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21 September 2021
OCCASIONAL PAPER SERIES - No. 271
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Abstract
This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal effects of reducing carbon emissions. In this context, it assesses the need to adapt macroeconomic models and the Eurosystem/ECB staff economic projections underlying the monetary policy decisions. It further considers the implications of climate change for the conduct of monetary policy, in particular the implications for the transmission of monetary policy, the natural rate of interest and the correct identification of shocks. Model simulations using the ECB’s New Area-Wide Model (NAWM) illustrate how the interactions of climate change, financial and fiscal fragilities could significantly restrict the ability of monetary policy to respond to standard business cycle fluctuations. The paper concludes with an analysis of a set of potential monetary policy measures to address climate risks, insofar as they are in line with the ECB’s mandate.
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
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
19 December 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 8, 2019
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Abstract
This article evaluates the performance of the Eurosystem/ ECB staff macroeconomic projections for the euro area in the context of the elevated macroeconomic volatility and uncertainty that has prevailed since the financial crisis. It finds that there has been considerable variability in projection errors over time. With regard to real GDP growth projections, errors that were substantial during the sovereign debt crisis have become more limited in recent years. As for headline inflation, unexpected fluctuations in oil prices – which in the staff macroeconomic projections are assumed to follow the path of oil price futures – played a dominant role in explaining the errors, as was the case during the pre-crisis years. On the other hand, HICP inflation excluding energy and food has been persistently overprojected since 2013. While these projection errors can also partly be attributed to errors in the conditioning technical assumptions, other factors (such as modelling errors, changes in economic relationships or judgement) have also played a key role at different points in time. The forecast performance of the Eurosystem/ECB staff macroeconomic projections has been broadly similar to that of other international institutions and of private sector forecasters, suggesting that projection errors have been mainly driven by common elements. These may include economic shocks unforeseeable to any forecaster and developments that have become more prominent since the financial crisis, including, among other things, structural reforms, changes in the relationship between slack and prices, globalisation and digitalisation.
JEL Code
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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
30 September 2011
OCCASIONAL PAPER SERIES - No. 128
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Abstract
The distributive trades sector, which is primarily accounted for by wholesale and retail trade, is not only economically important in its own right, but also relevant to monetary policy. Ultimately, it is retailers who set the actual prices of most consumer goods. They are the main interface between producers of consumer goods and consumers, with around half of private consumption accounted for by retail trade. The
JEL Code
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics