Financial institutions

Inflation (de-)anchoring in the euro area

07/31/2024 European Central Bank Central banks

This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, π∗t , is applied to inflation-linked swap (ILS) rates, while taking into account survey-basedinflation forecasts. Estimates of π∗t have been close to 2% since the mid-2000s, indicating that long-term inflation expectations have overall remained well anchored to the ECB’s inflation objective.

IEO evaluation of the PRA’s approach to the secondary competitiveness and growth objective

07/30/2024 Bank of England Central banks

In December 2023 the Bank’s Court of Directors commissioned its Independent Evaluation Office to conduct an evaluation of the Prudential Regulation Authority’s approach to its new objective.

Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests

07/30/2024 European Central Bank Central banks

This paper examines the use of ETFs by open-ended investment funds in the euro area to manage liquidity. We find that during the COVID-19 market turmoil, investment funds were the most run-prone investor type in the market for ETFs. We also show that open-ended funds that faced larger outflows in March 2020 scaled down their ETF holdings by a larger amount. These results are consistent with open-ended funds passing on their outflows to the ETF shares they held.

Marrying fiscal rules & investment: a central fiscal capacity for Europe

07/30/2024 European Central Bank Central banks

The European fiscal governance framework remains incomplete, hindering policy coordination during economic shocks and affecting the transmission of the single monetary policy. High public debt and low public investment worsen resilience across Member States. Many policymakers, institutions, and academics support establishing a central fiscal capacity (CFC) as a solution. Against this backdrop, we propose a framework to assess a CFC in the euro area, aimed at stabilizing the business cycle, promoting sovereign debt sustainability, and reducing procyclicality in public investment.

Bank of England establishes Cost Benefit Analysis Panel

07/30/2024 Bank of England Central banks

The Prudential Regulation Authority and Bank of England have established a new cost benefit analysis panel.

The Bank of England’s approach to innovation in money and payments

07/30/2024 Bank of England Central banks

The Bank of England has today published a Discussion Paper on its approach to innovation in money and payments.

Reallocation, productivity, and monetary policy in an energy crisis

07/29/2024 European Central Bank Central banks

This paper introduces a New Keynesian multi-sector industry model that integrates firm heterogeneity, entry, and exit dynamics, while considering energy production from both fossil fuels and renewables. We investigate the effects of a sustained increase in fossil fuel prices on sectoral size, labor productivity, and inflation. A hike in the price of fossil resources results in higher energy prices.

Beyond borders: how geopolitics is reshaping trade

07/29/2024 European Central Bank Central banks

Rising trade tensions, a spate of trade-inhibiting policy measures and a weakening of multilateral institutions have sparked a growing concern about the potential implications of global trade fragmentation. Yet, empirical evidence that geopolitical considerations are already materially affecting trade flows is scant. In this study, we quantify the impact of geopolitical tensions on trade of manufacturing goods over the period 2012-2022 in a structural gravity framework.

Sebastian Walsh appointed as Head of Leeds at the Bank of England

07/26/2024 Bank of England Central banks

The Governor of the Bank of England, Andrew Bailey, has today announced that Sebastian Walsh is to become the newly appointed Head of Leeds.

Bail-in in action

07/26/2024 European Central Bank Central banks

In the aftermath of the European sovereign debt crisis, the question of who should bear the burden of banking crises has been a cornerstone of the new supervisory framework in Europe. We evaluate the bail-in regulation (BRRD) for bank bond holdings using a proprietary database covering holdings of all euro-denominated securities. We focus on hard-to-value bailinable bank bonds and show that banks increased their holdings of bailinable bank bonds while households and non-financial corporations reduced their holdings of bailinable bonds issued by riskier banks.

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