Luis de Guindos, Vice-President of the ECB, conducted by Frank Wiebe and Jan Mallien
English
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29 July 2021
Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Federico Fubini
English
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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
English
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2 July 2021
Interview with Christine Lagarde, President of the ECB, conducted by Marie Cécile Berenger
English
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27 July 2021
Blog post by Fabio Panetta, Member of the Executive Board of the ECB
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Details
Summary
If we make the recovery fund work and if we embed the lessons from the pandemic in the EMU governance framework, we can emerge from the crisis with a stronger economy and greater social and political cohesion, says Executive Board member Fabio Panetta in The ECB Blog.
14 July 2021
Blog post by Fabio Panetta, Member of the Executive Board of the ECB
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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 ECB
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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 ECB
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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 Payments
English
OTHER LANGUAGES (3) +
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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.
29 July 2021
WORKING PAPER SERIES - No. 2577
Details
Abstract
We propose a dynamic clustering model for uncovering latent time-varying group structures in multivariate panel data. The model is dynamic in three ways. First, the cluster location and scale matrices are time-varying to track gradual changes in cluster characteristics over time. Second, all units can transition between clusters based on a Hidden Markov model (HMM). Finally, the HMM’s transition matrix can depend on lagged time-varying cluster distances as well as economic covariates. Monte Carlo experiments suggest that the units can be classified reliably in a variety of challenging settings. Incorporating dynamics in the cluster composition proves empirically important in an a study of 299 European banks between 2008Q1 and 2018Q2. We find that approximately 3% of banks transition per quarter on average. Transition probabilities are in part explained by differences in bank profitability, suggesting that low interest rates can lead to long-lasting changes in financial industry structure.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
29 July 2021
OCCASIONAL PAPER SERIES - No. 259
Details
Abstract
In the light of fears that the SARS-CoV-2 virus might be transmitted via cash – fears that were stoked by statements in the media and from public authorities – this paper aims to address the following issues: (1) to provide a descriptive account of the change in the circulation of euro banknotes and the use of cash in transactions during the pandemic; and (2) to assess the survivability of the virus on cash and the potential transmission risks. The pandemic has caused a significant increase in demand for cash as a store of value but a decrease in the use of cash in transactions. Although citizens reported using cash less in transactions partly out of fear of infection, research confirms that the risk of the virus being transmitted by banknotes and coins is very low. This supports the findings from the scientific community concluding that SARS-CoV-2 mainly spreads via respiratory fluids and airborne transmission, and that surfaces play a very minor role.
JEL Code
I10 : Health, Education, and Welfare→Health→General
I12 : Health, Education, and Welfare→Health→Health Production
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
28 July 2021
MEP LETTER
28 July 2021
OTHER PUBLICATION
28 July 2021
WORKING PAPER SERIES - No. 2576
Details
Abstract
Tight labour markets are usually accompanied by mounting wage pressures. Yet, in the past decade, wage growth has remained subdued despite the appearance of widespread labour shortages. This paper re-examines labour market conditions since 2007 through the lens of a novel indicator, relative labour shortages (RLS), based on data from a large representative business survey in Sweden. Four main results emerge from the analysis: (1), the time-series average of RLS suggested much weaker labour market conditions during the 2013–2019 recovery from the Great Recession and during the Covid-19 pandemic in 2020 than qualitative surveys or the vacancy-unemployment ratio. (2), the reason is that RLS contains a time-varying intensive margin of labour shortages not recorded in most surveys, which has been trending downwards since the Great Recession. (3), fixed-effects regressions with several aggregate-, sector, region and establishment-level controls confirm that RLS is strongly and positively correlated with annual wage growth at the establishment level. (4), sector-level wage Phillips curves show that the subdued level of RLS can help explain the sluggish wage growth in Sweden since the Great Recession.
JEL Code
C80 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
J23 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Demand
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
28 July 2021
RESEARCH BULLETIN - No. 86
Details
Abstract
Climate change is one of the most pressing issues of our time. The challenge for policymakers is that climate policies could have a negative impact on the economy in the short term. In this article we discuss how this trade-off between fighting climate change and ensuring a stable business cycle affects the design of environmental policies. We argue in favour of a time-varying carbon tax that is increased during booms and decreased during recessions.
JEL Code
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
27 July 2021
WORKING PAPER SERIES - No. 2575
Details
Abstract
Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive inflation target. Relative price trends shift the optimal inflation target up from a level of zero percent, as suggested by the standard sticky price literature, to a range of 1.1%- 2.1% in France, 1.2%-2.0% in Germany, 0.8%-1.0% in Italy, and 1.1-1.7% in the Euro Area (three country average). Differences across countries emerge due to systematic differences in the strength of relative price trends. Other considerations not taken into account in the present paper may push up the optimal inflation targets further. The welfare costs associated with targeting zero inflation turn out to be substantial and range between 2.1% and 4.5% of consumption in present-value terms.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
Network
Price Micro Setting Analysis Network (PRISMA)
27 July 2021
WORKING PAPER SERIES - No. 2574
Details
Abstract
The US dollar plays a dominant role in the invoicing of international trade, albeit not an exclusive one as more than half of global trade is invoiced in other currencies. Of particular interest are the euro, with a large role, and the renminbi, with a rising role. These two currencies are well suited to contrast the roles of economic fundamentals and policies, as European policy makers have taken a neutral stance in contrast to the promotion of the international role of the renminbi by the Chinese authorities. We assess the drivers of invoicing using the most recent and comprehensive data set for 115 countries over 1999-2019. We find that standard mechanisms that foster use of a large economy's currency predicted by theory – i.e. strategic complementarities in price setting and integration in cross-border value chains – underpin use of the dollar and the euro for trade with the United States and the euro area. These mechanisms also support the role of the dollar, but not the euro, in trade between non-US and non-euro area countries, making the dollar the globally dominant invoicing currency. Fundamentals and policies have played a contrasted role for the use of the renminbi. We find that China's integration into global trade has further strengthened the dominant status of the dollar at the expense of the euro. At the same time, the establishment of currency swap lines by the People's Bank of China has been associated with increases in renminbi invoicing, with an adverse effect on dollar use that is larger than for the euro.
JEL Code
F14 : International Economics→Trade→Empirical Studies of Trade
F31 : International Economics→International Finance→Foreign Exchange
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
26 July 2021
WORKING PAPER SERIES - No. 2573
Details
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. 2572
Details
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

Interest rates

Marginal lending facility 0.25 %
Main refinancing operations (fixed rate) 0.00 %
Deposit facility − 0.50 %
18 September 2019 Past key ECB interest rates

Inflation rate

Inflation dashboard

Reference rates

USD US dollar 1.1873
JPY Japanese yen 130.41
GBP Pound sterling 0.85080
CHF Swiss franc 1.0788
Last update: Thursday, 29 July 2021 Euro foreign exchange rates