EB focus published in 2019

7 November 2019
Goodbye EONIA, welcome €STR!

Abstract

JEL Classification

E430 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects

Abstract

Box about the start of the overnight benchmark rate for euro, the €STR.

Economic Bulletin Issue 7, 2019
5 November 2019
A stylised tracer for labour market cycles in the euro area based on assessments by corporate executives

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

Abstract

This box assesses the current cyclical position of the euro area labour market by means of a stylised tracer for employment and output fluctuations using the Purchasing Managers’ Index (PMI) survey data. This tracer points towards a slowdown in the labour market since February 2018, with the services sector continuing to support employment growth in the euro area, while manufacturing employment has been in a downturn since May 2019. A more granular approach suggests the weakness in manufacturing is more prevalent in the capital goods and motor vehicles industries, while the resilience of the services sector is perceived to be broad-based across industries. Looking ahead downward risks stemming from the transmission of the weakness in manufacturing to the services sector may arise, strengthening the need for close monitoring of the euro area labour market.

Economic Bulletin Issue 7, 2019
4 November 2019
Price-setting behaviour: insights from a survey of large firms

Abstract

JEL Classification

D4 : Microeconomics→Market Structure and Pricing

E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles

L1 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance

Abstract

This box summarises the findings of an ad hoc ECB survey of leading euro area companies about their price-setting behaviour, covering various dimensions. Among the findings, it was seen that firms mostly vary their prices by geographical market and by type of customer, but much less so depending on the sales platform. The frequency of price reviews and changes varies significantly across sectors, with weekly or even daily price changes being common for some retailers, while in some parts of the services sector annual price changes are more typical. Manufacturers tend to review prices monthly but change them only on a quarterly, semi-annual or annual basis. Increases in average selling prices are achieved, to a large extent, by introducing new products with higher value content. When reviewing prices, firms pay most attention to costs and competitor prices, with the latter being particularly important for consumer-facing firms. Many factors contribute to sluggish price adjustment: pricing strategies are based on broadly stable costs and margins, a fear that competitors will not follow suit and, for consumer-oriented firms, a focus on pricing points and an understanding that customers expect prices to remain stable.

Economic Bulletin Issue 7, 2019
4 November 2019
Developments in the services sector and its relationship with manufacturing

Abstract

JEL Classification

A10 : General Economics and Teaching→General Economics→General

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

Abstract

Euro area growth has weakened, and economic indicators point to slow growth in coming quarters. This mainly reflects the ongoing weakness in international trade – in an environment of elevated global uncertainties – and its impact on the manufacturing sector. Activity levels in the services sector, by contrast, have remained relatively resilient. However, this raises questions about the extent to which there could be spillovers from the manufacturing sector to the services sector in the future. An analysis of the relationship between manufacturing and various sub-groups of the services sector shows that non-market services exhibit a weak co-movement with the cyclical developments in manufacturing. In contrast, market services and business services tend to move with manufacturing, but as yet there is limited evidence that the recent slowdown in manufacturing has been transmitted to these parts of the economy. This is likely to stem from the resilient developments in domestic demand, supported by the very accommodative monetary policy stance, which continues to support labour markets and create favourable financing conditions.

Economic Bulletin Issue 7, 2019
26 September 2019
Liquidity conditions and monetary policy operations in the period from 17 April to 30 July 2019

Abstract

JEL Classification

E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General

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

Abstract

This box describes the ECB’s monetary policy operations during the third and fourth reserve maintenance periods of 2019, which ran from 17 April to 11 June 2019 and from 12 June to 30 July 2019 respectively.

Economic Bulletin Issue 6, 2019
26 September 2019
How do profits shape domestic price pressures in the euro area?

Abstract

JEL Classification

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

O11 : Economic Development, Technological Change, and Growth→Economic Development→Macroeconomic Analyses of Economic Development

Abstract

Profits can account for a significant part of domestic price formation and affect the pass-through of changes in costs to final prices. National accounts contain a broad measure of profits, gross operating surplus, which can tell us more about the role of profits for domestic price pressures, as measured in the GDP deflator. This box illustrates how profits have recently shaped domestic price pressures in the euro area. It explains which factors are the main drivers of the movements in profit margins and discusses how they have likely contributed to their recent developments.

Economic Bulletin Issue 6, 2019
26 September 2019
The September policy package

Abstract

JEL Classification

E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General

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

Abstract

This box describes the elements and underlying rationale of the Governing Council’s comprehensive policy package decided in September.

Economic Bulletin Issue 6, 2019
25 September 2019
Household income risk over the business cycle

Abstract

JEL Classification

E20 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→General

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

Abstract

Evidence suggests that household income risk is an important factor in the propagation of macroeconomic shocks and the transmission of economic policy. An analysis using survey data on income from the euro area suggests that the nature of household income risk in the euro area is comparable with the United States, in that (i) individual earnings risk is closely linked to the performance of the labour market, and (ii) in a downturn it increases much more for some groups of workers than for others. These insights are useful for assessing the current economic outlook and the role of income risk in amplifying macroeconomic shocks.

Economic Bulletin Issue 6, 2019
24 September 2019
How does the current employment expansion in the euro area compare with historical patterns?

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

Abstract

This box looks at the current employment expansion in the euro area and compares it with past periods of employment growth. It uses annual data for the period 1960-2018 and shows that: (i) the current employment expansion is so far not particularly lengthy in comparison with past recoveries; (ii) the current employment expansion is more employment-rich than previous expansions as employment growth has been stronger relative to GDP growth than it was in the past; (iii) the fast-paced decline in the unemployment rate has been a notable feature of the current expansion; and (iv) the decline in unemployment and the increase in employment in the current expansion have occurred alongside moderating labour costs, but that moderation has been weaker than in the previous expansion.

Economic Bulletin Issue 6, 2019
23 September 2019
Domestic versus foreign factors behind the fall in euro area industrial production

Abstract

JEL Classification

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

C50 : Mathematical and Quantitative Methods→Econometric Modeling→General

Abstract

Using a structural vector autoregression (SVAR) model, the box suggests that the fall in industrial production growth in the euro area in the past year has been driven by both the intensification of global trade tensions and adverse domestic shocks. Whereas in the first half of 2018 weakness in international trade in an environment of global uncertainties was the main contributor to the fall in industrial production, since July 2018 euro area-specific developments have also played a major role.

Economic Bulletin Issue 6, 2019
8 August 2019
Priorities for fiscal policies under the 2019 European Semester

Abstract

JEL Classification

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

Abstract

This box examines the fiscal policy recommendations addressed to the euro area countries against the background of downside risks to the outlook for a continued economic expansion. The examination shows that in countries with high levels of government debt, building buffers to strengthen resilience in cyclical downturns remains a priority for fiscal policies. At the same time, countries that have achieved sound fiscal positions could utilise some fiscal space for measures to support economic growth.

Economic Bulletin Issue 5, 2019
8 August 2019
Country-specific recommendations for economic policies under the 2019 European Semester

Abstract

JEL Classification

E02 : Macroeconomics and Monetary Economics→General→Institutions and the Macroeconomy

E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

F02 : International Economics→General→International Economic Order

Abstract

This box examines the country-specific recommendations (CSRs) for economic policies in euro area countries under the 2019 European Semester. Overall, the 2019 CSRs place greater emphasis on investment-enhancing structural policies and financial sector policies. However, continued weak CSR implementation by Member States remains a challenge. The implementation of structural reforms needs to be substantially stepped up to increase the economic resilience and growth potential of the euro area.

Economic Bulletin Issue 5, 2019
8 August 2019
Euro area foreign direct investment since 2018: the role of special purpose entities

Abstract

JEL Classification

F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements

F38 : International Economics→International Finance→International Financial Policy: Financial Transactions Tax; Capital Controls

Abstract

This box shows that the reversal in gross flows of euro area foreign direct investment (FDI) in 2018 was to a large extent due to developments in flows in Luxembourg and the Netherlands, with Ireland and Belgium contributing to a lesser extent. The episode can be explained by the activity of special purpose entities located in these countries and is also likely to be related to the US corporate tax reform.

Economic Bulletin Issue 9, 2019
8 August 2019
What is behind the change in the gap between services price inflation and goods price inflation?

Abstract

JEL Classification

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

O47 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence

Abstract

Services price inflation tends to be much higher than non-energy goods price inflation. However, the gap between the two has become smaller since the financial crisis. This phenomenon has coincided with the corresponding decline in the gap between unit labour cost growth in the services sector and manufacturing, driven by the decline in unit labour cost growth in the services sector. Overall, the narrowing of the gap between services price inflation and goods price inflation has been a major feature of lower HICP inflation excluding food and energy. However, this measure of underlying inflation would have declined even more had the weight of the services component not changed.

Economic Bulletin Issue 5, 2019
6 August 2019
Sources of economic policy uncertainty in the euro area: a machine learning approach

Abstract

JEL Classification

C1 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General

C8 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs

E65 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Studies of Particular Policy Episodes

Abstract

This box presents a model-based economic policy uncertainty (EPU) index for the euro area by applying machine learning techniques to news articles from January 2000 to May 2019. The machine learning algorithm retrieves components of overall EPU, such as trade, fiscal, monetary or domestic regulations, for a wide range of languages. Recently, a steady and pronounced increase in the euro area EPU index has been observed, driven mainly by trade, domestic regulation and fiscal policy uncertainties.

Economic Bulletin Issue 5, 2019
5 August 2019
Services trade liberalisation and global imbalances: a critical review of the empirical evidence

Abstract

JEL Classification

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

F14 : International Economics→Trade→Empirical Studies of Trade

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

Abstract

This box assesses recent empirical analysis claiming that services trade liberalisation could be a remedy for global imbalances. The main finding of the box is that global imbalances – i.e. the magnitude of current account surpluses and deficits across countries – would remain essentially unchanged as a result of services trade liberalisation. Nonetheless (services) trade liberalisation should be expected to raise welfare overall, e.g. by fostering productivity growth.

Economic Bulletin Issue 5, 2019
5 August 2019
What is behind the decoupling of global activity and trade?

Abstract

JEL Classification

F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles

F14 : International Economics→Trade→Empirical Studies of Trade

Abstract

While both global activity and trade have been declining since mid-2018, world trade has slowed particularly sharply. This box investigates the reasons behind the decline in global trade and its decoupling from economic activity. This is largely explained by a turnaround in the most trade-intensive components of global demand, such as investment, exacerbated by rising global uncertainty and tighter financing conditions. From a production perspective, the decline in investment was reflected in a sharp slowdown in manufacturing output.

Economic Bulletin Issue 5, 2019
20 June 2019
Liquidity conditions and monetary policy operations in the period from 30 January to 16 April 2019

Abstract

JEL Classification

E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General

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

Abstract

This box describes the ECB’s monetary policy operations during the first and second reserve maintenance periods of 2019, which ran from 30 January to 12 March 2019 and from 13 March to 16 April 2019 respectively.

Economic Bulletin Issue 4, 2019
20 June 2019
Confidence and business investment

Abstract

JEL Classification

E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity

E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications

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

Abstract

Economic agents’ confidence and developments in the real economy are intrinsically linked. Confidence largely reflects broad economic conditions but, at times, may also become an autonomous source of business cycle fluctuations. This box looks at the potential propagation effects of lower confidence on investment in recent times. Isolating the structural confidence shocks from the euro area Economic Sentiment Indicator and applying them in the ECB’s main macroeconomic projection model suggests that confidence shocks had a positive impact on business investment growth in the last two years and a negative one in 2019.

Economic Bulletin Issue 4, 2019
20 June 2019
The decrease in euro area net financial outflows in 2018: foreign direct investment retrenchment and portfolio investment slowdown

Abstract

JEL Classification

F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements

F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements

Abstract

This box analyses recent developments in the financial account of the euro area balance of payments. In 2018, the euro area recorded net financial outflows of 2.7% of GDP amid an overall decline in gross cross-border financial flows. Portfolio investment, particularly in debt securities, continued to be affected by the Eurosystem’s asset purchase programme. At the same time, the euro area recorded a retrenchment in foreign direct investment flows, mainly reflecting transactions vis-à-vis the United States, most likely linked to the US tax reform.

Economic Bulletin Issue 4, 2019
19 June 2019
Rent inflation in the euro area since the crisis

Abstract

JEL Classification

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

E66 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General Outlook and Conditions

Abstract

Rent inflation in the euro area has been subdued since the beginning of 2018, notwithstanding dynamics house price developments, and appears as a factor mitigating services and underlying inflation. Several factors affecting rent formation, such as low financing costs and a low-yield environment, may have contributed to these developments. In addition, rent indexation prevents rent from rising freely and a large fraction of existing rental contracts are not subject to rent increases. Relatively subdued rent inflation in the euro area is mainly due to low inflation and a limited turnover in rental contracts.

Economic Bulletin Issue 4, 2019
17 June 2019
Definitions and characteristics of soft patches in the euro area

Abstract

JEL Classification

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

E66 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General Outlook and Conditions

Abstract

This box looks at periods of slowdowns during a number of euro area expansionary phases – so-called soft patches – and assesses whether these contain any information with regard to forthcoming business cycle peaks and possible subsequent recessions.

Economic Bulletin Issue 4, 2019
25 April 2019
The predictive power of real M1 for real economic activity in the euro area

Abstract

JEL Classification

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

E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications

E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers

Abstract

The evidence presented in this box suggests that the leading and pro-cyclical properties of real M1 for real GDP remain a robust stylised fact for the euro area. Moreover, the box documents that these properties seem to reflect the information content of narrow money, beyond the influence of interest rates. Finally, the box presents model-based evidence indicating that despite the recent deceleration, recent real M1 developments do not point to risks of a recession in the euro area up to early 2020.

Economic Bulletin Issue 3, 2019
25 April 2019
Emerging market economy currencies: the role of global risk, the US dollar and domestic forces

Abstract

JEL Classification

F31 : International Economics→International Finance→Foreign Exchange

Abstract

This box presents a methodology to disentangle four main drivers of EMEs currencies swings: spillovers from US shocks, global risk appetite, interest rate effects and idiosyncratic domestic shocks. The main finding is that while the sell-off - between January and August 2018 - was mainly related to US and global risk factors, the recovery since then is driven by improved domestic conditions.

Economic Bulletin Issue 3, 2019
25 April 2019
What the maturing tech cycle signals for the global economy

Abstract

JEL Classification

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

Abstract

This box reviews basic characteristics of the Asian tech sector and shows that it has played an important role in the recent weakness in China’s trade. It also suggests that the trend in the global tech cycle associated with weaker trade in Asia may be bottoming out.

Economic Bulletin Issue 3, 2019
23 April 2019
Exploring the factors behind the 2018 widening in euro area corporate bond spreads

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

G01 : Financial Economics→General→Financial Crises

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

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

Abstract

Over the course of 2018, euro area non-financial corporate (NFC) spreads widened notably. This box explores the factors underpinning this widening, including deteriorating corporate credit fundamentals, a weaker macroeconomic outlook, spillovers from abroad and a reassessment of global risk appetite. Most importantly, against the backdrop of the end of net asset purchases in December 2018, the box also focuses on the role that monetary policy has played.

Economic Bulletin Issue 3, 2019
21 March 2019
Liquidity conditions and monetary policy operations in the period from 31 October 2018 to 29 January 2019

Abstract

JEL Classification

E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General

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

Abstract

This box describes the ECB’s monetary policy operations during the seventh and eighth reserve maintenance periods of 2018, which ran from 31 October 2018 to 18 December 2018 and from 19 December 2018 to 29 January 2019 respectively.

Economic Bulletin Issue 2, 2019
21 March 2019
Characterising the current expansion across non-euro area advanced economies: where do we go from here?

Abstract

JEL Classification

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

Abstract

This box looks at the current phase of the business cycle in major non-euro area advanced economies with a view to assessing the factors behind the transition to weaker growth.It shows that in several key advanced economies the output gap is currently in positive territory, with activity still expanding faster than potential. Although growth in non-euro area advanced economies has been slowing, signals of a severe slowdown or recession appear contained. This notwithstanding, downside risks abound and have increased lately.

Economic Bulletin Issue 2, 2019
21 March 2019
The European Commission’s 2019 assessment of macroeconomic imbalances and progress on reforms

Abstract

JEL Classification

E02 : Macroeconomics and Monetary Economics→General→Institutions and the Macroeconomy

E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

F02 : International Economics→General→International Economic Order

Abstract

On 27 February 2019, the European Commission published its annual assessment of macroeconomic imbalances and the progress made with structural reforms based on the country-specific recommendations as adopted in July 2018. According to the Commission, the number of countries experiencing imbalances has increased to 13 overall, from 11 in 2018. Despite the persistence of excessive imbalances in some Member States, the excessive imbalance procedure has never been triggered since the introduction of the macroeconomic imbalance procedure in 2012. Persistent macroeconomic imbalances – whether excessive or not – leave Member States vulnerable to adverse macroeconomic shocks and tend to increase the probability of recessions, which often carry high social and economic costs. Debt levels are still historically high in some Member States, for both government and private debt, which makes responding to a downturn or to negative shocks more difficult. To support rebalancing and avoid new imbalances in cost competitiveness across the EU, accelerating growth in unit labour costs in some countries has to be carefully monitored. Reforms remain crucial to address these imbalances, and progress on recommended reforms is assessed annually by the Commission. The Commission assessment again finds only limited progress on recommended reforms. In addition, progress with reforms has been uneven, and is particularly lacking in the areas of product markets and public finances. Further reforms to improve the investment environment are essential to stimulate well-targeted investment that improves productivity, potential growth and resilience.

Economic Bulletin Issue 2, 2019
21 March 2019
Interest rate-growth differential and government debt dynamics

Abstract

JEL Classification

H68 : Public Economics→National Budget, Deficit, and Debt→Forecasts of Budgets, Deficits, and Debt

E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy

E4 : Macroeconomics and Monetary Economics→Money and Interest Rates

Abstract

The difference between the average interest rate that governments pay on their debt and the nominal growth rate of the economy (i-g) is a key variable for debt dynamics and sovereign sustainability analysis. Recently, i-g has turned negative in most advanced economies, including euro area sovereigns. Empirically, the relevant interest rate-growth differential for public debt dynamics above has been positive for advanced mature economies over longer periods. In particular, i-g can quickly reverse in crisis times, especially for countries with high debt burdens and/or not perceived by markets as safe havens. Overall, In the euro area, the current low interest rate-growth differentials on government debt should not be taken as an incentive for higher debt levels, especially where fiscal space is constrained.

Economic Bulletin Issue 2, 2019
21 March 2019
A new method for the package holiday price index in Germany and its impact on HICP inflation rates

Abstract

JEL Classification

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

Abstract

Harmonised indices of consumer prices (HICPs) are regularly updated for changes in consumption weights and the items included, and on occasion also for methodological improvements. One such improvement is a change in the way the price index for package holidays is calculated in the HICP for Germany, which was implemented with the HICP release for January 2019. This has led to revisions of annual rates of change not only for Germany, but also for the euro area as a whole.

Economic Bulletin Issue 2, 2019
19 March 2019
New features in the Harmonised Index of Consumer Prices: analytical groups, scanner data and web-scraping

Abstract

JEL Classification

C82 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Macroeconomic Data, Data Access

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

Abstract

Harmonised consumer price indices (HICPs) for food, industrial goods, services and energy are measures the ECB uses for its more detailed analysis of inflation in the euro area. With the release of HICPs for January 2019, these analytical groups – special aggregates – have been improved. They are now calculated from a more detailed classification of products. Another recent enhancement is the extended use of price data collected in form of supermarket scanner data and via web-scraping.

Economic Bulletin Issue 2, 2019
19 March 2019
Employment growth and GDP in the euro area

Abstract

JEL Classification

C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General

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

Abstract

This box highlights the importance of the labour market to sustain economic growth since the beginning of the recovery and underlines the current labour market strength in the face of the recent slowdown in real GDP growth.

Economic Bulletin Issue 2, 2019
7 February 2019
The mechanical impact of changes in oil price assumptions on projections for euro area HICP energy inflation

Abstract

JEL Classification

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

Abstract

Inflation projections are based on models, assumptions and expert judgement. These include assumptions regarding the future evolution of oil prices, which mainly affect energy prices. Oil prices and oil futures have moved down significantly since autumn 2018, below the assumptions of the December 2018 Eurosystem staff projections. This box documents the mechanical implications of this shift for the projections of the energy component of HICP inflation.

Economic Bulletin Issue 1, 2019
6 February 2019
Recent developments in oil prices

Abstract

JEL Classification

Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets

Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices

Abstract

Against the background of large swings in oil prices in recent months, the box assesses the key drivers of oil market developments. While demand has been relatively stable, supply factors have been the main driving force behind recent oil price volatility.

Economic Bulletin Issue 1, 2019
4 February 2019
Driving factors of and risks to domestic demand in the euro area

Abstract

JEL Classification

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

Abstract

Activity in the euro area is expected to continue to expand at a moderate pace, while more elevated uncertainty points to intensified downside risks to the growth outlook. In the context of a maturing business cycle, growth in both private consumption and business investment are expected to continue, despite a more uncertain environment. Nevertheless, the resilience of the domestic demand components, in particular investment, could be particularly challenged by increasing global uncertainty related inter alia to an escalation in trade tensions.

Economic Bulletin Issue 1, 2019