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MONETARY POLICY

Our monetary policy statement at a glance

We have raised interest rates. Why did we decide to do that, what other decisions did we take and what is going on in the economy? Our visual statement gives short explanations in easy-to-understand language.

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THE ECB BLOG 6 February 2023

Cash or cashless? How people pay

Digitalisation is changing the way we pay. The ECB Blog explores the findings of our survey into how people in the euro area prefer to pay and considers what this means for the future of cash and digital payments.

Blog post
#AskECB 3 February 2023

Join Twitter Q&A with Isabel Schnabel

What would you like to ask our Executive Board member Isabel Schnabel? She will be answering questions live on Twitter from 15:00 CET on Friday, 10 February.

Submit your questions via #AskECB
RESEARCH

Young economists wanted!

We are looking for PhD students in economics or finance who would like to share their research at the ECB Forum and have the chance to win €10,000. Apply for the Young Economist Prize and submit your paper by 13 February 2023.

Young Economist Prize
7 February 2023
Speech by Isabel Schnabel, member of the Executive Board of the ECB, at Webinar Finanzwende
English
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2 February 2023
Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 2 February 2023
23 January 2023
Speech by Christine Lagarde, President of the ECB, at the Deutsche Börse Annual Reception in Eschborn
English
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23 January 2023
Introductory statement by Fabio Panetta, Member of the Executive Board of the ECB, at the Committee on Economic and Monetary Affairs of the European Parliament
10 January 2023
Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the International Symposium on Central Bank Independence, Sveriges Riksbank, Stockholm
Annexes
10 January 2023
24 January 2023
Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Andreas Kröner, Jan Mallien and Frank Wiebe
English
OTHER LANGUAGES (2) +
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17 January 2023
Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Martin Wolf on 12 January 2023
31 December 2022
Interview with Christine Lagarde, President of the European Central Bank, conducted by Marina Klepo on 19 December 2022
English
OTHER LANGUAGES (1) +
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27 December 2022
Interview with Luis de Guindos, Vice-President of the ECB, conducted on 16 December 2022
English
OTHER LANGUAGES (1) +
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24 December 2022
Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Gerald Braunberger and Christian Siedenbiedel on 16 December 2022
English
OTHER LANGUAGES (1) +
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6 February 2023
The ECB has asked people in the euro area how they pay and which payment methods they prefer. The ECB Blog discusses our survey findings and what they mean for the future of cash and digital means of payment.
Details
JEL Code
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
27 January 2023
The ECB’s main building in Frankfurt stands on a site linked to the atrocities of the Holocaust. On International Holocaust Remembrance Day, we affirm that tyranny and state injustice must never again prevail. Building European unity is a cornerstone of this commitment.
18 January 2023
Hit by multiple shocks, the corporate sector has increased its debt over recent years. The ECB Blog shows that strained balance sheets could significantly depress firms’ investment in the coming years with negative implications for innovation and growth.
Details
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
5 January 2023
Trading in unbacked digital assets should be treated by regulators like gambling.
4 January 2023
Borrowing has become more expensive for governments. But despite rising interest rates, government debt can remain on a sound path. The ECB Blog discusses what constitutes a favourable balance between debt costs and economic growth.
Details
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H30 : Public Economics→Fiscal Policies and Behavior of Economic Agents→General
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
8 February 2023
WORKING PAPER SERIES - No. 2777
Details
Abstract
We revisit the so-called ”secular international problem”, whereby the adjustment of current account imbalances purportedly falls entirely on the shoulders of deficit countries. We introduce a stylised model to rationalise an asymmetric counter-cyclical policy reaction that is stronger for deficit countries. When considering large current account adjustments (both deficits and surpluses) in advanced and emerging economies, we find surprisingly little evidence of greater policy activism in deficit countries. However, large surplus adjustments are less frequent and are associated with export compression, whereas deficit adjustments tend to accompanied by import contraction. Moreover, when we look at current account (terms of trade) shocks we do find some evidence of asymmetry in the sense that fiscal policy is tightened only in reaction to shocks leading to a larger deficit position. Finally, emerging markets display a more counter-cyclical response to negative current account shocks, partly mitigated by the quality of institutions.
JEL Code
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
8 February 2023
WORKING PAPER SERIES - No. 2776
Details
Abstract
(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region of Austria and Germany. Using transaction data on prices and quantities from a large household panel, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between these two regions. Even within multinational retail chains the prices of identical products on the two sides of the border differ on average by about 21%. These price differences are not very persistent indicating little arbitrage gain from undifferentiated cross-border shopping. Ensuing product-level inflation rates differ for only half of the chains. The results highlight the importance of the history-dependent evolution of distribution networks and of the structure of the sales organization as a driver of price and inflation heterogeneity.
JEL Code
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
D43 : Microeconomics→Market Structure and Pricing→Oligopoly and Other Forms of Market Imperfection
F15 : International Economics→Trade→Economic Integration
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
Network
Price Micro Setting Analysis Network (PRISMA)
7 February 2023
WORKING PAPER SERIES - No. 2775
Details
Abstract
We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP.
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
7 February 2023
WORKING PAPER SERIES - No. 2774
Details
Abstract
This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999-2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials – with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures – when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax (VAT) rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
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
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
6 February 2023
OTHER PUBLICATION
6 February 2023
WORKING PAPER SERIES - No. 2773
Details
Abstract
How much does quality adjustment matter in measuring consumer price inflation? To address this question, we use different sources of micro and macro price data for Germany and the euro area. For Germany, we find that quality adjustment applies to a large range of goods and services but, on average, price adjustments due to quality changes reduce headline inflation only by 0.06 percentage points, which is balanced out by an increase due to quantity adjustment (e.g. a smaller package size) of the same amount. For the euro area, we assess the impact of heterogeneous quality adjustment methods by deriving the distribution of member states’ cumulative inflation rates for typical quality-adjusted products. Our macro-based estimate makes up to ± 0.2 percentage points for headline HICP inflation and ranges between± 0.1 and 0.3 percentage points for core inflation, when controlling for income differentials between member states. [...]
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
Network
Price Micro Setting Analysis Network (PRISMA)
6 February 2023
WORKING PAPER SERIES - No. 2772
Details
Abstract
Empirical research suggests that lower interest rates induce banks to take higher risks. We assess analytically what this risk-taking channel implies for optimal monetary policy in a tractable New Keynesian model. We show that this channel creates a motive for the planner to stabilize the real rate. This objective conflicts with the standard inflation stabilization objective. Optimal policy thus tolerates more inflation volatility. An inertial Taylor-type reaction function becomes optimal. We then quantify the significance of the risk-taking channel for monetary policy in an estimated medium-scale extension of the model. Ignoring the channel when designing policy entails non-negligible welfare costs (0.7%lifetime consumption equivalent).
JEL Code
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
6 February 2023
SURVEY OF MONETARY ANALYSTS AGGREGATE RESULTS
3 February 2023
MEP LETTER
3 February 2023
MEP LETTER
3 February 2023
MEP LETTER
3 February 2023
WORKING PAPER SERIES - No. 2771
Details
Abstract
This paper investigates both the magnitude and the drivers of bank window dressing behaviour in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. We establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behaviour. Our findings suggest that regulatory action is warranted to limit banks’ ability to window dress.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
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
3 February 2023
WORKING PAPER SERIES - No. 2770
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Abstract
How do financial markets acquire information about upcoming monetary policy decisions, beyond their reaction to central bank signals? This paper hypothesises that sharing information among investors can improve expectations, especially in the presence of disagreement or uncertainty about the economy. To test this hypothesis, the paper studies monetary policy-related content on Twitter during the “quiet period” before European Central Bank announcements, when policymakers refrain from public statements related to monetary policy. Conditional on large disagreement about the economic outlook, higher Twitter traffic is associated with smaller monetary policy surprises, suggesting that exchanging private signals among investors can help improve expectations.
JEL Code
D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
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
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
3 February 2023
SURVEY OF PROFESSIONAL FORECASTERS
3 February 2023
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2023
Details
Abstract
This box summarises the findings of recent contacts between ECB staff and representatives of 73 leading non-financial companies operating in the euro area. According to these exchanges, which took place between 4 and 12 January 2023, aggregate activity had broadly stagnated or contracted mildly in the fourth quarter of 2022, but with notable differences across sectors. The short-term outlook for activity remained subdued with much uncertainty, but there was increased hope of a pick-up in 2023. Selling prices continued to increase in aggregate, but at a moderating pace and with more variability across sectors and a less certain outlook. Wage growth was now the predominant cost concern, although wage expectations remained broadly unchanged from the previous survey round. Despite greater wage cost pressure and very high uncertainty regarding the future path of energy prices, most contacts expected lower price growth in 2023 than in 2022.
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
31 January 2023
THE EURO AREA BANK LENDING SURVEY
Annexes
31 January 2023
BANK LENDING SURVEY - ANNEX
Related
30 January 2023
OTHER PUBLICATION
25 January 2023
WORKING PAPER SERIES - No. 2769
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Abstract
Differences in labour market institutions and regulations between countries of the monetary union can cause divergent responses even to a common shock. We augment a multi-country model of the euro area with search and matching framework that differs across Ricardian and hand-to-mouth households. In this setting, we investigate the implications of cross-country heterogeneity in labour market institutions for the conduct of monetary policy in a monetary union. We compute responses to an expansionary demand shock and to an inflationary supply shock under the Taylor rule, asymmetric unemployment targeting, and average inflation targeting. For each rule we distinguish between cases with zero weight on the unemployment gap and a negative response to rising unemployment. Across all rules, responding to unemployment leads to lower losses of employment and higher inflation. Responding to unemployment reduces cross-country differences within the monetary union and the differences in consumption levels of rich and poor households.
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
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
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
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
25 January 2023
WORKING PAPER SERIES - No. 2768
Details
Abstract
This paper compares within-sample and out-of-sample fit of a DSGE model with rational expectations to a model with adaptive learning. The Galí, Smets and Wouters model is the chosen laboratory using quarterly real-time euro area data vintages, covering 2001Q1–2019Q4. The adaptive learning model obtains better within-sample fit for all vintages used for estimation in the forecast exercise and for the full sample. However, the rational expectations model typically predicts real GDP growth better as well as jointly with inflation. For the marginal inflation forecasts, the same holds for the inner quarters of the forecast horizon, while the adaptive learning model predicts better for the outer quarters.
JEL Code
C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
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
24 January 2023
WORKING PAPER SERIES - No. 2767
Details
Abstract
We develop a measure of overall financial risk in China by applying machine learning techniques to textual data. A pre-defined set of relevant newspaper articles is first selected using a specific constellation of risk-related keywords. Then, we employ topical modelling based on an unsupervised machine learning algorithm to decompose financial risk into its thematic drivers. The resulting aggregated indicator can identify major episodes of overall heightened financial risks in China, which cannot be consistently captured using financial data. Finally, a structural VAR framework is employed to show that shocks to the financial risk measure have a significant impact on macroeconomic and financial variables in China and abroad.
JEL Code
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C65 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Miscellaneous Mathematical Tools
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
G15 : Financial Economics→General Financial Markets→International Financial Markets

Interest rates

Marginal lending facility 3.25 %
Main refinancing operations (fixed rate) 3.00 %
Deposit facility 2.50 %
8 February 2023 Past key ECB interest rates

Inflation rate

Inflation dashboard

Exchange rates

USD US dollar 1.0700
JPY Japanese yen 141.30
GBP Pound sterling 0.89338
CHF Swiss franc 0.9906
Last update: 7 February 2023 Euro foreign exchange rates