Financial institutions

Insurance companies in the Euro area: asset allocation and impact on financial markets

12/02/2025 European Central Bank Central banks

Euro area insurers manage several trillion euro in assets and take a long-term investment perspective. They hold more alternative and less liquid assets than in the past, partly resulting from the long period of low interest rates until 2022. As a result, their balance sheets have become less liquid and more sensitive to market conditions overall. Meanwhile their holdings of sovereign bonds show significant home bias, which may have even increased with quantitative easing policies.

Insurance companies in the Euro area: asset allocation and impact on financial markets

12/02/2025 European Central Bank Central banks

Euro area insurers manage several trillion euro in assets and take a long-term investment perspective. They hold more alternative and less liquid assets than in the past, partly resulting from the long period of low interest rates until 2022. As a result, their balance sheets have become less liquid and more sensitive to market conditions overall. Meanwhile their holdings of sovereign bonds show significant home bias, which may have even increased with quantitative easing policies.

Nature at risk: Implications for the euro area economy and financial stability

12/02/2025 European Central Bank Central banks

Degraded ecosystems undermine productivity, disrupt supply chains and heighten vulnerability to shocks, creating risks for the real economy and the financial sector. Biodiversity loss and ecosystem degradation also pose a growing risk to price stability, with increasing evidence that ecosystem shocks contribute to inflationary pressures in the euro area.

Global or regional safe assets: evidence from bond substitution patterns

12/01/2025 European Central Bank Central banks

This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors’ demand for bonds. Using a granular dataset of global government and corporate bond holdings by mutual funds domiciled in the world’s two largest currency areas, I estimate heterogeneous and time varying demand elasticities for bonds. Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different.

Inflation narratives and expectations

12/01/2025 European Central Bank Central banks

I study how demand-supply narrative disagreement between general and specialized newspapers can explain households’ absolute gap in inflation expectations with experts. I measure inflation narratives via a Causality Extraction algorithm that can identify causal relationships between events in a text and, hence, extract the perceived triggers of inflation. Causal relations can explain why narratives affect people’s beliefs and cannot be captured by dictionary methods, topic models, and word embeddings.

Global or regional safe assets: evidence from bond substitution patterns

12/01/2025 European Central Bank Central banks

This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors’ demand for bonds. Using a granular dataset of global government and corporate bond holdings by mutual funds domiciled in the world’s two largest currency areas, I estimate heterogeneous and time varying demand elasticities for bonds. Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different.

Inflation narratives and expectations

12/01/2025 European Central Bank Central banks

I study how demand-supply narrative disagreement between general and specialized newspapers can explain households’ absolute gap in inflation expectations with experts. I measure inflation narratives via a Causality Extraction algorithm that can identify causal relationships between events in a text and, hence, extract the perceived triggers of inflation. Causal relations can explain why narratives affect people’s beliefs and cannot be captured by dictionary methods, topic models, and word embeddings.

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