EB articles published in 2019

19 June 2019
The euro area labour market through the lens of the Beveridge curve

Abstract

JEL Classification

E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital

J63 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Turnover, Vacancies, Layoffs

J64 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Unemployment: Models, Duration, Incidence, and Job Search

Abstract

In this article we look at the euro area labour market using the framework underlying the Beveridge curve, which captures the negative relationship between the unemployment rate and the job vacancy rate. The Beveridge curve shows that, at a given moment in time, there are jobs vacant and people unemployed, while the shape and the position of the curve provide important information about the functioning of the labour market. There are two key concepts associated with the Beveridge curve: labour market tightness and matching efficiency. Labour market tightness is the number of vacant posts per each unemployed person and matching efficiency reflects the market’s ability to match individuals to jobs. We analyse the importance of these two concepts for wage developments using a simple version of the search and matching model, where unemployment, wages and vacancies are jointly determined and the Beveridge curve features prominently. First, we derive two aggregate measures that encapsulate the changes in the vacancy -unemployment space: labour market tightness and matching efficiency. Second, we look at the information content behind market tightness and job matching efficiency to analyse the euro area labour market and its cyclical conditions. Third, aggregate measures of labour market tightness and efficiency are used in a standard wage Phillips curve equation to measure their marginal impact. The results support the view that labour market tightness and labour market efficiency both play a role in explaining wage developments. However, the quantitative implications for wages differ only marginally from those of the standard Phillips curve approach. Overall, labour market efficiency provides an important qualitative margin of labour market functioning that is not captured in standard wage Phillips curve specifications.

Economic Bulletin Issue 4, 2019
17 June 2019
Drivers of underlying inflation in the euro area over time: a Phillips curve perspective

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

Abstract

In this article we review the evolution of euro area HICP inflation excluding energy and food since the Great Financial Crisis through the lens of the Phillips curve. This period is particularly interesting, as the euro area experienced two recessions (in 2008-2009 and 2011-2014) and a protracted episode of low inflation from 2013 onwards. We estimate a large set of Phillips curve models for the euro area and review the interpretation of inflation developments that they provide over time. We highlight both the advantages and some of the limitations of this type of analysis. We find that our models can account for much of the weakness in underlying inflation between 2013 and mid-2017, but that they cannot account for the most recent weakness in underlying inflation.

Economic Bulletin Issue 4, 2019
24 April 2019
The economic implications of rising protectionism: a euro area and global perspective

Abstract

JEL Classification

F13 : International Economics→Trade→Trade Policy, International Trade Organizations

F14 : International Economics→Trade→Empirical Studies of Trade

Abstract

The risk of a trade war came sharply into focus in 2018, as protectionist threats by the US Administration and its trading partners were followed by concrete actions. Tensions rose over the summer and, while these have been defused on some fronts, the risk of further escalation remains material. The impact of the measures implemented so far on the global and euro area economic outlooks is expected to remain contained. However, the negative impact could become much greater if trade tensions were to escalate further. Uncertainty related to protectionism is weighing on economic sentiment and it may raise further, potentially eroding confidence and affecting the euro area and the global economy more significantly. The complexity of intertwined international production chains could also magnify the impact. Against this backdrop, this article reviews the changes in the trade policy landscape over the past decade. It discusses the macroeconomic implications of the recent surge in protectionism and evaluates the possible effects that an escalation in trade tensions could have on the global economy and the euro area.

Economic Bulletin Issue 3, 2019
23 April 2019
Fiscal rules in the euro area and lessons from other monetary unions

Abstract

JEL Classification

H61 : Public Economics→National Budget, Deficit, and Debt→Budget, Budget Systems

H74 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Borrowing

H77 : Public Economics→State and Local Government, Intergovernmental Relations→Intergovernmental Relations, Federalism, Secession

Abstract

This article compares the fiscal rule framework in the euro area with the frameworks in the fiscally more integrated United States and Switzerland, with the aim of drawing lessons for ways in which fiscal rules could be reformed in European Economic and Monetary Union (EMU). Both the United States and Switzerland have a history of balanced budget rules that help stabilise government debt in individual states/cantons at moderate and broadly comparable levels. The recent shift towards balanced budget rules in the euro area is an important achievement in this direction, and has contributed to better average underlying budgetary positions. Still, the fiscal rule framework needs to be rendered more effective in reducing high levels of government debt and their dispersion across the euro area. Reducing the heterogeneity of government debt positions is also an important prerequisite for setting up a well-governed common macroeconomic stabilisation function at the centre of EMU in case of deep economic crises. This in turn would help to contain the procyclicality of fiscal rules at the country level.

Economic Bulletin Issue 3, 2019
18 March 2019
Taking stock of the Eurosystem’s asset purchase programme after the end of net asset purchases

Abstract

JEL Classification

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

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

Abstract

Following the Governing Council’s decision in December 2018 to end net asset purchases under the Eurosystem’s asset purchase programme (APP), this article reviews the implementation and effects of the asset purchases. The APP has proved to be an adaptable and effective instrument to ease monetary and financial conditions, foster economic recovery, counteract disinflationary pressures and anchor inflation expectations, thereby supporting a sustained adjustment in the path of inflation towards price stability. The APP has been part of a package of policy measures together with negative interest rates on the deposit facility, forward guidance and targeted longer-term refinancing operations (TLTROs), jointly creating synergies that have enhanced the effectiveness of each of the package’s individual components. From an implementation viewpoint, the Eurosystem ensured that asset purchases were conducted smoothly and flexibly by striving for market neutrality and mitigating unintended side effects for market functioning. Whereas net asset purchases have come to an end, principal payments from maturing securities purchased under the APP will continue to be reinvested as this, together with enhanced forward guidance, provides the monetary accommodation that the Governing Council judges to be required for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Economic Bulletin Issue 2, 2019
6 February 2019
Fiscal spillovers in a monetary union

Abstract

JEL Classification

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

Abstract

The article describes the main transmission channels of the spillovers of national fiscal policies to other countries within a monetary union and investigates their magnitude using different models.

Economic Bulletin Issue 1, 2019
5 February 2019
Twenty years of the ECB Survey of Professional Forecasters

Abstract

JEL Classification

D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations

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

Abstract

For two decades the ECB Survey of Professional Forecasters (SPF) has been collecting point forecasts and probability distributions for euro area-wide HICP inflation, real GDP growth and the unemployment rate at different horizons. This article documents the evolution of the SPF through the changing economic landscape of the past twenty years, including the Great Moderation, with relatively high economic growth and stable inflation, the financial crisis and, more recently, a prolonged period of subdued inflationary pressures. Analyses show that the strong and persistent shocks in the past ten years have created challenges for the stability of the economic relationships and mean reversion tendencies on which forecasts tend to be based. They also suggest that in 2009 there was a lasting increase in forecasters’ assessments of uncertainty across all variables and horizons. Learning from the SPF has remained a useful input for the ECB’s economic analysis and monetary policy.

Economic Bulletin Issue 1, 2019