- 29 November 2017
- WORKING PAPER SERIES - No. 2113Liquidity provision as a monetary policy tool: the ECB’s non-standard measures after the financial crisisDetails
- We study the macroeconomic consequences of the money market tensions associated with the financial crisis in the euro area. In a structural VAR, we identify a liquidity shock rooted in the interbank market and use its impulse response functions to calibrate key parameters of a Smets and Wouters (2003) closed-economy model augmented with a banking sector à la Gertler and Kiyotaki (2010). We highlight two main results. First, an identified liquidity shock causes a sizable and persistent fall in investment. The shock can account for one third of the observed, large fall in euro area aggregate investment in 2008–09. Second, the liquidity injected in the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. According to our counterfactual simulations based on the structural model, in the absence of ECB liquidity injections interbank spreads would have been at least 200 basis points higher and their adverse impact on investment would have been more than twice as severe.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 19 December 2018
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 8, 2018Details
- Against the background of financial market volatility in some emerging market economies (EMEs) since April, this box reviews key vulnerabilities in EMEs. Specifically, it assesses their resilience to external shocks compared to previous crisis episodes.
- JEL Code
- F3 : International Economics→International Finance
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 6 February 2019
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2019Details
- 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.
- JEL Code
- 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
- 14 September 2020
- WORKING PAPER SERIES - No. 2467Details
- Between January 2017 and March 2020 a coalition of oil producers led by OPEC and Russia (known as OPEC+) cut oil production in an attempt to raise the price of crude oil. In March 2020 the corona virus shock led to a collapse of this coalition, as members did not agree on keeping the oil market tight in the face of a large negative demand shock. Yet, was OPEC+ actually effective in sustaining the price of oil? Between 2017 and early 2020 when the OPEC+ strategy was in place, oil inventories fell substantially and the price of oil reached a peak of around 80 USD per barrel, from a minimum of 30 USD in 2016. This suggests that the OPEC+ strategy had a significant impact on the global oil market. Yet, to what extent did crude prices actually reflect OPEC+ production cuts rather than other factors, like swings in demand for oil? How would the price of oil have evolved had OPEC+ not cut supply? This paper provides an answer to these questions through a counterfactual analysis based on two structural models of the global oil market. We find the impact of OPEC+ on the market was overall quite limited, owing to significant deviations from the assigned quotas. On average, without the OPEC+ cuts, the price of oil would have been 6 percent (4 USD) lower.
- JEL Code
- Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
- 19 May 2021
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2021Details
- US equity market prices have surged over the last year, prompting concerns about stretched valuations and the potential risk of market corrections. For example, US equity prices could decline substantially if US Treasury yields increased on expectations of tighter monetary policy without significantly stronger real growth. In view of these developments, this box examines the implications of a possible correction in US stock prices for euro area financial conditions and financial stability. The results show that spillovers to euro area equity and corporate bond markets could be substantial, implying a broader tightening effect on euro area financial conditions.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets