EB focus published in 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