ECB - European Central Bankhttps://www.ecb.europa.eu/Latest releases on the ECB website - Press releases, speeches and interviews, press conferences.enCopyright 2024, European Central Bank webmaster@ecb.europa.eu (ECB Webmaster)Tue, 19 Mar 2024 08:00:26 +0100 Press Automatic http://blogs.law.harvard.edu/tech/rss Shocked to the core: a new model to understand euro area inflationThe pandemic's disruption of global supply chains and the spike in natural gas prices following Russia’s invasion of Ukraine were significant drivers of surging inflation. Traditional inflation models often ignore such supply-side shocks, even though they can have a significant and persistent impact on core inflation in the euro area (as measured by rates of change in the Harmonised Index of Consumer Prices excluding the energy and food components). In response, we propose a new model that takes these and other factors into account, particularly as future inflation dynamics could be shaped by the impact of geopolitical tensions on supply chains and the role of gas in the green transition.https://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb240319~ea06781467.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb240319~ea06781467.en.htmlTue, 19 Mar 2024 08:00:00 +0100 The unequal impact of the 2021-22 inflation surge on euro area householdsThe 2021-22 surprise inflation surge had a major impact on households in the euro area. It reduced the real incomes and net wealth of most households as there was no immediate increase in nominal wages and pensions, nominal house prices and the nominal value of bonds, deposits, cash and debt following the rise in the price level. This influenced households’ present and future consumption and therefore their welfare. Although poorer households suffered most from the reduction in the purchasing power of their income, overall welfare losses were especially large for retirees because of the fall in the real value of their relatively large holdings of nominal assets. Conversely, younger and heavily indebted households benefited from the reduction in the real value of their liabilities. In this sense, this inflation episode mimicked an age-dependent tax. Indeed, not everyone was a net loser: while about 70% of households suffered a loss, the rest enjoyed moderate gains.https://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb240220~a77abebe0e.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb240220~a77abebe0e.en.htmlTue, 20 Feb 2024 08:00:00 +0100 Quantifying financial stability risks for monetary policyWhen inflationary pressures started intensifying in 2022, the world’s major central banks faced a dilemma. They could rapidly tighten monetary policy at the risk of fuelling financial distress after years of ultra-low interest rates and balance sheet expansion. Or they could take a more gradual approach to fighting inflation that would protect the financial system, but risk high inflation becoming entrenched. While severe financial instability may be an unlikely event (or “tail risk”), it can have devastating macroeconomic consequences. Quantifying financial stability trade-offs therefore requires a way to gauge the three-way interaction between monetary policy, financial stability conditions and tail risks to the economy.https://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb210129~d9b4085476.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2024/html/ecb.rb210129~d9b4085476.en.htmlMon, 29 Jan 2024 08:00:00 +0100 Hawkish or dovish central bankers: do different flocks matter for fiscal shocks?This column presents evidence on the role that US monetary policy plays in how fiscal spending affects the economy. A dovish Federal Open Market Committee (FOMC) delays policy rate increases, while a hawkish FOMC tightens monetary policy more promptly, following increased fiscal spending. We show that the dovish response supports fiscal expansions. In contrast, the hawkish response results in a GDP decline but effectively controls inflation expectations.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231219~159bb78c3e.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231219~159bb78c3e.en.htmlTue, 19 Dec 2023 08:00:00 +0100 Reports of AI ending human labour may be greatly exaggeratedRecent advances in artificial intelligence have been met with anxiety about the future of jobs. This article examines the link between AI-enabled technologies and employment shares across 16 European countries, finding that occupations potentially more exposed to AI-enabled technologies increased their employment share during the period 2010-19. This has been particularly the case for occupations with a relatively higher proportion of younger and skilled workers.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231128~0a16e73d87.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231128~0a16e73d87.en.htmlTue, 28 Nov 2023 08:00:00 +0100 Forecasting euro area inflation with machine-learning modelsInflation forecasts and their risks are key for monetary policy decisions. The strategy review concluded in 2021 highlighted how most Eurosystem models used to forecast inflation are linear. Linear models assume that changes in, for example, wages, always have the same fixed, proportional effect on inflation. A new machine learning model, recently developed at the ECB, captures very general forms of non-linearity, such as a changing sensitivity of inflation dynamics to prevailing economic circumstances. Forecasts from this machine learning model closely track Eurosystem staff inflation projections, suggesting that these projections capture mild non-linearity in inflation dynamics – likely owing to expert judgement – and are in line with state-of-the-art econometric methodologies.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231017~b910853393.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231017~b910853393.en.htmlTue, 17 Oct 2023 08:00:00 +0200 The outlook is mixed: the asymmetric effects of weather shocks on inflationClimate 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.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231010~d34f3708ac.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb231010~d34f3708ac.en.htmlTue, 10 Oct 2023 08:00:00 +0200 Bonds at a premium: the impact of insurers on corporate bond issuersOn the basis of insurance companies’ bond investments, I examine how shifts in investors’ demand for corporate bonds affect non-financial bond issuers. When demand for their bonds increases, firms’ financing costs decrease, which encourages them to increase their bond debt and invest more. These effects crucially depend on how credit-constrained firms are. My findings emphasise the critical role that institutional investors play in shaping non-financial firms’ financing decisions and real economic activity.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230920~4e58287d01.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230920~4e58287d01.en.htmlWed, 20 Sep 2023 08:00:00 +0200 Carbon trade-offs: how firms respond to emission controlsRegulation to control carbon emissions challenges firms to develop optimal carbon management policies. We set out a unified approach to study the trade-offs carbon pricing poses for firms and how they should therefore best respond. Our model shows that while carbon pricing curtails firms’ carbon emissions, polluting firms tilt their green investment mix towards more immediate yet short-lived options – such as solely reducing emissions (abatement) instead of investing in green innovation – as it becomes costlier to comply. Under emissions trading systems, larger balances of carbon credits dampen firms’ efforts to reduce their carbon emissions. Our analysis reveals that carbon regulation does not necessarily reduce shareholder value if firms are sufficiently committed to reducing their carbon footprint.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230717~61a894a018.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230717~61a894a018.en.htmlMon, 17 Jul 2023 08:00:00 +0200 Navigating liquidity crises in non-banks: An assessment of central bank policiesAre central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale asset purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared with other banks.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230620~956b988ecd.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230620~956b988ecd.en.htmlThu, 22 Jun 2023 08:00:00 +0200 A new tool in the box: dividend restrictions as supervisory policy stimulusAt the onset of the outbreak of the coronavirus (COVID-19) pandemic, central banks and supervisors introduced dividend restrictions as a new policy instrument aimed at supporting lending to the real economy and strengthening banks' capacity to absorb losses. In this paper we estimate the impact of the ECB's dividend recommendationon on bank lending and risk-taking. To address identification issues, we rely on credit registry data and a direct measure that captures variation in compliance with the recommendation across banks in the euro area. The analysis disentangles the confounding effects stemming from the wide range of monetary and fiscal policies that supported credit during the pandemic-related downturn and investigates their interaction with the dividend recommendation. We find that dividend restrictions have been an effective policy in supporting financially constrained firms, adding capital space to banks, and limiting procyclical behaviour. The effects on lending are greater for small and medium-sized enterprises and for firms operating in sectors more vulnerable to the effects of the pandemic. At the same time, we do not find evidence of a significant increase in lending to riskier borrowers and "zombie" firms.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230526~685b91efd3.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230526~685b91efd3.en.htmlFri, 26 May 2023 08:00:00 +0200 One product, two prices: the border effect in retail prices(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region between Austria and Germany. Using transaction data on prices and quantities from a large household panel survey, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between the two countries. Even within multinational retail chains the prices of identical products on each side of the border differ on average by about 21%. These price differences are not very persistent, indicating little arbitrage gain from undifferentiated cross-border shopping. Product-level inflation rates differ for only half of the retail chains. Our results highlight the importance of the historical evolution of distribution networks and of the structure of the sales organisation as a driver of price and inflation heterogeneity.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230420~fecc3b10ca.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230420~fecc3b10ca.en.htmlThu, 20 Apr 2023 08:00:00 +0200 Understanding the impact of COVID-19 supply disruptions on exporters in global value chainsWe assess the impact of the pandemic and the ensuing disruptions to global value chains (GVCs) on exporting firms. We find that firms’ participation in GVCs increased their vulnerability to the pandemic shock, in terms of export sales and probability of survival. Firms further downstream in GVCs were more severely affected by supply disruptions. At the same time, our results suggest that exporting firms benefited from sourcing their core inputs from different countries, supporting the hypothesis that diversification in global value chains fosters supply chain resilience.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230322~5c08629152.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230322~5c08629152.en.htmlWed, 22 Mar 2023 08:00:00 +0100 Recent changes in consumers’ medium-term inflation expectations – a detailed lookIn this article we exploit the richness and flexible design of the CES to explore in detail recent changes in consumers’ medium-term inflation expectations. The data suggest that over the course of 2022 these expectations became less well anchored around the ECB’s 2% inflation target. By taking the necessary actions and actively communicating how monetary policy is contributing to stabilising future inflation, the ECB can help strengthen public trust and prevent recent price and cost shocks from having longer-lasting inflationary effects.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230224~558beec65c.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230224~558beec65c.en.htmlFri, 24 Feb 2023 08:00:00 +0100 The safe asset potential of EU-issued bondsA safe asset is of high credit quality, retains its value in bad times and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020 COVID-19 pandemic recession. Recent issuances under the EU’s SURE and NGEU initiatives helped improve EU bonds' market liquidity from previously low levels, also reducing liquidity risk premia. Eurosystem purchases and holdings of EU bonds did not impair market liquidity. Currently, one obstacle to EU bonds achieving a genuine euro-denominated safe asset status, approaching that of Bunds, lies in the one-off, time-limited nature of the EU’s COVID-19-related policy responses.https://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230116~e55fb14a74.en.htmlhttps://www.ecb.europa.eu//pub/economic-research/resbull/2023/html/ecb.rb230116~e55fb14a74.en.htmlMon, 16 Jan 2023 08:00:00 +0100