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Friderike Kuik

Economics

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Prices & Costs

Current Position

Economist

Email

friderike.kuik@ecb.europa.eu

8 February 2024
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2024
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Abstract
Emission reduction measures have been adopted at both country and European Union (EU) levels. This box assesses the impact on euro area real GDP and inflation of green fiscal discretionary measures as included in the December 2023 Eurosystem staff macroeconomic projections. Since these measures are unlikely to be sufficient to fully achieve the EU targets for emission reduction, energy efficiency and renewable energy production, model simulations are used to illustrate the medium-term impact of alternative transition policy scenarios. These simulations suggest modest downside risks to GDP and upside risks to inflation from transition policies to achieve EU targets, but the effects depend on the transition policy mix.
JEL Code
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
26 January 2024
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2024
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Abstract
This box summarises the findings of recent contacts between ECB staff and representatives of 70 leading non-financial companies operating in the euro area. According to these exchanges, which took place between 2 and 10 January 2024, aggregate activity is likely to have stagnated or contracted slightly in the fourth quarter of 2023 and was expected to remain stable or grow only very modestly in the first quarter of 2024. Widespread uncertainty was said to be holding back recovery and the employment outlook deteriorating. Growth in selling prices remained moderate in the fourth quarter of 2023, with some further moderation expected in the short term amid stable or declining non-labour costs and an anticipated easing of wage growth.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
18 December 2023
THE ECB BLOG
Details
JEL Code
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→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
Q50 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→General
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
10 October 2023
RESEARCH BULLETIN - No. 111
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Abstract
Climate change has implications for price stability and the work of central banks. It may increase the volatility and heterogeneity of inflation, and hotter summers may lead to more frequent and persistent upward pressures on food and services inflation. Our empirical study provides evidence for the four largest euro area economies and outlines the relationship between temperature and inflation.
JEL Code
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
28 July 2023
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2023
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Abstract
This box summarises the findings of recent contacts between ECB staff and representatives of 73 leading non-financial companies operating in the euro area. According to these exchanges, which took place between 26 June and 5 July, aggregate activity continued to stagnate in the second quarter of 2023, with differences across sectors still notable. Activity declined in the construction and intermediate goods sectors and in related transport and logistics services. However, consumer spending was proving more resilient than many expected. The growth rate of selling prices continued to decelerate, especially in the industrial sector, as non-labour input costs stabilised. Expectations for wage growth remained strong but showed some signs of moderation when looking forwards to 2024.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
17 July 2023
OCCASIONAL PAPER SERIES - No. 323
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Abstract
This paper provides an extensive literature review and analyses some open issues in the measurement of inflation that can only be explored in depth using micro price data. It builds on the analysis done in the context of the ECB’s strategy review, which pointed at directions for improvement of the Harmonised Index of Consumer Prices (HICP), including better quantification of potential biases. Two such biases are the substitution bias and the quality adjustment bias. Most analyses of substitution bias rest on the concept of the cost of living, positing that preferences are stable, homogeneous and homothetic. Consumer behaviour is characterised by preference shifts and heterogeneity, which influence the measurement of the cost of living and substitution bias. Climate change may make the impact of preference shifts particularly relevant as it causes the introduction of new varieties of “green” goods and services (zero-kilometre food, sustainable tourism) and a shift from “brown” to “green” products. Furthermore, PRISMA data show that consumption baskets and thus inflation vary across income classes (e.g. higher-income households tend to buy more expensive goods), pointing to non-homotheticity of preferences. When preferences are heterogeneous and/or non-homothetic, it is important to monitor different experiences of inflation across classes of consumers/citizens. This is particularly important when very large relative price changes affect items that enter the consumption baskets of the rich and the poor, the young and the old, in very different proportions. Another open area of analysis concerns the impact of quality adjustment on measured inflation. Evidence based on web-scraped prices shows that the various implicit quality adjustment methods can produce widely varying inflation trends when product churn is fast. In the euro area specifically, using different quality adjustment methods can be an overlooked source of divergent inflation trends in sub-categories, and, if pervasive, shows up in overall measured inflation divergence across countries.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
23 May 2023
WORKING PAPER SERIES - No. 2821
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Abstract
Understanding of the macroeconomic effects of climate change is developing rapidly, but the implications for past and future inflation remain less well understood. Here we exploit a global dataset of monthly consumer price indices to identify the causal impacts of changes in climate on inflation, and to assess their implications under future warming. Flexibly accounting for heterogenous impacts across seasons and baseline climatic and socio-economic conditions, we find that increased average temperatures cause non-linear upwards inflationary pressures which persist over 12 months in both higher- and lower-income countries. Projections from state-of-the-art climate models show that in the absence of historically un-precedented adaptation, future warming will cause global increases in annual food and headline inflation of 0.92-3.23 and 0.32-1.18 percentage-points per year respectively, under 2035 projected climate (uncertainty range across emission scenarios, climate models and empirical specifications), as well as altering the seasonal dynamics of inflation. Moreover, we estimate that the 2022 summer heat extreme increased food inflation in Europe by 0.67 (0.43-0.93) percentage-points and that future warming projected for 2035 would amplify the impacts of such extremes by 50%. These results suggest that climate change poses risks to price stability by having an upward impact on inflation, altering its seasonality and amplifying the impacts caused by extremes.
JEL Code
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
5 May 2023
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 3, 2023
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Abstract
This box summarises the findings of recent contacts between ECB staff and representatives of 61 leading non-financial companies operating in the euro area. According to these exchanges, which took place between 30 March and 13 April, aggregate activity growth remained subdued in the first quarter of 2023, albeit with notable differences across sectors. Declining activity reported in the consumer goods, retail and construction sectors was offset by growth in the consumer services and capital goods sectors in particular. These developments were expected to continue in the short term, while uncertainty regarding the outlook for 2023 as a whole remained elevated. The rate of growth of selling prices continued to moderate, driven especially by developments in the energy, transport and intermediate goods sectors. Consequently, non-labour input costs stabilised for most firms. Expectations for wage growth remained strong and were broadly unchanged, with wage growth remaining the main cost concern for the surveyed companies.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
22 March 2023
WORKING PAPER SERIES - No. 2798
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Abstract
This paper assesses the impact of weather shocks on inflation components in the four largest euro area economies. We combine high-frequency weather data with monthly data on inflation and output growth within a set of Bayesian Vector Autore-gressions which explicitly considers the seasonal dependence of the shock. Results suggest the presence of significant country asymmetries and seasonal responses of inflation to temperature shocks, mainly via food, energy, and service prices. An increase in monthly mean temperatures has inflationary effects in summer and au-tumn, with a stronger response in warmer euro area countries. An increase in temperature variability has significant upward impacts on inflation rates over and above the impacts of changes in means.
JEL Code
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
15 February 2023
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2023
Details
Abstract
In line with the ECB’s comprehensive action plan to incorporate climate change considerations into its policy framework, technical assumptions on carbon pricing have been introduced in the Eurosystem/ECB staff macroeconomic projections, along with a regular evaluation of the impact of climate-related fiscal policies on the projections baseline. This box evaluates the impact of green fiscal measures on GDP growth and inflation and discusses potential effects and risks to the outlook posed by the EU Emissions Trading System (ETS) and non-fiscal climate-related measures. The overall impact of green measures on euro area real GDP growth is expected to be very small until 2025, and their impact on inflation is limited but increases slightly over time. Over the period 2022-25, fiscal measures that are detrimental to the green transition outweigh green measures. Changes to the EU ETS under the “Fit for 55” package, and the sustained shift towards renewable energy sources implied by regulation, could pose both upside and downside risks to the inflation outlook, especially from 2025 onwards.
JEL Code
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
O44 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Environment and Growth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
28 October 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 7, 2022
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Abstract
This box summarises the main findings from contacts between ECB staff and representatives of 69 leading non-financial companies operating in the euro area. The exchanges mainly took place between 26 September and 6 October 2022. According to these contacts, overall activity had broadly stagnated in the third quarter of this year. Parts of the manufacturing sector had suffered declining sales and production, while in others, production growth was sustained by long order books and easing supply constraints. Services activity was more resilient, supported by digitalisation and tourism. The outlook was for a deterioration in activity in the fourth quarter. Price dynamics remained very buoyant in the third quarter, not least given energy cost pressures. However, an increasing number of firms did say that prices in their sector were either at, or nearing, a peak. Wage pressures continued to build and were increasingly becoming an additional cost concern for many firms.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
22 July 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2022
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Abstract
This box summarises the main findings from contacts between ECB staff and representatives of 71 leading non-financial companies operating in the euro area. The exchanges mainly took place between 20 and 29 June 2022. According to these contacts, overall activity developed positively in the second quarter of the year. Despite clear signs of weakening demand in some sectors, reflecting the uncertainty created by the war in Ukraine and rising inflation, the recovery in sectors benefiting from the relaxation of pandemic-related restrictions was particularly strong and generally exceeded expectations. Overall, contacts expected activity growth to slow in the coming months, with widespread uncertainty and concern surrounding the outlook after the summer. The frequency and magnitude of selling price increases remained high, as substantial increases in costs (particularly from energy and transport) were passed through the value chain. Most contacts anticipated a similar trend in selling price increases in the third quarter, but some were more hesitant in view of faltering demand, pointing to a potential for some moderation in the overall rate of increase.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
22 June 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2022
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Abstract
This box summarises the findings of a survey of leading firms on the impact of climate change and related measures to green the economy on business, and thus on activity and prices. The survey responses indicate that during the transition to a net-zero economy large companies anticipate significantly higher investment, input costs and price pressures, as well as changes to production and market structures. However, only a small share of respondents expect a significant impact on investment, input cost and prices after the transition. As regards the challenges involved, firms emphasise issues related to the availability of new clean technologies and inputs, followed by concerns about costs and regulation. Firms expect physical risks to have an impact in particular on the agricultural, construction and transport sectors, and on firms in the manufacturing sector with vulnerable supply chains.
JEL Code
C83 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Survey Methods, Sampling Methods
M21 : Business Administration and Business Economics, Marketing, Accounting→Business Economics→Business Economics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
21 June 2022
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 4, 2022
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Abstract
Record-high energy price increases at the end of 2021 and beginning of 2022 put significant pressures on the purchasing power of consumers. These increases followed a marked decline in energy prices at the onset of the coronavirus (COVID-19) pandemic. While the initial increase in energy prices from the summer of 2020 was mainly driven by the recovery in energy demand following the easing of lockdown measures after the first wave of the pandemic, the subsequent price rally during 2021 was also significantly affected by supply-side issues. This development was aggravated in early 2022 by the Russian invasion of Ukraine. The increase in European gas prices since the summer of 2021 has been particularly sharp, reflecting a combination of supply and demand factors that left European gas inventories at historically low levels ahead of the winter season and the gas market vulnerable to supply and demand uncertainty, including from escalating geopolitical tensions. As a result, consumer gas prices and consumer electricity prices (driven by gas prices) played an increasingly important role in developments in HICP energy and were also accompanied by unprecedented cross-country heterogeneity in energy price developments.
JEL Code
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets
L90 : Industrial Organization→Industry Studies: Transportation and Utilities→General
21 June 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2022
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Abstract
This box provides an overview of the impact that the war in Ukraine has had on euro area energy markets. Energy commodity and electricity prices spiked in the immediate aftermath of Russia’s invasion of Ukraine and have been highly volatile ever since. Russia supplies a considerable amount of energy to the euro area, particularly gas. The European Union introduced economic sanctions targeting the Russian energy industry, most notably the coal and oil sectors, while steps are also being taken towards becoming independent of Russian gas. After the initial price spikes, energy commodity prices moderated, owing partly to the EU’s sanctions and also helped by other policy initiatives such as historically large releases of strategic oil reserves. Higher energy commodity prices intensified the pressure on euro area consumer prices in February and March 2022, while some of this pressure was alleviated in April and May as a result of government measures.
JEL Code
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets
N44 : Economic History→Government, War, Law, International Relations, and Regulation→Europe: 1913?
11 March 2022
WORKING PAPER SERIES - No. 2654
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Abstract
In recent years there has been growing attention on the risks posed by climate change. One relevant question for financial stability is to which extent the materialisation of transition risks emerging from the sudden implementation of climate change mitigation policies would impact the financial system. In this paper we analyze the effects of changes in carbon price on the European banking system. We assess this climate change transition risk through a banking sector contagion model where firms are negatively impacted by an increase in carbon prices. Using a unique granular dataset we evaluate the consequences of a combination of different increases in carbon prices and firm emission reduction strategies. We find that taking early policy action, implying more gradual changes in carbon prices, is not expected to lead to adverse impacts on the banking system, especially if firms reduce their emissions efficiently. Conversely, a disorderly, abrupt transition to a low carbon economy requiring very high sudden changes in carbon prices might have disruptive effects on the financial system, especially if firms fail to reduce their emissions.
JEL Code
Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
16 February 2022
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2022
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Abstract
A recurring theme in the “ECB Listens” event conducted in the context of the monetary policy strategy review was the affordability of housing and the case for including related costs more adequately in the HICP. Housing costs can be analysed on the basis of different sources of data. This box reviews perceptions of housing costs among tenants and homeowners based on survey microdata, compares them with developments in housing costs based on macro price statistics, and highlights conceptual differences between the various measures that are important in the interpretation of the data.
JEL Code
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
29 October 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 7, 2021
Details
Abstract
This box summarises the main findings from contacts between ECB staff and representatives of 68 leading non-financial companies operating in the euro area. The exchanges mainly took place between 4 and 13 October 2021. According to these contacts, overall activity was strong or growing across a range of sectors. However, supply constraints were increasingly limiting firms’ ability to meet demand and were generating pipeline price pressures which, while transitory in nature, were turning out to be more persistent than some had anticipated. There were also more widespread reports of labour shortages, not least as the recovery of high-contact services had stimulated recruitment activity. Owing to the pipeline prices pressures and the recent surge in energy prices, contacts anticipated greater pass-through to consumer prices and higher wages in 2022 than they had a few months ago.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
23 September 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2021
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Abstract
In its climate change action plan, the ECB committed to accelerating the development of new models and conducting theoretical and empirical analyses to monitor the implications of climate change and related policies for the economy. As a first step in its detailed roadmap of climate-related actions, the ECB envisages the inclusion of technical assumptions on carbon pricing in Eurosystem/ECB staff projections. Against this backdrop, this box summarises the genesis and basic features of the EU emissions trading system (ETS), the system setting the carbon price in the EU. The EU ETS, which began operating in 2005, is a “cap and trade” system where a cap is set by the EU on the total amount of greenhouse gases that can be emitted by the activities covered by the system. It has been implemented in “phases” designed to gradually reduce the cap while increasing the scope of the system. In July 2021 a revision of the EU ETS was proposed in the context of the “Fit for 55” package. Meanwhile, the price of emissions allowances traded on the EU ETS has increased from €8 per tonne of carbon dioxide equivalent at the beginning of 2018 to around €60 more recently. So far, the main impact of changes in emissions allowance prices has been on HICP energy inflation, and, overall, the risk that emissions allowance prices under the current EU ETS may translate into significantly higher headline inflation in the near term appears limited. However, against the backdrop of the ECB’s recently announced action plan, these and other climate change mitigation polices will be further explored with regard to their implications for macroeconomic modelling and monetary policy.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
23 July 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2021
Details
Abstract
This box summarises the main findings from contacts between ECB staff and representatives of 63 leading non-financial companies operating in the euro area. The exchanges took place between 28 June and 7 July 2021. According to these contacts, overall activity was growing strongly in the second quarter of 2021 and this was expected to continue in the third quarter, reflecting the gradual easing of lockdowns and travel restrictions, which benefited services, and the continued strong demand for manufactured goods. At the same time, shortages of inputs and transport bottlenecks were limiting activity somewhat in the manufacturing sector and generating pipeline pressures, some of which would feed through to final consumer prices and wages. These pressures should gradually ease over the next 6-18 months.
JEL Code
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L2 : Industrial Organization→Firm Objectives, Organization, and Behavior
17 May 2021
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 1, 2021
Details
Abstract
The ECB has been intensifying its quantitative work aimed at capturing climate-related risks to financial stability. This includes estimating financial system exposures to climate-related risks, upgrading banking sector scenario analysis and monitoring developments in the financing of the green transition. Considerable progress has been made on capturing banking sector exposures to firms that are subject to physical risks from climate change. While data and methodological challenges are still a focus of ongoing debates, our analyses suggest (i) somewhat concentrated bank exposures to physical and transition risk drivers, (ii) a prevalence of exposures amongst more vulnerable banks and in specific regions, (iii) risk-mitigating potential for interactions across financial institutions, and (iv) strong inter-temporal dependency conditioning the interaction of transition and physical risks. At the same time, investor interest in “green finance” continues to grow – but so-called greenwashing concerns need to be addressed to foster efficient market mechanisms. Both the assessment of risks and the allocation of finance to support the orderly transition to a more sustainable economy can benefit from enhanced disclosures, including of firms’ forward-looking emission targets, better data and strengthened risk assessment methodologies, among other things.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G20 : Financial Economics→Financial Institutions and Services→General
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
27 December 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 8, 2019
Details
Abstract
Although recent wage growth has increasingly been in line with predictions, there has been a period of low and under-predicted wage growth in the euro area. This period of weak wage growth can be explained to a large extent by the drivers traditionally captured in a Phillips curve analysis, such as economic slack (including broader measures of labour market slack) and inflation expectations. However, these factors do not paint the full picture, as wages were consistently under-predicted during the period 2013-17. As wages differ across sectors and according to employees’ individual characteristics, significant changes in the composition of employment that have taken place in the euro area since the beginning of the crisis could have been an important factor in aggregate wage growth developments. These changes can result from slow-moving trends, cyclical changes or a combination of the two. This article discusses the role of such changes, known as “compositional effects”, in wage growth. It analyses the role of changes in the composition of employment with respect to the individual characteristics of employees (e.g. age, education or gender), employment types (e.g. permanent or temporary contracts) and sectoral shifts. The analysis is mainly based on microdata from the EU survey of income and living conditions, but the article also includes cross-checks and analyses based on the EU Labour Force Survey (EU-LFS) and national accounts data. The analyses indicate that compositional effects pushed up wage growth early in the crisis, but that the effect later decreased and turned negative. This has contributed to a relatively muted response from aggregate wage growth, both to the strong downturn of the labour market early in the crisis and later, from 2014 onwards, to cyclical improvements. Hence compositional effects have been one factor contributing to low wage growth in the euro area. The most important contributions to compositional effects seem to be related to changes in the age and educational structure of the workforce, which can have both a long-term and a cyclical impact. Looking at country-specific evidence, the euro area aggregate results have been influenced by Spain and Italy in particular.
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
28 December 2017
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2017