Financial institutions

The economic impact of floods

02/13/2025 European Central Bank Central banks

Major floods have become recurrent events in Europe and their frequency is set to increase with climate change. Drawing on several pieces of ECB analysis, we show that the economic effects depend largely on economic and institutional factors at the regional level. There is evidence of high-income regions “building back better”, whereas lower-income regions can suffer prolonged periods of lower activity. Insurance and spending on adaptation measures like flood defences can already contain the potential damages from further extreme weather events in the near future.

The role of demographics in recent developments in the unemployment rate

02/13/2025 European Central Bank Central banks

The euro area unemployment rate has been declining for the past two years. This box explores the role of labour supply factors in driving this decline. To this end, it examines in particular whether changes in the labour force composition of certain demographic groups have contributed to this trend. The results show that, even within the relatively short time frame considered, shifts in the labour force composition – and especially the rising proportions of older workers and workers with a tertiary education – have contributed to reducing the unemployment rate.

Are real incomes increasing or not? Household perceptions and their role for consumption

02/13/2025 European Central Bank Central banks

The inflation surge seen in the past few years has had a negative impact on consumer perceptions about real incomes. These perceptions seem to persist even as real income has actually improved over time. This behaviour, which can be seen as a form of pessimism, is particularly strong among lower and middle-income households and has had a negative impact on actual consumption. These findings underscore the importance of perceptions in economic behaviour.

The outlook for services inflation in the United States and the United Kingdom

02/13/2025 European Central Bank Central banks

While headline inflation has decelerated significantly across advanced economies in the past two years, services inflation has remained high. This box examines the key factors influencing services inflation in the United States and the United Kingdom, highlighting the role of labour market tightness and catch-up dynamics in non-rent services inflation, and the contribution of rent inflation to overall services inflation.

FEDS Paper: Heraclius: A Byzantine Fault Tolerant Database System with Potential for Modern Payments Systems

02/12/2025 Federal Reserve Central banks

James Lovejoy, Tarakaram Gollamudi, Jeremy Kassis, Narayanan Pillai, Jeremy Brotherton, and Eric ThompsonModern payments systems are critical infrastructure for the US and global economy, and they all utilize computing systems to facilitate transactions. These computing systems can be vulnerable to failures and an outage of a payment system could cause a serious ripple effect throughout the economy it supports.

FEDS Paper: Research in Commotion: Measuring AI Research and Development through Conference Call Transcripts

02/12/2025 Federal Reserve Central banks

Paul E. SotoThis paper introduces a novel measure of firm-level Artificial Intelligence (AI) Research & Development—the AIR Index—derived from the semantic similarity between earnings conference call transcripts and leading AI research papers. The AIR Index varies widely across industries, with sustained strength in computer and electronic manufacturing, and accelerating growth in computing infrastructure and educational services seen after the introduction of ChatGPT in November 2022.

IFDP Paper: Geopolitics Meets Monetary Policy: Decoding Their Impact on Cross-Border Bank Lending

02/12/2025 Federal Reserve Central banks

Swapan-Kumar Pradhan, Viktors Stebunovs, Előd Takáts, and Judit TemesvaryWe use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending.

Distressed assets and fiscal-monetary support: are AMCs a third way?

02/12/2025 European Central Bank Central banks

Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies.

Monetary policy and the firm-level labor share: a story about capital

02/12/2025 European Central Bank Central banks

We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights.

Digital money and finance: a critical review of terminology

02/11/2025 European Central Bank Central banks

The digitalisation of payments has accelerated over the last decades with the internet and ever faster and cheaper computing. Now, many believe that decentralised finance (“DeFi”) offers fundamentally new possibilities for trading, payments and settlement. Moreover, for a few years central banks have launched work on what has been called retail and wholesale central bank digital currencies (“CBDC”). Concurrent to the rise of innovative technologies has been the advent of new terminology, which is widely used, but which often seems to be biased, confusing, or is used inconsistently.

Financial institutions

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