Michel Soudan
International & European Relations
- Division
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External Developments
- Current Position
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Principal Economist
- Fields of interest
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Macroeconomics and Monetary Economics,Labour Economics
- 3 August 2022
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2022Details
- Abstract
- This box reviews wage share dynamics and potential second-round effects on inflation at times of energy price increases. Compared to a well-known episode with some similar features – the OPEC oil embargo in October 1973 – recent energy price increases have so far had limited implications for labour income and the GDP deflator. This contained impact reflects the relatively mild terms-of-trade loss and subdued real wage dynamics today compared to the 1970s. However, the experience in the United States in both episodes shows that significant increases in the GDP deflator may arise even in the presence of weak real wage growth. A model-based analysis finds that the transmission of energy price increases to inflation, and in particular the emergence of second-round effects, has been more limited or even absent since the start of monetary union. Nevertheless, high and persistent inflation increases the risk of second-round effects materialising via higher wages and profit margins.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E25 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Aggregate Factor Income Distribution
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
- 27 July 2022
- OCCASIONAL PAPER SERIES - No. 298Details
- Abstract
- The US economy has endured an exceptionally severe recession caused by the measures put in place to contain the spread of COVID-19. This occasional paper assesses the impact of this crisis on key labour market variables, such as (un-)employment, wages and productivity, and highlights the differences versus past recessions, with an emphasis on the global financial crisis (GFC). It also presents a comparison of developments in certain key variables between the euro area and the United States, and it discusses the outlook in the United States for the ongoing recovery.
- JEL Code
- J20 : Labor and Demographic Economics→Demand and Supply of Labor→General
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
J60 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→General
- 10 January 2022
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 8, 2021Details
- Abstract
- Post-pandemic labour market developments in the United States and United Kingdom show that imbalances between labour demand and labour supply are causing a high and unusual tightness in the labour market for such an early stage in a recovery. This could translate into broad-based wage pressures, in turn posing a risk to inflation. Such pressures are becoming increasingly visible in the United States, but are less marked in the United Kingdom.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 275Details
- Abstract
- This report discusses the role of the European Union’s full employment objective in the conduct of the ECB’s monetary policy. It first reviews a range of indicators of full employment, highlights the heterogeneity of labour market outcomes within different groups in the population and across countries, and documents the flatness of the Phillips curve in the euro area. In this context, it is stressed that labour market structures and trend labour market outcomes are primarily determined by national economic policies. The report then recalls that, in many circumstances, inflation and employment move together and pursuing price stability is conducive to supporting employment. However, in response to economic shocks that give rise to a temporary trade-off between employment and inflation stabilisation, the ECB’s medium-term orientation in pursuing price stability is shown to provide flexibility to contribute to the achievement of the EU’s full employment objective. Regarding the conduct of monetary policy in a low interest rate environment, model-based simulations suggest that history-dependent policy approaches − which have been proposed to overcome lasting shortfalls of inflation due to the effective lower bound on nominal interest rates by a more persistent policy response to disinflationary shocks − can help to bring employment closer to full employment, even though their effectiveness depends on the strength of the postulated expectations channels. Finally, the importance of employment income and wealth inequality in the transmission of monetary policy strengthens the case for more persistent or forceful easing policies (in pursuit of price stability) when interest rates are constrained by their lower bound.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 269Details
- Abstract
- The ECB’s price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has changed notably compared to the time the strategy review was originally designed. At the time, the main concern of the Governing Council was to anchor inflation at low levels in face of the inflationary history of the previous decades. Over the last decade economic conditions have changed dramatically: the persistent low-inflation environment has created the concrete risk of de-anchoring of longer-term inflation expectations. Addressing low inflation is different from addressing high inflation. The ability of the ECB (and central banks globally) to provide the necessary accommodation to maintain price stability has been tested by the lower bound on nominal interest rates in the context of the secular decline in the equilibrium real interest rate. Against this backdrop, this report analyses: the ECB’s performance as measured against its formulation of price stability; whether it is possible to identify a preferred level of steady-state inflation on the basis of optimality considerations; advantages and disadvantages of formulating the objective in terms of a focal point or a range, or having both; whether the medium-term orientation of the ECB’s policy can serve as a mechanism to cater for other considerations; how to strengthen, in the presence of the lower bound, the ECB’s leverage on private-sector expectations for inflation and the ECB’s future policy actions so that expectations can act as ‘automatic stabilisers’ and work alongside the central bank.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
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
- 21 September 2021
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2021Details
- Abstract
- Before the start of the coronavirus (COVID-19) pandemic, HICP inflation was relatively subdued in the euro area, standing at 1.2% in February 2020. In the United States, CPI inflation was substantially stronger, at 2.3% in the same month. After having declined over 2020, headline inflation has increased strongly in the United States and the euro area over recent months. Most of the increase, especially in the United States, has been driven by only a few items in the consumption baskets – including energy prices. Looking at developments in underlying inflation, US CPI inflation less food and energy has increased strongly, significantly surpassing its pre-pandemic levels, while HICP inflation excluding energy and food (HICPX) in the euro area has remained below its pre-pandemic levels – reflecting in part a still larger amount of slack in the euro area economy. Recent increases in inflation have pushed up the short-term inflation expectations of professional forecasters for the United States and, to a much lesser extent, also for the euro area, but inflation rates are expected to decrease substantially again over the first half of 2022. A substantial part of the strong increases in inflation over recent months in the United States and the euro area can be attributed to special factors that are likely to be of a temporary nature. For a more permanent increase in inflation, price pressures would usually need to become more broad-based (especially in the euro area) and also reflect increasing labour cost pressures. However, there is so far no firm indication of the latter once the effects of changes in the composition of employment and of job retention schemes are taken into account.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J3 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
- 18 February 2019
- WORKING PAPER SERIES - No. 2244Details
- Abstract
- This paper presents empirical evidence of the role of financial conditions in China’s business cycle. We estimate a Bayesian-VAR for the Chinese economy, incorporating a financial conditions index for China that captures movements across a range of financial variables, including interest rates and interbank spreads, bond returns, and credit and equity flows. We impose sign restrictions on the impulse response functions to identify shocks to financial conditions and shocks to monetary policy. The model suggests that monetary policy, credit and financial conditions have played an important role in shaping China’s business cycle. Using conditional scenarios, we examine the role of credit in shaping economic outcomes in China over the past decade. Those scenarios underscore the important role of credit growth in supporting activity during the past decade, particularly the surge in credit following the global financial crisis in 2008. The financial tightening since the end of 2016 has contributed to a modest slowing of credit growth and activity.
- JEL Code
- 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
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
- 13 December 2012
- WORKING PAPER SERIES - No. 1501Details
- Abstract
- We study the determinants of trust in the ECB as measured by the European Commission's Eurobarometer survey. The formulation of the corresponding question in this survey is very general, and compatible with very different notions of "trust" by respondents. In particular, the survey does not ask whether respondents trust that the ECB delivers on its mandate. Still, the ECB started with a relatively high level of trust right from the outset, especially in comparison with national institutions (other than central banks). However, with the onset of the global financial crisis, trust started to fall. It also continued to fall after 2010, a period not covered by our analysis. We find that the fall in trust until spring 2010 can be rather well explained based on the pre-crisis determinants, and show that it reflected the macroeconomic deterioration, a more generalised fall in the trust in European institutions in the wake of the crisis as well as the severity of the banking sector's problems, with which the ECB was associated in the public opinion. Finally, we show that a higher degree of knowledge about the ECB generates more trust in normal times and even more so during the financial crisis.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Z13 : Other Special Topics→Cultural Economics, Economic Sociology, Economic Anthropology→Economic Sociology, Economic Anthropology, Social and Economic Stratification
- 16 June 2010
- OCCASIONAL PAPER SERIES - No. 113Details
- Abstract
- This report aims to analyse euro area energy markets and the impact of energy price changes on the macroeconomy from a monetary policy perspective. The core task of the report is to analyse the impact of energy price developments on output and consumer prices. Nevertheless, understanding the link between energy price fluctuations, inflationary pressures and the role of monetary policy in reacting to such pressure requires a deeper look at the structure of the economy. Energy prices have presented a challenge for the Eurosystem, as the volatility of the energy component of consumer prices has been high since the creation of EMU. At the same time, a look back into the past may not necessarily be very informative for gauging the likely impact of energy price changes on overall inflation in the future. For instance, the reaction of HICP inflation to energy price fluctuations seems to have been more muted during the past decade than in earlier periods such as the 1970s.
- 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
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy - Network
- Eurosystem Monetary Transmission Network
- 8 March 2006
- OCCASIONAL PAPER SERIES - No. 43Details
- Abstract
- In a number of countries, especially emerging market economies, the public sector has in recent years been accumulating sizeable cross-border financial assets, mainly in the form of official foreign exchange reserves. World reserves have risen from USD 1.2 trillion in January 1995 to above USD 4 trillion in September 2005, growing particularly rapidly since 2002. This paper investigates the features, drivers, risks and costs of such recent reserve accumulation, as well as the other uses that certain countries have been making of their accumulated foreign assets. The main trends in central bank reserve management are also reviewed. Finally, the paper provides some evidence for the impact of reserve accumulation on yields and asset prices.
- JEL Code
- E : Macroeconomics and Monetary Economics