Financial institutions

Business investment: why is the euro area lagging behind the United States?

03/18/2025 European Central Bank Central banks

Business investment has grown less dynamically in the euro area than in the United States since the early 2000s, but in the aftermath of the pandemic the differential has been particularly marked. This box breaks business investment down by asset type and assesses some of the factors behind this disparity. Analysis suggests that demand, competitiveness, confidence and policy efficiency all contribute to higher tangible investment in the United States. Weaker investment growth in intangibles in the euro area seems to be related to less innovation at the firm level.

Banking in the negative: a vector error correction analysis of bank-specific lending and deposit rates

03/18/2025 European Central Bank Central banks

We analyze the impact of negative reference rates on the interest rate behavior of more than 500 Austrian banks from 2009Q1 to 2021Q4. Using panel vector error correction analysis with the Engle-Granger procedure in two steps, we establish a cointegration vector that links bank-specific lending rates, deposit rates, the 3-month Euribor, and the ECB Deposit Facility Rate. We propose two hypotheses to evaluate the effects of negative 3-month Euribor on this vector.

Banking in the negative: a vector error correction analysis of bank-specific lending and deposit rates

03/18/2025 European Central Bank Central banks

We analyze the impact of negative reference rates on the interest rate behavior of more than 500 Austrian banks from 2009Q1 to 2021Q4. Using panel vector error correction analysis with the Engle-Granger procedure in two steps, we establish a cointegration vector that links bank-specific lending rates, deposit rates, the 3-month Euribor, and the ECB Deposit Facility Rate. We propose two hypotheses to evaluate the effects of negative 3-month Euribor on this vector.

TLTRO III and banks' loan book rebalancing during the pandemic: less 'targeted' than intended for some?

03/18/2025 European Central Bank Central banks

Targeted longer-term refinancing operations (TLTROs)helped supporting bank lending to firms and to households in the course of the COVID-19 pandemic. The use of TLTRO funding for mortgage loans to households had explicitly not been included into the targeted loan categories of these schemes, thereby, limiting potential unintended side effects on residential real estate markets. This paper, by means of an empirical analysis, assesses the impact of the relaxation of TLTRO III conditions at the beginning of the COVID-19 pandemic on euro area banks' loan portfolio composition.

TLTRO III and banks' loan book rebalancing during the pandemic: less 'targeted' than intended for some?

03/18/2025 European Central Bank Central banks

Targeted longer-term refinancing operations (TLTROs)helped supporting bank lending to firms and to households in the course of the COVID-19 pandemic. The use of TLTRO funding for mortgage loans to households had explicitly not been included into the targeted loan categories of these schemes, thereby, limiting potential unintended side effects on residential real estate markets. This paper, by means of an empirical analysis, assesses the impact of the relaxation of TLTRO III conditions at the beginning of the COVID-19 pandemic on euro area banks' loan portfolio composition.

Fiscal requirements for price stability when households are not Ricardian

03/17/2025 European Central Bank Central banks

Are restrictions on fiscal policy necessary for monetary policy to be able to deliver price stability? When households are Ricardian, the net present value of future fiscal surpluses needs to equate the real value of government debt absent inflation. We show that when households are not Ricardian, fiscal requirements still exist but take the very different form of a limit on the debt-to-GDP ratio.

Fiscal requirements for price stability when households are not Ricardian

03/17/2025 European Central Bank Central banks

Are restrictions on fiscal policy necessary for monetary policy to be able to deliver price stability? When households are Ricardian, the net present value of future fiscal surpluses needs to equate the real value of government debt absent inflation. We show that when households are not Ricardian, fiscal requirements still exist but take the very different form of a limit on the debt-to-GDP ratio.

Euro area rent developments: insights from the CES

03/17/2025 European Central Bank Central banks

The ECB Consumer Expectations Survey (CES) provides regular and timely information on household rent expenditure. This information has been used to analyse developments and to construct an indicator for rent growth that is largely free of composition effects from respondents entering or leaving the panel of survey respondents. Combined with the rich micro data from the CES, this new indicator allows for a detailed analysis of rent growth and its drivers. According to this novel CES-based indicator, rent growth in the euro area peaked in the third quarter of 2023.

Developments in the recent euro area house price cycle

03/17/2025 European Central Bank Central banks

This article reviews developments in the euro area housing market during the recent house price cycle and compares them with previous cycles. The recent downturn in house prices was relatively mild and short-lived, as well as less pervasive, compared with the global financial crisis and the sovereign debt crisis and implied smaller adjustments to overvaluations. This limited decline in house prices effectively unwound the exceptional pandemic-related surge in housing demand and, therefore, did not bear the same hallmarks as an outright recession.

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