INTERVIEW
22 December 2021
Gradual policy normalisation
We have taken an important step towards the normalisation of our monetary policy but this has to be a gradual process, Executive Board member Isabel Schnabel tells Le Monde. We need to retain optionality to respond to new data and make sure that we sustainably reach our 2% target.
Interview
RESEARCH
20 December 2021
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EXPLAINER
What is monetary policy?
Why does monetary policy matter? Because it has a direct impact on interest rates and an indirect impact on inflation, the economy and employment.
Tell me- 22 December 2021
- EURO AREA PENSION FUND STATISTICSAnnexes
- 22 December 2021
- EURO AREA PENSION FUND STATISTICS
- 21 December 2021
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 21 December 2021
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 20 December 2021
- BALANCE OF PAYMENTS (MONTHLY)
- 17 December 2021
- OTHER GOVERNING COUNCIL DECISIONEnglishOTHER LANGUAGES (22) +
- 17 December 2021
- PRESS RELEASE
- 16 December 2021
- Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 16 December 2021EnglishOTHER LANGUAGES (22) +Related
- 10 December 2021
- Lecture by Fabio Panetta, Member of the Executive Board of the ECB
- 8 December 2021
- Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the fifth annual conference of the European Systemic Risk Board
- 8 December 2021
- Speech by Luis de Guindos, Vice-President of the ECB, at the 5th ESRB Annual Conference
- 8 December 2021
- Welcome remarks by Christine Lagarde, President of the ECB and Chair of the European Systemic Risk Board, at the fifth annual conference of the ESRB
- 22 December 2021
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Eric Albert on 16 December and published on 22 December
- 7 December 2021
- Interview with Christine Lagarde, President of the ECB, conducted by Fabio Fazio on 28 November and published on 7 December 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
- 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.
- 22 December 2021
- SURVEY OF MONETARY ANALYSTS AGGREGATE RESULTS
- 22 December 2021
- WORKING PAPER SERIES - No. 2634Details
- Abstract
- We study exchange rate pass-through (ERPT), i.e., the impact of exchange rate movements on inflation, focusing on euro area import prices at a sectorally disaggregated level. Our estimation strategy is based on VAR-X models, thus incorporating both endogenous and exogenous explanatory variables. The impulse response functions not only allow to study the extent but also the dynamics of ERPT. We find that ERPT is heterogeneous in terms of magnitude across sectors. We further investigate what industry-specific characteristics affect the heterogeneity of ERPT. Across various model specifications including import penetration, market integration, competition and value chain integration, we find that higher market concentration and higher backward integration in global value chains decrease pass-through, in line with previous findings in the literature.
- JEL Code
- C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
F30 : International Economics→International Finance→General
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
- 22 December 2021
- WORKING PAPER SERIES - No. 2633Details
- Abstract
- We study the relationship between fiscal policy and household saving across the euro area countries for the period 1999-2019. To this extent, we propose a thick modelling approach, which allows a vast number of model specifications in a dynamic panel setting. We find that fiscal expansions are associated with an increase in household saving rate in the euro area, which supports a partial, but not full, Ricardian equivalence channel. The relationship holds regardless of how we measure the (discretionary) fiscal policy impulse. The median saving offset across all baseline specifications is around 19% in the short run and 41% in the long run. Various robustness checks underpin the basic results, while also pointing to model and estimation uncertainty and no robust evidence for total private saving offset. Our results for the euro area are broadly in line with the literature, albeit they tend to yield a somewhat weaker evidence for the saving offset of fiscal policy, particularly in relation to earlier studies.
- JEL Code
- D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H6 : Public Economics→National Budget, Deficit, and Debt
- 21 December 2021
- WORKING PAPER SERIES - No. 2632Details
- Abstract
- Monetary policy aims at affecting corporate borrowing by influencing the marginal costs of firms, but its potency can be conditioned by the degree of market competition. We first identify conditions under which changes in marginal costs may have different effects on credit constraints and output under different competitive environment, in a simple Cournot competition setting. We then exploit changes in monetary policy to examine whether the pass-through of borrowing costs is affected by market structure. First, we use as an experiment the announcement of the ECB Outright Monetary Transactions (OMT) program in a triple-differences specification. We show that small firms (which have low market power and higher credit constraints) in "stressed" countries (which benefited more from the policy) within less concentrated sectors experienced a larger reduction in credit constraints than similar firms in more concentrated sectors. Second, we exploit continuous state-of-the-art measures of monetary policy shocks to study how market structure affects pass-through to real variables, like investment and sales growth. We find evidence that firms with more market power respond less to monetary policy shocks. These results show that the interaction of borrowing capacity and market structure matters, and that concentration may have important effects on monetary policy transmission.
- JEL Code
- D4 : Microeconomics→Market Structure and Pricing
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
L1 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance - Network
- Discussion papers
- 21 December 2021
- WORKING PAPER SERIES - No. 2631Details
- Abstract
- This paper explores how the need to transition to a low-carbon economy influences firm credit risk. It develops a novel dataset which augments data on firms’ green-house gas emissions over time with information on climate disclosure practices and forward-looking emission reduction targets, thereby providing a rich picture of firms’ climate-related transition risk alongside their strategies to manage such risks. It then assesses how such climate-related metrics influence two key measures of firms’ credit risk: credit ratings and the market-implied distance-to-default. High emissions tend to be associated with higher credit risk. But disclosing emissions and setting a forward-looking target to cut emissions are both associated with lower credit risk, with the effect of climate commitments tending to be stronger for more ambitious targets. After the Paris agreement, firms most exposed to climate transition risk also saw their ratings deteriorate whereas other comparable firms did not, with the effect larger for European than US firms, probably reflecting differential expectations around climate policy. These results have policy implications for corporate disclosures and strategies around climate change and the treatment of the climate-related transition risk faced by the financial sector.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental 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
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
- 20 December 2021
- MEP LETTER
- 20 December 2021
- MEP LETTER
- 20 December 2021
- MEP LETTER
- 20 December 2021
- MEP LETTER
- 20 December 2021
- WORKING PAPER SERIES - No. 2630Details
- Abstract
- We confront the notion that flexible rates insulate a country from external disturbances with new evidence on spillovers from euro-area shocks to neighboring countries. We find that in response to euro-area shocks, spillovers are not smaller, and currency movements not significantly larger, in countries that float their currency, relative to those that peg to the euro—the insulation puzzle. Unconditionally, however, currency volatility is significantly higher for floaters. A state-of-the-art open-economy model can fit our conditional evidence on lack of insulation, provided monetary policy targets headline inflation, but only at the cost of missing the unconditional evidence on currency volatility.
- JEL Code
- F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 20 December 2021
- WORKING PAPER SERIES - No. 2629Details
- Abstract
- We confront five stylized facts related to sovereign default: 1) the presence of serial defaulters; 2) the prevalence of partial over complete default; 3) the counter-cyclicality of default; 4) non-linearity of sovereign spreads; and 5) heterogeneous outcomes among serial defaulters. In a model that integrates fiscal uncertainty and habit formation in policy, assuming incomplete financial markets, we demonstrate that default is habit and shock driven as well as non-strategic and involuntary. Moreover, there is no need for sanctions to sustain trading. Importantly, in spite of dealing with serial defaulters, partial default is a robust equilibrium. We characterize good and bad fiscal habits and, that with the latter, expected default increases with habit persistence. The impact of habits on the expected default rate is the opposite of its effect on both the interest rate on public debt and base interest of the economy. The presence of habits also has implications for the cost of debt, default risk premium and the cost of default, and can shed light on country heterogeneities.
- JEL Code
- G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
- 20 December 2021
- OTHER PUBLICATION
- 17 December 2021
- MEP LETTER
- 17 December 2021
- WORKING PAPER SERIES - No. 2628Details
- Abstract
- How does global risk impact the world economy? In taking up this question, we focus on the dollar’s role in the international adjustment mechanism. First, we rely on high-frequency surprises in the price of gold to identify the effects of global risk shocks in a Bayesian Proxy VAR model. They cause a synchronized contraction of global economic activity and appreciate the dollar. Other key financial indicators adjust in line with pre-dictions of recent theoretical work. Second, we illustrate through counterfactuals that the dollar appreciation amplifies the adverse impact of global risk shocks outside of the US via a financial channel.
- JEL Code
- F31 : International Economics→International Finance→Foreign Exchange
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
- 17 December 2021
- WORKING PAPER SERIES - No. 2627Details
- Abstract
- This paper reports the results of a survey of former members of the Governing Council of the European Central Bank, which sought their views on monetary policy communication practices, the related challenges and the road ahead. Pronounced differences across the respondent groups are rare, suggesting that there is broad consensus on the various issues. Respondents view enhancing credibility and trust as the most important objective of central bank communication. They judge communication with financial markets and experts as extremely important and adequate, but see substantial room for improvement in the communication with the general public. The central bank objective is widely seen as the most important topic for monetary policy communication, and several respondents perceived a need for clarification of the ECB’s inflation aim, citing the ambiguity of the “below, but close to, 2%” formulation that was in place at the time of the survey.
- 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
- 17 December 2021
- OTHER PUBLICATIONAnalysis of high-level considerations and high-priority technical aspects
- 17 December 2021
- OTHER PUBLICATION
- 16 December 2021
- MACROECONOMIC PROJECTIONS FOR THE EURO AREAEnglishOTHER LANGUAGES (21) +Annexes
- 16 December 2021
- ANNEX
- 8 December 2021
- WORKING PAPER SERIES - No. 2626Details
- Abstract
- We contribute to the debate surrounding central banks and climate change by investigating how extreme temperatures affect medium-term inflation, the primary objective of monetary policy. Using panel local projections for 48 advanced and emerging market economies (EMEs), we study the impact of country-specific temperature shocks on a range of prices: consumer prices, including the food and non-food components, producer prices and the GDP deflator. Hot summers increase food price inflation in the near term, especially in EMEs. But over the medium term, the impact across the various price indices tends to be either insignificant or negative. Such effect is largely non-linear, being more significant for larger shocks and at higher absolute temperatures. We also provide simulations from a two-country model to understand the rationale behind the results. Overall, our results suggest that temperature plays a non-negligible role in driving medium-term price developments. Climate change matters for price stability.
- JEL Code
- E03 : Macroeconomics and Monetary Economics→General→Behavioral Macroeconomics
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 8 December 2021
- OCCASIONAL PAPER SERIES - No. 287Details
- Abstract
- The Consumer Expectations Survey (CES) is an important new tool for analysing euro area household economic behaviour and expectations. This new survey covers a range of important topical areas including consumption and income, inflation and gross domestic product (GDP) growth, the labour market, housing market activity and house prices, and consumer finance and credit access. The CES, which was launched as a pilot in January 2020, is a mixed frequency modular survey, which is conducted online. The survey structure and centralised data collection ensures the collection of harmonised quantitative and qualitative euro area information in a timely manner that facilitates direct cross-country comparisons. During the pilot phase, it was conducted for the six largest euro area countries and contained 10,000 individual respondents. In the context of the coronavirus (COVID-19) pandemic, the CES has been used to gather useful information on the impact of the crisis on the household sector and the effectiveness of policy measures to mitigate the effects of the pandemic. The CES also collects information on the public’s overall trust in the ECB, their knowledge about its objectives and the channels through which they learn about its monetary policy and other central bank-related topics. This paper describes the key features of this new ECB survey – including its statistical properties – and offers a first evaluation of the results from the pilot phase. It also identifies a number of areas where the survey can be usefully developed further. Overall, the experience with the CES has been very positive, and the pilot survey is considered to have achieved its main objectives.
- JEL Code
- C42 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Survey Methods
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
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 | 1.1317 | |
| JPY | Japanese yen | 129.45 | |
| GBP | Pound sterling | 0.84389 | |
| CHF | Swiss franc | 1.0402 |
Financial stability
Our tasks Institutional framework Financial Stability Review Macroprudential policy measuresMarket operations
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