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on European Economics |
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Issue of 2021‒09‒27
thirty-one papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Maria Sole Pagliari |
| Abstract: | This paper aims at assessing the macroeconomic impact of unconventional monetary policies (UMPs) that the ECB has put in place in the euro area after the 2007 financial crisis. With this purpose, we first document how the relative importance of the main transmission channels of such measures has changed over time, with the portfolio rebalancing being generally more impactful than the signaling channel after the “Whatever it takes” speech in July 2012. However, we also provide evidence of a great degree of heterogeneity across core and peripheral economies, as well as over time. We then adopt a time-varying SVAR with stochastic volatility to account for such heterogeneity, by identifying UMP shocks via “dynamic” sign restrictions. By means of counterfactual experiments, we provide evidence of how a different stance on the part of the ECB would have led to a significantly different economic performance of euro area economies. For instance, if the ECB had not put in place the measures adopted between 2014 and 2017, annual output growth would have been, on average, 0.67 percentage points lower in peripheral countries. |
| Keywords: | : Time-varying Bayesian SVAR, Dynamic Restrictions, Unconventional Monetary policy, Eurozone |
| JEL: | C11 C32 E43 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:829&r= |
| By: | Consolo, Agostino; Koester, Gerrit; Nickel, Christiane; Porqueddu, Mario; Smets, Frank |
| Abstract: | The existence of nominal rigidities and inflation differentials between countries offers two of the main rationales for an inflation buffer in a monetary union where monetary policy is oriented towards an area-wide inflation objective. Evidence accumulated since 2003 suggests that nominal rigidities remain a prevalent feature of the euro area, with some differences as regards prices and wages. Price setting may have become more flexible and there is no evidence for any especially strong downward rigidities in price setting. At the same time, persistent downward nominal wage rigidity (DWR) provides a strong argument for a positive inflation buffer to “grease the wheels” of the euro area economy – also in order to avoid the risk of macroeconomic adjustments being managed in terms of quantities (unemployment) rather than prices when DWR is binding and particularly when productivity growth is low. Inflation differentials across euro area countries have tended to be small but persistent. For inflation dispersion in the euro area, the across countries has been more important than across regions, confirming that an inflation buffer might be especially important in a monetary union of different countries. Overall, inflation differentials were due to the rise of economic and financial imbalances in the first decade of the euro and the subsequent need for adjustment. Balassa-Samuelson effects which were highlighted in the 2003 strategy review were only a minor factor. By and large, the ECB’s inflation objective seems to have provided a sufficient margin to prevent countries from having to live with prolonged periods of excessively low inflation rates in the period 1999-2019. There were some exceptions in the second decade of the euro (from 2009-2019), when inflation in the euro area was, overall, substantially lower than during the first decade. JEL Classification: E31, E52, E24 |
| Keywords: | HICP inflation, inflation differentials, Monetary policy strategy review, nominal rigidities |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021279&r= |
| By: | Luca Fanelli; Antonio Marsi |
| Abstract: | High-frequency (HF) surprises of relevant asset prices around central bank meetings are extensively employed in the literature to identify the effects of conventional/unconventional monetary policy. This identification strategy assumes that these surprises reflect either a single unconventional ‘monetary shock’ or, as recently suggested, jointly an unconventional monetary shock and a central bank ‘information shock’. In this paper we show that monetary policy in the euro area after 2008 is best characterized by three shocks, not two. Besides the unconventional monetary shock and the information shock, we consider a third shock resulting from the ECB directly managing fragmentation risk in the sovereign bond market. We call this additional shock ‘spread shock’, and show that it permits to solve a puzzle we observe in HF comovement of long term risk free rates and sovereign spreads around press conferences. We identify the dynamic causal effects produced by the three shocks through a proxy-SVAR methodology which, using HF surprises of the euro area risk-free yield curve, stock prices and sovereign spreads, combines sign-restrictions with narrative restrictions and then extracts external variables (instruments) from an admissible identification set. Empirical results, obtained through a daily proxy-SVAR and Local Projections based on monthly data, reveal that the spread shock represents an important ingredient of the transmission mechanism of the monetary policy after the Global Financial Crisis. It reflects ECB’s attempt to offset self-fulling expectations of default in the euro area sovereign debt markets and behaves as a complement, not a substitute of the information shock. |
| JEL: | E43 E44 E52 E58 G10 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1164&r= |
| By: | Koester, Gerrit; Lis, Eliza; Nickel, Christiane; Osbat, Chiara; Smets, Frank |
| Abstract: | From 2013 up to the launch of the ECB’s strategy review in January 2020, inflation in the euro area was low and over-predicted. This low inflation during the years 2013-19 can be attributed to a combination of interconnected factors. Cyclical developments account for a substantial share of the fall in underlying inflation, mainly in the first part of the low inflation period. Additionally, there is evidence that an underestimation of the amount of economic slack and less well-anchored longer-term inflation expectations, in combination with monetary policy in the euro area being constrained by the effective lower bound, have played an important role in the long period of subdued inflation. Ongoing disinflationary structural trends (such as globalisation, digitalisation and demographic factors) are likely to have had a dampening effect on inflation over the last few decades, but were in themselves not the main drivers of low inflation in the euro area from 2013 to 2019. However, as they could not have been easily offset by interest rate policy in an effective lower bound environment, they might also have contributed to the more subdued inflation dynamics in the euro area from 2013 to 2019. JEL Classification: C51, E31, E32, E37, E52, F62, J11, J30 |
| Keywords: | effective lower bound, HICP inflation, low inflation, Monetary policy review, underlying inflation |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021280&r= |
| By: | George Hondroyiannis (Bank of Greece and Harokopio University); Dimitrios Papaoikonomou (Bank of Greece) |
| Abstract: | We investigate the effect of Eurosystem Asset Purchase Programmes (APP) on the monthly yields of 10-year sovereign bonds for 11 euro area sovereigns during January-December 2020. The analysis is based on time-varying coefficient methods applied to monthly panel data covering the period 2004m09 to 2020m12. During 2020 APP contributed to an average decline in yields estimated in the range of 58-76 bps. In December 2020 the effect per EUR trillion ranged between 34 bps in Germany and 159 bps in Greece. Stronger effects generally display diminishing returns. Our findings suggest that a sharp decline in the size of the APP in the aftermath of the COVID-19 crisis could lead to very sharp increases in bond yields, particularly in peripheral countries. The analysis additionally reveals a differential response to global risks between core and peripheral countries, with the former enjoying safe-haven benefits. Markets’ perceptions of risk are found to be significantly affected by credit ratings, which is in line with recent evidence based on constant parameter methods. |
| Keywords: | Euro area;asset purchase programmes; sovereign bond yields; time-varying parameters. |
| JEL: | C33 E44 E52 E58 F34 G15 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:291&r= |
| By: | Debrun, Xavier; Masuch, Klaus; Ferrero, Guiseppe; Vansteenkiste, Isabel; Ferdinandusse, Marien; von Thadden, Leopold; Hauptmeier, Sebastian; Alloza, Mario; Derouen, Chloé; Bańkowski, Krzysztof; Domingues Semeano, João; Barthélemy, Jean; Eisenschmidt, Jens; Bletzinger, Tilman; Faria, Thomas; Bonam, Dennis; Freier, Maximilian; Bouabdallah, Othman; Galati, Gabriele; Burriel, Pablo; Garcia, José; Campos, Maria; Gardó, Sándor; da Costa, José Cardoso; Gerke, Rafael; Checherita-Westphal, Cristina; Hammermann, Felix; Chmelar, Bernadette; Haroutunian, Stephan; Cimadomo, Jacopo; Hartung, Benjamin; Christoffe, Kai; Jacquinot, Pascal; Kamps, Christophe; Poelhekke, Steven; Kataryniuk, Ivan; Pool, Sebastiaan; Körding, Julia; Prammer, Doris; Kostka, Tommy; Romanelli, Marzia; Maćkowiak, Bartosz; Röttger, Joost; Mazelis, Falk; Sauer, Stephan; Marrazzo, Marco; Schmidt, Katja; Montes-Galdón, Carlos; Schmidt, Sebastian; Muggenthaler, Philip; Schupp, Fabian; Nerlich, Carolin; Setzer, Ralph; Nuño, Galo; Slawinska, Kamila; Ozden, Talga; Trzcinska, Agnieszka; Paulus, Alari; Valenta, Vilém; Penciu, Alexandru; Vladu, Andreea; Piloiu, Anamaria; Wolswijk, Guido; Pisani, Massimiliano |
| Abstract: | The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges. Against this background, this report revisits monetary-fiscal policy interactions in the euro area from a monetary policy perspective and with a focus on the ramifications for price stability and maintaining central bank independence and credibility. The report consists of three parts. The first chapter presents a conceptual framework for thinking about monetary-fiscal policy interactions, thereby setting the stage for a discussion of specifically euro area aspects and challenges in subsequent parts of the report. In particular, it reviews the main ingredients of the pre-global financial crisis consensus on monetary-fiscal policy interactions and addresses significant new insights and refinements which have gained prominence since 2003. In doing so, the chapter distinguishes between general conceptual aspects – i.e. those aspects that pertain to an environment characterised by a single central bank and a single fiscal authority and those aspects that pertain to an environment characterised by a single central bank and many fiscal authorities (a multi-country monetary union). ... JEL Classification: E52, E58, E62, E63, F45 |
| Keywords: | Fiscal Policy, Monetary Policy, Monetary Union |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021273&r= |
| By: | Albertazzi, Ugo; Martin, Alberto; Assouan, Emmanuelle; Tristani, Oreste; Galati, Gabriele; Vlassopoulos, Thomas; Adolf, Petra; Kok, Christoffer; Altavilla, Carlo; Lewis, Vivien; Andreeva, Desislava; Lima, Diana; Brand, Claus; Musso, Alberto; Bussière, Matthieu; Nikolov, Kalin; Fahr, Stephan; Patriček, Matic; Fourel, Valère; Prieto, Esteban; Heider, Florian; Rodriguez-Moreno, Maria; Idier, Julien; Signoretti, Federico; Aban, Jorge; Busch, Ulrike; Ambrocio, Gene; Cassar, Alan; Balfoussia, Hiona; Chalamandaris, Dimitrios; Bonatti, Guido; Cuciniello, Vincenzo; Bonfim, Diana; Eller, Markus; Bouchinha, Miguel; Falagiarda, Matteo; Fernandez, Luis; Maddaloni, Angela; Garabedian, Garo; Mazelis, Falk; Geiger, Felix; Miettinen, Pavo; Grassi, Alberto; Nakov, Anton; Hristov, Nikolay; Obradovic, Goran; Ibas, Pelin; Papageorghiou, Maria; Ioannidis, Michael; Pogulis, Armands; Jan, Jansen David; Redak, Vanessa; Jovanovic, Mario; Velez, Anatoli Segura; Kakes, Jan; Tapking, Jens; Kempf, Alina; Valderrama, Maria; Klein, Melanie; Weigert, Benjamin; Licak, Marek |
| Abstract: | Since the European Central Bank’s (ECB’s) 2003 strategy review, the importance of macro-financial amplification channels for monetary policy has increasingly gained recognition. This paper takes stock of this evolution and discusses the desirability of further incremental enhancements in the role of financial stability considerations in the ECB’s monetary policy strategy. The paper starts with the premise that macroprudential policy, along with microprudential supervision, is the first line of defence against the build-up of financial imbalances. It also recognises that the pursuit of price stability through monetary policy, and of financial stability through macroprudential policy, are to a large extent complementary. Nevertheless, macroprudential policy may not be able to ensure financial stability independently of monetary policy, because of spillovers originating from the common transmission channels through which the two policies produce their effects. For example, a low interest rate environment can create incentives to engage in more risk-taking, or can adversely impact the profitability of financial intermediaries and hence their capacity to absorb shocks. The paper argues that the existence of such spillovers creates a conceptual case for monetary policy to take financial stability considerations into account. It then goes on to discuss what this conclusion might imply in practice for the ECB. One option would be to exploit the flexible length of the medium-term horizon over which price stability is to be achieved. Longer deviations from price stability could occasionally be tolerated, if they resulted in materially lower risks for financial stability and, ultimately, for future price stability. ... JEL Classification: E3, E44, G01, G21 |
| Keywords: | financial frictions, Monetary policy, systemic risk |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021272&r= |
| By: | Cappiello, Lorenzo; Holm-Hadulla, Fédéric; Maddaloni, Angela; Mayordomo, Sergio; Unger, Robert; Arts, Laura; Meme, Nicolas; Asimakopoulos, Ioannis; Migiakis, Petros; Behrens, Caterina; Moura, Alban; Corradin, Stefano; Nicoletti, Giulio; Ferrando, Annalisa; Niemelä, Juha; Giuzio, Margherita; Petersen, Annelie; Golden, Brian; Pierrard, Olivier; Guazzarotti, Giovanni; Ratnovski, Lev; Gulan, Adam; Schober-Rhomberg, Alexandra; Hertkorn, Andreas; Sigmund, Michael; Kaufmann, Christoph; Soares, Carla; Avakian, Lucía Kazarian; Stupariu, Patricia; Koskinen, Kimmo; Taboga, Marco; Sédillot, Franck; Tavares, Luis Miguel; Matilainen, Jani; Boom, Emme Van den; Mazelis, Falk; Zaghini, Andrea; McCarthy, Barra |
| Abstract: | The financing structure of the euro area economy has evolved since the global financial crisis with non-bank financial intermediation taking a more prominent role. This shift affects the transmission of monetary policy. Compared with banks, non-bank financial intermediaries are more responsive to monetary policy measures that influence longer-term interest rates, such as asset purchases. The increasing role of debt securities in the financing structure of firms also leads to a stronger transmission of long-rate shocks. At the same time, short-term policy rates remain an effective tool to steer economic outcomes in the euro area, which is still highly reliant on bank loans. Amid a low interest rate environment, the growth of market-based finance has been accompanied by increased credit, liquidity and duration risk in the non-bank sector. Interconnections in the financial system can amplify contagion and impair the smooth transmission of monetary policy in periods of market distress. The growing importance of non-bank financial intermediaries has implications for the functioning of financial market segments relevant for monetary policy transmission, in particular the money markets and the bond markets. JEL Classification: E4, E5, G2, G38 |
| Keywords: | Asset purchases, Financial markets stress, Low interest rates, Monetary policy transmission, Non-bank intermediation, Risk-taking |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021270&r= |
| By: | Consolo, Agostino; Cette, Gilbert; Bergeaud, Antonin; Labhard, Vincent; Osbat, Chiara; Kosekova, Stanimira; Anyfantaki, Sofia; Basso, Gaetano; Basso, Henrique; Bobeica, Elena; Ciapanna, Emanuela; Dedola, Luca; Foroni, Claudia; Freystatter, Hanna; Gautier, Erwan; Giron, Celestino; Hartwig, Benny; Peinado, Mario Izquierdo; Jarvis, Valerie; Maqui, Eduardo; Mohr, Matthias; Morris, Richard; Motyovszki, Gergő; Nakov, Anton; Petroulakis, Filippos; Rubene, Ieva; Trezzi, Riccardo; Vivian, Lara; Weber, Henning; Wieland, Elisabeth; Neves, Pedro |
| Abstract: | The digitalisation workstream report analyses the degree of digital adoption across the euro area and EU countries and the implications of digitalisation for measurement, productivity, labour markets and inflation, as well as more recent developments during the coronavirus (COVID-19) pandemic and their implications. Analysis of these key issues and variables is aimed at improving our understanding of the implications of digitalisation for monetary policy and its transmission. The degree of digital adoption differs across the euro area/EU, implying heterogeneous impacts, with most EU economies currently lagging behind the United States and Japan. Rising digitalisation has rendered price measurement more challenging, owing to, among other things, faster changes in products and product quality, but also new ways of price setting, e.g. dynamic or customised pricing, and services that were previously payable but are now “free”. Despite the spread of digital technologies, aggregate productivity growth has decreased in most advanced economies since the 1970s. However, it is likely that without the spread of digital technologies the productivity slowdown would have been even more pronounced, and the recent acceleration in digitalisation is likely to boost future productivity gains from digitalisation. Digitalisation has spurred greater automation, with temporary labour market disruptions, albeit unevenly across sectors. The long-run employment effects of digitalisation can be benign, but its effects on wages and labour share depend on the structure of the economy and its labour market institutions. The pandemic has accelerated the use of teleworking: roughly every third job in the euro area/EU is teleworkable, although there are differences across countries. ... JEL Classification: E24, E31, E32, O33, O57 |
| Keywords: | COVID-19, inflation, labour markets, measurement, productivity |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021266&r= |
| By: | Grégory Levieuge; Jean-Guillaume Sahuc |
| Abstract: | Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their rates more slowly and less completely to short-term market rates decreases than to increases. We investigate the macroeconomic consequences of this downward interest rate rigidity by introducing asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating the model to the euro area economy, we find that the difference in the initial response of GDP to positive and negative economic shocks of similar amplitude can reach up to 25%. This means that a central bank would have to cut its policy rate much more to obtain a symmetric medium-run impact on GDP. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions. |
| Keywords: | Downward Interest Rate Rigidity, Asymmetric Adjustment Costs, Banking Sector, DSGE Model, Euro Area |
| JEL: | E32 E44 E5 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:828&r= |
| By: | Modery, Wolfgang; Valderrama, Maria Teresa; Lopez-Garcia, Paloma; Albani, Maria; Anyfantaki, Sofia; Baccianti, Claudio; Barrela, Rodrigo; Bodnár, Katalin; Bun, Maurice; De Mulder, Jan; Falck, Elisabeth; Fenz, Gerhard; Lopez, Beatriz Gonzalez; Labhard, Vincent; Le Roux, Julien; Linarello, Andrea; Meinen, Philipp; Moder, Isabella; Oja, Kaspar; Ragacs, Christian; Oke, Roehe; Schulte, Patrick; Justo, Ana Seco; Serafini, Roberta; Setzer, Ralph; Lopez, Irune Solera; Vanhala, Juuso |
| Abstract: | The aim of this report is to foster a better understanding of past trends in, and drivers of, productivity growth in the countries of the European Union (EU) and of the interplay between productivity and monetary policy. To this end, a group of experts from 15 national central banks and the European Central Bank (ECB) joined forces and pooled data and expertise for more than 18 months to produce the report. Group members drew on the extensive research already conducted on productivity growth, including within the European System of Central Banks and in the context of the review of the ECB’s monetary policy strategy, and worked together to conduct new analyses.After recalling the key facts and figures, the report looks into the predominant drivers of productivity growth in firms, with a focus on technology as a key determinant of aggregate productivity dynamics. It then discusses the main factors behind resource reallocation both across incumbent firms and as a result of the entry and exit of firms. Although productivity is a real-economy phenomenon and its evolution predominantly hinges on the structural features of the economy and national policies, the report also raises the question of the extent to which, and under what circumstances, monetary policy may affect productivity. In addition, it places productivity in a broader perspective by taking into account other important structural trends that are expected to have an impact on productivity in the medium-to-long run, such as globalisation, population ageing, climate change and digitalisation. Finally, the report considers the possible impacts of the coronavirus (COVID-19) pandemic on productivity in EU countries. ... JEL Classification: D22, D24, D61, O33, O47, O52 |
| Keywords: | drivers and policy implications, European Union, Productivity growth |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021268&r= |
| By: | Brand, Claus; Obstbaum, Meri; Coenen, Günter; Sondermann, David; Lydon, Reamonn; Ajevskis, Viktors; Hammermann, Felix; Angino, Siria; Hernborg, Nils; Basso, Henrique; Hertweck, Matthias; Bijnens, Gert; Hutchinson, John; Bobeica, Elena; Jacquinot, Pascal; Bodnár, Katalin; Kanutin, Andrew; Botelho, Vasco; Karsay, Alex; Colciago, Andrea; Kienzler, Daniel; Consolo, Agostino; Kolndrekaj, Aleksandra; De Philippis, Marta; Lhuissier, Stéphane; Da Silva, António Dias; Le Roux, Julien; Dossche, Maarten; Lozej, Matija; Dupraz, Stéphane; Martins, Fernando; Falath, Juraj; Mazelis, Falk; Ferrari, Alessandro; Mongelli, Francesco; Gomes, Sandra; Montero, José; Salvador, Ramon Gomez; Motto, Roberto; Goy, Gavin; Nakov, Anton; Grasso, Adriana; Osterloh, Steffen; Guglielminetti, Elisa; Pidkuyko, Myroslav; Haavio, Markus; Piton, Celine; Ploj, Gasper; Slacalek, Jirka; Polemidiotis, Marios; Sokol, Andrej; Propst, Maximilian; Soudan, Michel; Neves, Pedro Luis Rebelo; Szörfi, Béla; Ristiniemi, Annukka; Thaler, Dominik; Pereira, Manuel Bernado Rodrigues; Vanhala, Juuso; Saint-Guilhem, Arthur; Warne, Anders; Justo, Ana Seco; Zhutova, Anastasia; Seward, Domingos |
| 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 Classification: E52, E24 |
| Keywords: | Employment, inequality, monetary policy |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021275&r= |
| By: | Aberg, Pontus; Corsi, Marco; Grossmann-Wirth, Vincent; Hudepohl, Tom; Mudde, Yvo; Rosolin, Tiziana; Schobert, Franziska |
| Abstract: | This paper discusses commercial banks’ demand for central bank reserves under two alternative monetary policy framework configurations, namely: (i) an interest rate corridor system with scarce liquidity, and (ii) a floor system with ample liquidity. It outlines the interaction between the monetary implementation framework used to steer short-term market interest rates and banks’ demand for reserves. We find that by implementing a floor system, the Eurosystem has eliminated the opportunity costs of holding reserves and enabled banks to hold relatively large buffers of reserves compared with the corridor system. Additionally, the demand for reserves may have increased endogenously, as the environment of ample liquidity conditions has incentivised many banks to adapt their business models. In parallel, the demand for reserves has also increased for more exogenous reasons such as post-global financial crisis liquidity regulation and increased liquidity concentration. Our estimates indicate an increase, over recent years, in the level of excess liquidity required in the euro area to avoid a rise in short-term market rates. Moreover, the dependency on the adopted monetary policy instruments and the external environment highlights the increased uncertainty in estimating future levels of required reserves JEL Classification: E41, E44, E50, E51, E58 |
| Keywords: | central bank reserves, ECB, Eurosystem, liquidity management, monetary policy implementation |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021282&r= |
| By: | Baumann, Ursel; Darracq Pariès, Matthieu; Westermann, Thomas; Riggi, Marianna; Bobeica, Elena; Meyler, Aidan; Böninghausen, Benjamin; Fritzer, Friedrich; Trezzi, Riccardo; Jonckheere, Jana; Kulikov, Dmitry; Popova, Dilyana; Pert, Sulev; Michail, Nektarios; Paloviita, Maritta; Brázdik, František; Pönkä, Harri; Bess, Mikkel; Vilmi, Lauri; Jørgensen, Casper; Robert, Pierre-Antoine; Al-Haschimi, Alexander; Gmehling, Philipp; Bańbura, Marta; Hartmann, Matthias; Charalampakis, Evangelos; Menz, Jan-Oliver; Hartwig, Benny; Schupp, Fabian; Hutchinson, John; Speck, Christian; Paredes, Joan; Volz, Ute; Reiche, Lovisa; Bragoudakis, Zacharias; Tirpák, Marcel; Kasimati, Evangelia; Tengely, Veronika; Łyziak, Tomasz; Tagliabracci, Alex; Stanisławska, Ewa; Bessonovs, Andrejs; Iskrev, Nikolay; Krasnopjorovs, Olegs; Gavura, Miroslav; Reichenbachas, Tomas; Damjanović, Milan; Colavecchio, Roberta; Maletic, Matjaz; Galati, Gabriele; Leiva, Danilo; Kearney, Ide; Stockhammar, Pär |
| Abstract: | This paper summarises the findings of the Eurosystem’s Expert Group on Inflation Expectations (EGIE), which was one of the 13 work streams conducting analysis that fed into the ECB’s monetary policy strategy review. The EGIE was tasked with (i) reviewing the nature and behaviour of inflation expectations, with a focus on the degree of anchoring, and (ii) exploring the role that measures of expectations can play in forecasting inflation. While it is households’ and firms’ inflation expectations that ultimately matter in the expectations channel, data limitations have meant that in practice the focus of analysis has been on surveys of professional forecasters and on market-based indicators. Regarding the anchoring of inflation expectations, this paper considers a number of metrics: the level of inflation expectations, the responsiveness of longer-term inflation expectations to shorter-term developments, and the degree of uncertainty. Different metrics can provide conflicting signals about the scale and timing of potential unanchoring, which underscores the importance of considering all of them. Overall, however, these metrics suggest that in the period since the global financial and European debt crises, longer-term inflation expectations in the euro area have become less well anchored. Regarding the role measures of inflation expectations can play in forecasting inflation, this paper finds that they are indicative for future inflationary developments. When it comes to their predictive power, both market-based and survey-based measures are found to be more accurate than statistical benchmarks, but do not systematically outperform each other. Beyond their role as standalone forecasts, inflation expectations bring forecast gains when included in forecasting models and can also inform scenario and risk analysis in projection exercises performed using structural models. ... JEL Classification: D84, E31, E37, E52 |
| Keywords: | anchoring, forecasting, Inflation expectations, macroeconomics, monetary policy |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021264&r= |
| By: | Alogoskoufis, Spyros; Dunz, Nepomuk; Emambakhsh, Tina; Hennig, Tristan; Kaijser, Michiel; Kouratzoglou, Charalampos; Muñoz, Manuel A.; Parisi, Laura; Salleo, Carmelo |
| Abstract: | Climate change is one of the greatest challenges facing humankind this century. If left unchecked, it is likely to result in more frequent and severe climatic events, with the potential to cause substantial disruption to our economies, businesses and livelihoods in the coming decades. Yet the associated risks remain poorly understood, as climate shocks differ from the financial shocks observed during previous crises. This paper describes the ECB’s economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. This stress test comprises three main pillars: (i) climate-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidated euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks. JEL Classification: C53, C55, G21, G38, Q54 |
| Keywords: | climate scenarios, climate stress-test, physical risk, transition risk |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021281&r= |
| By: | Cecion, Martina; Coenen, Günter; Gerke, Rafael; Le Bihan, Hervé; Motto, Roberto; Aguilar, Pablo; Ajevskis, Viktors; Giesen, Sebastian; Albertazzi, Ugo; Gilbert, Niels; Al-Haschimi, Alexander; Gomes, Sandra; Bornemann, Friederike; Goy, Gavin; Brand, Claus; Grasso, Adriana; Carboni, Giacomo; Grosse-Steffen, Christoph; Cecioni, Martina; Haavio, Markus; Cleanthous, Lena; Hammermann, Felix; Hoffmann, Mathias; Consolo, Agostino; Hölz, Jonas; Corbisiero, Giuseppe; Hurtado, Samuel; Dedola, Luca; Hürtgen, Patrick; Andreeva, Desislava; Hutchinson, John; Dobrew, Michael; Ioannidis, Michael; Dupraz, Stéphane; Kenny, Geoff; Ehrmann, Michael; Kho, Stephen; Fahr, Stephan; Kienzler, Daniel; Gautier, Erwan; Knüppel, Malte; Georgarakos, Dimitris; Kok, Christoffer; Kontulainen, Jarmo; Rannenberg, Ansgar; Kortelainen, Mika; Ristiniem, Annukka; Röttger, Joost; Lima, Ana Isabel; Saint-Guilhem, Arthur; Locarno, Alberto; Santoro, Sergio; Lojschová, Adriana; Scheer, Alexander; Maletic, Matjaz; Schmidt, Sebastian; Martin, Alberto; Schneider, Jan David; Matheron, Julien; Schultefrankenfeld, Guido; Marx, Magali; Skotida, Ifigeneia; Mazelis, Falk; Soudan, Michel; Meyler, Aidan; Stevens, Arnoud; Mönch, Emanuel; Sturm, Michael; Montes-Galdón, Carlos; Thaler, Dominik; Tosato, Andrea Giorgio; Nikolov, Kalin; Tristani, Oreste; Nuño, Galo; Valderrama, Maria Teresa; Papageorgiou, Dimitris; Weber, Henning; Pavlova, Lora; Wouters, Raf; Penalver, Adrian; Zev, Giordano; Pisani, Massimiliano |
| 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 Classification: E31, E52, E58 |
| Keywords: | effective lower bound, euro area, European Central Bank, monetary policy strategy, price stability |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021269&r= |
| By: | Darracq Pariès, Matthieu; Notarpietro, Alessandro; Kilponen, Juha; Papadopoulou, Niki; Zimic, Srečko; Aldama, Pierre; Langenus, Geert; Alvarez, Luis Julian; Lemoine, Matthieu; Angelini, Elena; Lozej, Matija; Berben, Robert-Paul; Marotta, Fulvia; Carroy, Alice; Matheron, Julien; Christoffel, Kai; Montes-Galdón, Carlos; Ciccarelli, Matteo; Paredes, Joan; Consolo, Agostino; Pisani, Massimiliano; Cova, Pietro; Schmöller, Michaela; Damjanović, Milan; Smadu, Andra; de Walque, Gregory; Szörfi, Béla; Dupraz, Stéphane; Turunen, Harri; Gumiel, José Emilio; Verona, Fabio; Haertel, Thomas; Vetlov, Igor; Hurtado, Samuel; Warne, Anders; Júlio, Paulo; Zhutova, Anastasia; Kühl, Michael |
| Abstract: | This paper provides an assessment of the macroeconomic models regularly used for forecasting and policy analysis in the Eurosystem. These include semi-structural, structural and time-series models covering specific jurisdictions and the euro area within a closed economy, small open economy, multi-country or global setting. Models are used as analytical frameworks for building baseline projections and for supporting the preparation of monetary policy decisions. The paper delivers four main contributions. First, it provides a survey of the macroeconomic modelling portfolios currently used or under development within the Eurosystem. Second, it explores the analytical gaps in the Eurosystem models and investigates the scope for further enhancement of the main projection and policy models, and the creation of new models. Third, it reviews current practices in model-based analysis for monetary policy preparation and forecasting and provides recommendations and suggestions for improvement. Finally, it reviews existing cooperation modalities on model development and proposes alternative sourcing and organisational strategies to remedy any knowledge or analytical gaps identified. JEL Classification: C5, E47, E52, E58, F4 |
| Keywords: | central banking., econometric modelling, forecasting and simulation, monetary policy |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021267&r= |
| By: | Holm-Hadulla, Fédéric; Musso, Alberto; Rodriguez, Diego; Vlassopoulos, Thomas |
| Abstract: | This paper discusses the role of economic and monetary analysis in the monetary policy strategy of the European Central Bank (ECB). Both areas of analysis have evolved since the 2003 strategy review. Economic analysis has assigned an increasingly relevant role to the Eurosystem and ECB staff macroeconomic projections in forming a view on the medium-term outlook for economic activity and inflation. Furthermore, its focus has strengthened with regard to structural trends in shaping key economic relationships. Similarly, monetary analysis has shifted in focus: while the 2003 review emphasised the information value of monetary dynamics for detecting risks to price stability over medium-term to longer-term horizons, the focus of monetary analysis has increasingly been redirected to the assessment of monetary policy transmission. This evolution has opened a gap between the formal description of the strategy following the 2003 review and the practice of economic and monetary analysis in informing the ECB’s policy deliberations. This paper concludes by presenting options for closing this gap and aligning the strategy formulation with the evolved role of economic and monetary analysis. JEL Classification: E32, E37, E44, E47, E51, E52, E58 |
| Keywords: | ECB two-pillar framework, Economic analysis, monetary analysis |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021277&r= |
| By: | Julien Pinter (University of Minho, NIPE, Braga); Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & Institute of Information Theory and Automation, Prague & CESifo, Munich & IOS, Regensburg) |
| Abstract: | We empirically investigate whether monetary policy announcements affect firms' and consumers' expectations by taking into account media treatments of monetary policy announcements. To identify exogenous changes in monetary policy stances, we use the standard financial monetary policy surprise measures in the euro area. We then analyze how a general newspaper and a financial newspaper (Le Monde and The Financial Times) report on announcements. We find that 87 % of monetary policy surprises are either not associated with the general newspaper reporting a change in the monetary policy stance to their readers or have a sign that is inconsistent with the media report of the announcement. When we use the raw monetary policy surprises variable as an independent variable in the link between monetary policy announcements and firms'/consumers' expectations, we mostly do not find, in line with several previous studies, any statistically significant association. When we take only monetary policy surprises that are consistent with the general newspaper report, in almost all cases we find that monetary policy surprises on the immediate monetary policy stance do affect expectations. Surprises related to future policy inclination and information shocks usually do not appear to matter. The results appear to be in line with rational inattention theories and highlight the need for caution in the use of monetary policy surprise measures for macroeconomic investigations. |
| Keywords: | firm expectations; consumer expectations; monetary policy surprises; European Central Bank; information effect |
| JEL: | D84 E02 E52 E31 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2021_30&r= |
| By: | Lodge, David; Pérez, Javier J.; Albrizio, Silvia; Everett, Mary; De Bandt, Olivier; Georgiadis, Georgios; Ca' Zorzi, Michele; Lastauskas, Povilas; Carluccio, Juan; Parrága, Susana; Carvalho, Daniel; Venditti, Fabrizio; Cova, Pietro; Attinasi, Maria Grazia; Fontagné, Lionel; Mozzanica, Mirco Balatti; Giron, Celestino; Banerjee, Biswajit; Gunnella, Vanessa; Baumann, Ursel; Hemmerlé, Yannick; Bricongne, Jean-Charles; Jochem, Axel; Chiacchio, Francesco; Karjanlahti, Kristiina; Coimbra, Nuno; Kataryniuk, Ivan; Del Giudice, Davide; Korhonen, Iikka; De Luigi, Clara; Kühnlenz, Markus; Dimitropoulou, Dimitra; Labhard, Vincent; Di Nino, Virginia; Le Mezo, Helena; Dorrucci, Ettore; Meinen, Philipp; Eichler, Eric; Mattias, Nilsson; Feldkircher, Martin; Osbat, Chiara; Felettigh, Alberto; Quaglietti, Lucia; Reininger, Thomas; Stumpner, Sebastian; Schmidt, Julia; Van Schaik, Ilona; Schmitz, Martin; Wacket, Helmut; Serafini, Roberta; Zumer, Tina; Siena, Daniele |
| Abstract: | This paper assesses how globalisation has shaped the economic environment in which the ECB operates and discusses whether this warrants adjustments to the monetary policy strategy. The paper first looks at how trade and financial integration have evolved since the last strategy review in 2003. It then examines the effects of these developments on global productivity growth, the natural interest rate (r*), inflation trends and monetary transmission. While trade globalisation initially boosted productivity growth, this effect may be waning as trade integration slows and market contestability promotes a winner-takes-all environment. The impact of globalisation on r* has been ambiguous: downward pressures, fuelled by global demand for safe assets and an increase in the propensity to save against a background of rising inequality, are counteracted by upward pressures, from the boost to global productivity associated with greater trade integration. Headline inflation rates have become more synchronised globally, largely because commodity prices are increasingly determined by global factors. Meanwhile, core inflation rates show a lower degree of commonality. Globalisation has made a rather modest contribution to the synchronised fall in trend inflation across countries and contributed only moderately to the reduction in the responsiveness of inflation to changes in activity. Regarding monetary transmission, globalisation has made the role of the exchange rate more complex by introducing new mechanisms through which it affects financial conditions, real activity and price dynamics. Against the background of this discussion, the paper then examines the implications for the ECB’s monetary policy strategy. In doing so, it asks two questions. How is the ECB’s economic and monetary analysis affected by globalisation? And how does globalisation influence the choice of the ECB’s monetary policy objective and instruments? ... JEL Classification: E58, F42, F44, F62, F65 |
| Keywords: | Globalisation, inflation, monetary policy strategy, productivity, r* |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021263&r= |
| By: | Raphael Auer (Swiss National Bank; Bank for International Settlements (BIS)); Alexandra Matyunina (University of Zurich; Swiss Finance Institute); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Do targeted macroprudential measures impact non-targeted sectors too? We answer this question by investigating the compositional changes in the supply of credit by Swiss banks, exploiting their differential exposure to the activation in 2013 of the countercyclical capital buffer (CCyB) which targeted banks’ exposure to residential mortgages. We find that the additional capital requirements stemming from the activation of the CCyB causes higher growth in banks’ commercial lending. While banks lend more to all categories of firms, including larger corporate borrowers in the syndicated loan market, smaller and riskier firms are the primary beneficiaries of the new macroprudential measure. However, the interest rates and other costs of obtaining credit for these firms increase as well. |
| Keywords: | macroprudential policy, spillovers, credit, bank capital, systemic risk, syndicated loan market |
| JEL: | E51 E58 E60 G01 G21 G28 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2166&r= |
| By: | Steven Brakman; Harry Garretsen; Tristan Kohl |
| Abstract: | The withdrawal of the United Kingdom from the European Union has had disruptive effects on international trade. As part of its ‘Global Britain’ strategy, in the wake of Brexit, the UK is pursuing a series of Free Trade Agreements with countries around the world, including Canada, Japan, Korea, Mexico, Norway, Switzerland, Turkey and possibly the United States. Closer to home, the UK is under mounting pressure to dissuade Scotland, Northern Ireland and Wales from seeking independence to regain the severed ties with the EU. We analyze the economic consequences of these scenarios with a state-of-the-art structural gravity model for major economies around the world. We find that ‘Global Britain’ yields insufficient trade creation to compensate for Brexit-induced trade losses. Our results also reveal that independence from the UK in itself would inflict greater post-Brexit economic harm on the devolved nations of Great Britain. Nevertheless, these effects could be entirely removed for each of these devolved nations conditional on a renewed trade deal with the EU. |
| Keywords: | Brexit, gravity model |
| JEL: | F13 F14 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9292&r= |
| By: | Kutlina-Dimitrova, Zornitsa (DG Trade); Rueda-Cantuche, José Manuel (JRC) |
| Abstract: | The current COVID-19 pandemic has had drastic and unprecedented impacts on trade, and GDP worldwide and in the EU. We assess in the paper the potential export related jobs losses that would have affected European workers had not governments and the EU implemented large exceptional support packages to prevent real job losses. To this end, we use a global multi-region input output model based on the recently released FIGARO tables (Eurostat, 2021) and build a counterfactual analysis based on trade flows projections made before the COVID-19 pandemic broke out. Our results show that in the absence of jobs and enterprise retention measures, 6.4 million exports dependent jobs would have been at risk. Therefore, it is urgent for trade to recover quickly since millions of jobs are at stake. |
| Keywords: | COVID-19; EU; trade; jobs |
| JEL: | F13 F14 F16 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:dgtcen:2021_001&r= |
| By: | Kariem Soliman (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | In recent years, the interest in the field of economic research in studying the effect of robots on economic outcomes, i.e., labour productivity, labour demand and wages, has increased from an individual country perspective as well as for country groups. By using a fixed effects panel modeling approach, this study of nine robot intensive European countries shows that the core characteristics of a general purpose technology (GPT) are already satisfied by industrial robots. In 2019, seven countries in the panel, i.e. Germany, Italy, France, Spain and the UK (top 5), Sweden (7th) and Austria (10th) - in terms of operational stocks - were among the top 10 of robot using European countries (excl. Turkey). Following the understanding of a GPT of Bresnahan/Trajtenberg (1995), six panel regression models were estimated and linked to the four main characteristics of a GPT. Accordingly, two new measures are proposed in this paper; the first one is named the Division of Labour (or DoL) and is constructed by building the ratio of labour productivity inside the manufacturing industry to labour productivity across all industries. The second one is the Robot Task Intensity Index (RTII), which accounts for the number of tasks that a robot was used for in different production processes across the nine European countries. A high level of fulfilled tasks implies a higher quality of robot as the number of potential tasks, which the robot can perform, is an important criterion for the quality of that robot. In accordance with the GPT literature, both measures showed the expected (in) significances. At the bottom line, all six models underlined the economic relevance of industrial robots for the nine European countries included in the analysis and give a strong indication that robots can indeed be seen as a new general purpose technology. |
| Keywords: | Industrial Robots, General Purpose Technology, Labour Productivity Growth, Robot Task Intensity Index (RTII), Fixed Effects Model, EU KLEMS |
| JEL: | D24 J24 O11 O14 O33 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei307&r= |
| By: | Breckenfelder, Johannes; Ivashina, Victoria |
| Abstract: | We explore the ties between bonds and individual dealers formed through home advantage and the persistence of previous underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for the European banks had a large impact on exposed bonds’ liquidity. Moreover, based on these ties, we show that bond mutual fund panic following the 2020 pandemic outbreak affected substantially more mutual funds with the larger exposures to dealer banks’ balance sheet constraints. JEL Classification: G12, G18, G21 |
| Keywords: | Bond liquidity, capital requirements, COVID-19, leverage ratio, market-making, mutual funds |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212589&r= |
| By: | Jonas Van der Slycken; Brent Bleys (-) |
| Abstract: | This paper is the first to calculate economic welfare for the EU-15 countries in a standardized and comparable way. This paper does so by building on a case study for Belgium by Van der Slycken and Bleys (2021) that puts forward a “2.0 methodology” and two distinct welfare measures that deal with cross-time and cross-boundary issues. Both welfare and GDP per capita improved in the EU-15 between 1995 and 2018. Yet, there is an important divergence between welfare and GDP: over time experiential welfare per capita and the per capita benefits and costs of present activities improved by respectively 10.5% and 14%, while GDP per capita grew by 32.4%. These trends in per capita welfare are mainly driven by individual consumption growth, the shadow economy and the welfare losses from income inequality, which compensated about half of the welfare gains of the former two categories.The gap between welfare and GDP diverges especially after the financial crisis when welfare starts stagnating. At the end of the studied period, the EU-15 had already recovered from the financial crisis from a GDP perspective, but it has not from a welfare view. Since the welfare levels in 2018 are less than 2% lower than the period-maximum, there is no conclusive evidence in favor of the threshold hypothesis at the level of the EU-15. The fact the welfare level in nine individual countries is more than 5% lower than its the peak value, however, signals a clear threshold for these countries. Yet, welfare levels could be increased beyond previous peak levels with effective social and environmental welfare policies in place that focus on redistributing and respecting environmental boundaries our economies instead of promoting economic growth. |
| Keywords: | Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), costshifting, beyond GDP, threshold hypothesis, postgrowth |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:21/1027&r= |
| By: | Altavilla, Carlo; Lemke, Wolfgang; Linzert, Tobias; Tapking, Jens; von Landesberger, Julian |
| Abstract: | This paper summarises the work done by Eurosystem staff in the context of the Strategy Review Seminar on Monetary Policy Instruments. More specifically, it focuses on the efficacy, efficiency and potential side effects of the key monetary policy instruments employed by the European Central Bank since 2014. The following main findings emerge from the analysis. First, instruments have been effective in easing financing conditions and supporting economic growth, employment and inflation. Second, considering the effective lower bound on policy rates, a combination of instruments is generally more efficient than relying on a single tool. Third, side effects have been generally contained so far, but they are found to vary over time and need to be closely monitored on an ongoing basis. Fourth, the monetary policy toolkit needs to remain innovative, diversified, and flexible, i.e. reviewed regularly to ensure that it remains fit for purpose against the backdrop of evolving financial and macroeconomic conditions. JEL Classification: E52, E58, E43, E44, E47 |
| Keywords: | monetary policy instruments, standard and non-standard measures |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021278&r= |
| By: | Pianta, Mario; Reljic, Jelena |
| Abstract: | This paper investigates the existence of a virtuous circle between industries’ employment quality, the ability to introduce new products, increase labour productivity and pay higher wages. We first present descriptive evidence of these trends in Europe. We then develop a simultaneous four-equation model investigating empirically four related variables: first, the rise of non-standard work as a proxy of low employment quality; second, the success of firms in translating their R&D efforts into new products and services; third, labour productivity growth driven by technological activities; fourth, wage increases and the factors supporting their rise. The model is tested empirically for 41 manufacturing and service sectors of six European economies (Germany, France, Italy, Spain, the Netherlands, and the UK) over the period 1996-2016. The findings provide novel evidence of mutually reinforcing relationships, where higher employment quality complements technological activities, leading to more product innovations that increase productivity growth. In turn, the latter allows wage increases that contribute to higher employment quality, resulting in a good jobs-high innovation virtuous circle. |
| Keywords: | Non-standard work, Product Innovation, Labour productivity, Wages, Virtuous circles, European industries |
| JEL: | J23 J24 J31 J50 L6 L8 O31 O33 O52 |
| Date: | 2021–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109797&r= |
| By: | Guglielmo Maria Caporale; Woo-Young Kang; Fabio Spagnolo; Nicola Spagnolo |
| Abstract: | This paper analyses the impact of the Covid-19 pandemic on stock market returns and their volatility in the case of the G20 countries. In contrast to the existing empirical literature, which typically focuses only on either Covid-19 deaths or lockdown policies, our analysis is based on a comprehensive dynamic panel model accounting for the effects of both the epidemiological situation and restrictive measures as well as of fiscal and monetary responses; moreover, instead of Covid-19 deaths it uses a far more sophisticated Covid-19 index based on a Balanced Worth (BW) methodology, and it also takes into account heterogeneity by providing additional estimates for the G7 and the remaining countries (non-G7) separately. We find that the stock markets of the G7 are affected negatively by government restrictions more than the Covid-19 pandemic itself. By contrast, in the non-G7 countries both variables have a negative impact. Further, lockdowns during periods with particularly severe Covid-19 conditions decrease returns in the non-G7 countries whilst increase volatility in the G7 ones. Fiscal and monetary policy (the latter measured by the shadow short rate) have positive and negative effects, respectively, on the stock markets of the G7 countries but not of non-G7 ones. In brief, our evidence suggests that restrictions and other policy measures play a more important role in the G7 countries whilst the Covid-19 pandemic itself is a key determinant in the case the non-G7 stock markets. |
| Keywords: | Covid-19 pandemic, stringency index, Covid-19 index, fiscal policy, shadow rates, stock markets |
| JEL: | C33 G15 E52 E62 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9299&r= |
| By: | Leogrande, Angelo; Costantiello, Alberto |
| Abstract: | We estimate the relationships between innovation and human resources in Europe using the European Innovation Scoreboard of the European Commission for 36 countries for the period 2010-2019. We perform Panel Data with Fixed Effects, Random Effects, Pooled OLS, Dynamic Panel and WLS. We found that Human resources is positively associated to “Basic-school entrepreneurial education and training”, “Employment MHT manufacturing KIS services”, “Employment share Manufacturing (SD)”, “Lifelong learning”, “New doctorate graduates”, “R&D expenditure business sector”, “R&D expenditure public sector”, “Tertiary education”. Our results also show that “Human Resources” is negatively associated to “Government procurement of advanced technology products”, “Medium and high-tech product exports”, “SMEs innovating in-house”, “Venture capital”. In adjunct we perform a clusterization with k-Means algorithm and we find the presence of three clusters. Clusterization shows the presence of Central and Northern European countries that has higher levels of Human Resources, while Southern and Eastern Europe has very low degree of Human Resources. Finally, we use seven machine learning algorithms to predict the value of Human Resources in Europe Countries using data in the period 2014-2021 and we show that the linear regression algorithm performs at the highest level. |
| Keywords: | Innovation and Invention: Processes and Incentives, Management of Technological Innovation and R&D, Technological Change: Choices and Consequences, Diffusion Processes Intellectual Property and Intellectual Capital, Open Innovation, Government Policy. |
| JEL: | O30 O31 O32 O33 O34 O38 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109749&r= |
| By: | Giese, Julia (Bank of England); Joyce, Michael (Bank of England); Meaning, Jack (Bank of England); Worlidge, Jack (Bank of England) |
| Abstract: | Most tests of preferred habitat theory are indirect; they infer the existence of preferred habitat behaviour in financial markets by examining the behaviour of asset prices. We instead identify preferred habitat behaviour directly from whether investors show a preference towards a particular duration habitat. We do so by making use of a newly available and highly granular data set on the UK government bond (gilt) market, which allows us to examine investors’ gilt transactions and their daily stock of gilt holdings during 2016 and 2017. Using cluster analysis, we find that investors can be classified into distinct groups, some of which more closely display the behavioural properties that theory associates with preferred habitat investors. We find that these groups of investors are less sensitive to price movements than other investor groups and include institutional investors, like life insurers and pension funds, which are typically associated with preferred habitat behaviour. Evidence from the Bank of England’s QE4 purchase programme during August 2016 to March 2017 suggests that these investor groups sold relatively more of their gilt holdings to the Bank than other groups of investors. |
| Keywords: | Preferred habitat; gilt market; yield curve; cluster analysis |
| JEL: | E43 E52 G11 G12 |
| Date: | 2021–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0939&r= |