BANKNOTES
29 November 2022
Croatia changeover
In January Croatia will join Europe’s single currency – the euro. We’ve launched a special hub page to bring together all essential information on this topic.
Hub page
THE ECB BLOG
25 November 2022
Inflation diagnostics
Identifying the medium-term inflation path is a challenge in the current environment, writes Chief Economist Philip R. Lane in the ECB Blog. He analyses some of the key issues – high inflation, the impact of energy and pandemic-related shocks and Russia’s war in Ukraine.
Blog post
EXPLAINER
29 November 2022
Central bank profits and losses
The ECB and national central banks can make a profit or incur losses as a side effect of fulfilling our price stability mandate. Our explainer looks into how profits and losses come about and what we do about them.
Explainer- 29 November 2022
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 29 November 2022
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 28 November 2022
- MONETARY DEVELOPMENTS IN THE EURO AREAAnnexes
- 28 November 2022
- MONETARY DEVELOPMENTS IN THE EURO AREA
- 24 November 2022
- MONETARY POLICY ACCOUNTRelated
- 27 October 2022
- MONETARY POLICY DECISIONEnglishOTHER LANGUAGES (23) +
- 22 November 2022
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 22 November 2022
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 22 November 2022
- BALANCE OF PAYMENTS (MONTHLY)
- 29 November 2022
- Keynote speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the IG Metall Economic Talks
- 28 November 2022
- Speech by Christine Lagarde, President of the ECB, at the Hearing of the Committee on Economic and Monetary Affairs of the European ParliamentAnnexes
- 28 November 2022
- 24 November 2022
- Keynote speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the Bank of England Watchers’ Conference
- 18 November 2022
- Speech by Christine Lagarde, President of the ECB, at the European Banking Congress
- 16 November 2022
- Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Italian Banking Association
- 21 November 2022
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Luke Heighton on 16 November 2022
- 8 November 2022
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Johanna Treeck on 3 November 2022
- 1 November 2022
- Interview with Christine Lagarde, President of the ECB, conducted by Žanete Hāka
- 14 October 2022
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Dalius Simenas on 10 October 2022
- 27 September 2022
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by András Szigetvari on 20 September 2022
- 25 November 2022
- Identifying the medium-term inflation path in the current environment of high inflation, ongoing energy and pandemic-related shocks and the Russian invasion of Ukraine is a diagnostic challenge. In his ECB Blog post Philip R. Lane, Member of the ECB’s Executive Board, describes some of the key analytical issues involved.Details
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
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
- 18 November 2022
- A shared understanding of how climate change affects the economy can be the basis for global action. To help inform and guide policy across the globe central bankers and supervisors have developed climate scenarios. This is the final post in a series on the occasion of COP27.Details
- JEL Code
- Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q52 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Pollution Control Adoption Costs, Distributional Effects, Employment Effects
Q56 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Environment and Development, Environment and Trade, Sustainability, Environmental Accounts and Accounting, Environmental Equity, Population Growth
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Related- 15 November 2022
- 9 November 2022
- 7 November 2022
- 2 November 2022
- 15 November 2022
- Europe is punching below its weight in the climate-technology competition. The continent needs to facilitate risk capital markets and to invest more in research and development. This is the 4th post in a series of climate-related entries on the occasion of COP27.Related
- 9 November 2022
- 2 November 2022
- 7 November 2022
- 18 November 2022
- 9 November 2022
- We need to intensify the greening of our economies despite the energy crisis. Hastening the process will reduce the costs of transition and help to ensure price stability in the long run. This is the third post in a series of climate-related entries on the occasion of COP27.Related
- 7 November 2022
- 2 November 2022
- 15 November 2022
- 18 November 2022
- 7 November 2022
- If we do not account for the impact of climate change on our economy, we risk missing a crucial part in our work to keep prices stable, argues Christine Lagarde in the ECB Blog. This is the second entry in a series of climate related entries on the occasion of COP27.Related
- 2 November 2022
- 9 November 2022
- 15 November 2022
- 18 November 2022
- 28 November 2022
- SURVEY OF MONETARY ANALYSTS
- 25 November 2022
- MEP LETTER
- 25 November 2022
- MEP LETTER
- 25 November 2022
- MEP LETTER
- 25 November 2022
- MEP LETTER
- 23 November 2022
- RESEARCH BULLETIN - No. 101Details
- Abstract
- Recent empirical findings (Bordalo et al., 2018, 2019; Greenwood et al., 2022) have vindicated the view thatsystemic risk in financial markets is also influenced by cognitive misperceptions about future economicdevelopments in addition to being influenced by financial frictions. Most of the literature on macroprudentialregulation, nonetheless, has omitted those misperceptions and instead has derived policy implicationsassuming rational expectations. In this article (which is based on Camous and Van der Ghote, 2021), weexamine the joint implications of external financing frictions and extrapolative expectations for the stability ofthe financial system and the appropriate conduct of macroprudential regulation. We find that interactionsbetween those two elements exacerbate financial instability relative to the rational benchmark. This calls fortighter macroprudential regulation, even when the regulator is also subject to cognitive misperceptions.Disagreement about the appropriate macroprudential regulation among potential regulators with differingdegrees of misperception is stronger during booms, when risk-taking in financial markets and in realinvestments is more aggressive.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E71 : Macroeconomics and Monetary Economics
- 17 November 2022
- WORKING PAPER SERIES - No. 2753Details
- Abstract
- We employ interest rates and expected loss probabilities from the 2021 EBA Stress Test dataset and euro area credit registries to examine whether the risk-return relationship holds in banking. After controlling for bank, loan, and debtor characteristics as well as macroeconomic conditions, results indicate that a risk-return relationship in bank lending is present but varies significantly across and within borrower segments. While bank lending rates appear to be quite responsive to risks towards households, results suggest that banks only significantly increase interest rates towards non-financial corporations that reside in the riskiest quantiles of the distribution. This potentially implies the presence of a cross-subsidization effect of credit risk.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
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
- 17 November 2022
- WORKING PAPER SERIES - No. 2752Details
- Abstract
- This paper assesses the role of the housing market in the transmission of conventional and unconventional monetary policy across euro area regions. By exploiting a novel regional dataset on housing-related variables, a structural panel VAR analysis shows that monetary policy propagates effectively to economic activity and house prices, albeit in a heterogeneous fashion across regions. Although the housing channel plays a minor role in the transmission of monetary policy to the economy on average, its importance increases in the case of unconventional monetary policy. We also explore the determinants of the diverse transmission of monetary policy to economic activity across regions, finding a larger impact in areas with lower labour income and more widespread homeownership. An expansionary monetary policy can thus be effective in mitigating regional inequality via its stimulus to the economy.
- JEL Code
- D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets
- 16 November 2022
- WORKING PAPER SERIES - No. 2751Details
- Abstract
- This paper analyses the implications of corporate indebtedness for investment following large economic shocks. The empirical analysis is based on a large Orbis-iBACH firm-level data set for euro area countries from 2005 to 2018. Our results suggest that investment of high-debt firms is significantly depressed for an extended period in the aftermath of economic crises. In the four years after a negative economic shock, the cumulative loss of capital of high-debt firms is around 15% higher than that of firms with lower debt burdens. The negative impact of high debt on investment is most evident for firms in Southern and Eastern Europe and for micro firms. These findings suggest a potentially significant negative impact of increased corporate indebtedness on investment in the post-COVID-19 recovery.
- JEL Code
- E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
F34 : International Economics→International Finance→International Lending and Debt Problems
G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 16 November 2022
- OCCASIONAL PAPER SERIES - No. 309Details
- Abstract
- Climate change poses three specific but interrelated policy challenges: climate change mitigation, climate change adaptation (which includes building up resilience) and managing transition risks. The International Monetary Fund (IMF) is a multilateral institution with global reach and near-universal membership. Therefore, along with other international organisations, it has an important role to play in addressing the policy challenges posed by climate change. This paper discusses the contribution the IMF makes and can make in its three areas of competence: surveillance, lending and technical assistance. The paper concludes that the IMF has significantly increased its engagement in climate change matters in recent years but should further intensify its efforts in ways that are fully consistent with its mandate.
- JEL Code
- F3 : International Economics→International Finance
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F34 : International Economics→International Finance→International Lending and Debt Problems
O19 : Economic Development, Technological Change, and Growth→Economic Development→International Linkages to Development, Role of International Organizations
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 16 November 2022
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2022Details
- Abstract
- Energy sector firms use energy derivatives under different strategies depending on their main area of activity, business model and exposure to risk in physical markets. The significant volatility and skyrocketing prices seen in energy markets since March 2022 have resulted in large margin calls, generating liquidity risks for derivatives users. Strategies employed by companies to alleviate liquidity stress may lead to an accumulation of credit risk for their lenders or their counterparties in less collateralised segments of the derivatives market. Further price increases would accentuate nascent vulnerabilities, creating additional stress in a concentrated market. These issues underline the need to review margining practices and enhance the liquidity preparedness of all market participants to deal with large margin calls.
- JEL Code
- Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
G20. : Financial Economics→Financial Institutions and Services→General
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- This box assesses the development of the liquidity mismatch for a broad sample of euro area open-ended bond funds. This mismatch arises if funds primarily invest in less liquid assets while at the same time offering their investors the option of short-term redemptions. In 2017 the Financial Stability Board (FSB) published policy recommendations to address structural vulnerabilities related to asset management activities, including liquidity mismatch. Our results suggest that the liquidity mismatch increased in the years up to the pandemic. In March 2020 many funds faced substantial redemption pressures, especially those with a relatively large structural liquidity mismatch, creating large fire-sale externalities. The increase in cash holdings after this shock indicates procyclicality in liquidity management strategies, suggesting that fund managers do not necessarily have the incentives to maintain sufficient liquidity buffers. Policies that aim to better align redemption terms with asset liquidity would help to enhance the resilience of the investment fund sector, as the liquidity mismatch is still prevalent and has not declined since the publication of the FSB policy recommendations in 2017.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- This box investigates the measurement of banks’ exposures to concentration risk related to climate change. It does so by introducing a new metric to quantify carbon-related concentration risk in banks’ corporate loan portfolios. Using data on individual borrowers’ emissions, the formula of the Herfindahl-Hirschman Index (HHI) is extended to create a carbon-weighted HHI (cwHHI). The cwHHI reveals substantial heterogeneity in the degree of carbon-related concentration among portfolios similarly exposed to high-emitting firms. Furthermore, banks with exposures to high-emitting firms similar to their peers but with higher cwHHI experience higher expected losses in a disorderly transition scenario. The empirical findings of this box suggest that institutions and exposures significantly affected by carbon-related concentration risk run a higher risk of incurring losses, extending even to those banks with a lower share of exposures to high emitters. The implication is that carbon-related concentration risk may be a material risk driver.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- The euro area insurance sector and its relevance for real economy financing have grown significantly over the last two decades. This box examines the effects of higher interest rates on the size and composition of euro area insurers’ balance sheets, as well as the implications of these effects for financial stability. The results suggest that the size of insurers’ balance sheets decreases materially after a monetary tightening. Such tightening also induces shifts in asset holdings, which lead to a reduction in credit, liquidity and duration risk-taking. Medium-term financial stability risks in the insurance sector could therefore decline amid rising interest rates.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- In many previous editions of the FSR, we have warned about the risk of a “disorderly correction in asset markets”. In the most recent publication, we argued that higher than expected inflation can increase this risk and provide some arguments to substantiate this claim. However, with the inflation remaining a key topic, our “warning” needs to be better substantiated and more specific. The analytics in the box do exactly this. In both 2021 2022, the 12-month correlation between daily US bond and stock returns has crossed into positive territory. The assumption of having a low correlation between stock and bond returns has historically been one of the bedrocks of strategic asset allocation (e.g. the “standard” 60-40 split). The resulting diversification benefits, however, are contingent on the low correlation between asset classes. Higher or unstable cross-asset correlations complicate portfolio optimisation and risk management, and could also destabilise bond markets, where volatility is already elevated. We discuss the challenges that this poses for portfolio management and the implications for financial stability. Then we go on to investigate the direct and indirect drivers of the stock-bond correlation. We find empirical evidence that the current higher correlation, with its associated financial stability risks, may be driven by the present high inflation environment and related monetary policy expectations.
- JEL Code
- C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F65 : International Economics→Economic Impacts of Globalization→Finance
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- When financial fragmentation becomes a self-reinforcing dynamic, it can present a risk to financial stability. Moreover, when markets are fragmented, differences in risk premia can emerge beyond those that can be explained by an asset’s fundamentals, and some market segments may display different dynamics from others. This box constructs an indicator of such divergent dynamics for euro area bond markets, assesses the resilience of bond markets under different regimes of this indicator and discusses financial stability risks associated with financial fragmentation.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
F15 : International Economics→Trade→Economic Integration
F65 : International Economics→Economic Impacts of Globalization→Finance
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 16 November 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2022Details
- Abstract
- Interest rate swaps account for the largest share of the euro area derivatives market. Outstanding contracts on EURIBOR swaps have risen sharply since 2021, possibly reflecting expectations of monetary policy normalisation. Using trade repository data on individual EURIBOR swap trades between 2019 and 2022, this box identifies how the risk is being shared across sectors in the interest rate swaps market and who would pay margins to whom should rates change. Empirical findings show that euro area banks are among the most active counterparties in EURIBOR swaps, due to either their role as market-makers or their need to hedge interest rate risk. Investment funds, insurance companies and pension funds would need to make margin payments in the event of rising interest rates.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
- 16 November 2022
- FINANCIAL STABILITY REVIEWAnnexes
- 16 November 2022
- ANNEX
Related- 16 November 2022
- PRESS RELEASE
- 15 November 2022
- WORKING PAPER SERIES - No. 2750Details
- Abstract
- The growth in TARGET balances after 2009 has given rise to intense academic and public debate. Our paper offers a systematic exposition of the necessary conditions for TARGET balances to emerge and provides a clear link to monetary policy. We show that large TARGET balances can only arise with excess liquidity. The interpretation of TARGET balances therefore depends on the monetary policy context in which excess liquidity is created. We distinguish three phases of TARGET balances growth and propose some easy-to-derive metrics for policy makers and academics to assess developments in TARGET balances. We develop a comprehensive econometric framework to account for relevant factors driving TARGET balances in the different phases. We find that while financial market stress and economic imbalances were the drivers of TARGET balances during the great financial and sovereign debt crises, the implementation of Eurosystem asset purchases was the driving force since March 2015. As excess liquidity is likely to persist on account of higher demand for central bank reserves compared to the pre-crisis period, TARGET balances have the potential to remain sizeable in the future.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
- 15 November 2022
- WORKING PAPER SERIES - No. 2749Details
- Abstract
- We test whether a simple measure of corporate insolvency based on equity return volatility -and denoted as Distance to Insolvency (DI) - delivers better prediction of corporate defaults than the widely-used Expected Default Frequency (EDF) measure computed by Moody’s. We look at the predictive power that current DIs and EDFs have for future defaults, both at a firm-level and at an aggregate level. At the granular level, both DIs and EDFs anticipate corporate defaults, but the DI contains information over and above the EDF, especially at longer forecasting horizons. At an aggregate level the DI shows superior forecasting power compared to the EDF, for horizons between 3 and 12 months. We illustrate the predictive power of the DI measure for the aggregate default rate by examining how corporate defaults would have evolved during the period marked by the spreading of the COVID-19 pandemic if DIs had not increased (so making future defaults less likely) also owing to the Eurosystem’s Public Emergency Purchase Program (PEPP).
- JEL Code
- C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
Interest rates
| Marginal lending facility | 2.25 % |
| Main refinancing operations (fixed rate) | 2.00 % |
| Deposit facility | 1.50 % |
Inflation rate
Inflation dashboardExchange rates
| USD | US dollar | 1.0366 | |
| JPY | Japanese yen | 143.36 | |
| GBP | Pound sterling | 0.86218 | |
| CHF | Swiss franc | 0.9862 |
Financial stability
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