European Central Bank

Simulating dynamic balance sheet reactions and macroprudential policy using the 2025 EU-wide stress test

11/19/2025 European Central Bank Central banks

Stress test simulations can enhance our understanding of the interplay between bank actions, the real economy and macroprudential buffers. Leveraging BEAST, the ECB’s workhorse top-down stress test model, this article explores impacts stemming from bank behavioural reactions by simulating them under the adverse scenario of the 2025 EU-wide stress test. The article shows that allowing banks to adjust their balance sheets only improves their capital ratios to a minor extent compared with simulations where they are assumed to keep their balance sheets constant.

Integrating climate risk into the 2025 EU-wide stress test: the effects of climate risks for firms

11/19/2025 European Central Bank Central banks

As authorities across the euro area work towards including climate risks into regular stress-testing frameworks, this article offers a starting point for assessing bank resilience to climate risks that materialise under a short-term horizon. This is relevant since acute physical risks and abrupt policy changes can also materialise at short notice and affect the balance sheet of financial institutions.

Labor supply response to windfall gains

11/18/2025 European Central Bank Central banks

Using a large survey of euro area consumers, we conduct an experiment in which respondents report how they would adjust their labor market participation, hours worked, and job search effort (if not employed) in response to randomly assigned windfall gain scenarios. Windfall gains reduce labor supply, but only when the gains are substantial. At the extensive margin, gains of €25,000 or less have no effects, while gains between €50,000 and €100,000 reduce the probability of working by 1.5 to 3.5 percentage points.

Labor supply response to windfall gains

11/18/2025 European Central Bank Central banks

Using a large survey of euro area consumers, we conduct an experiment in which respondents report how they would adjust their labor market participation, hours worked, and job search effort (if not employed) in response to randomly assigned windfall gain scenarios. Windfall gains reduce labor supply, but only when the gains are substantial. At the extensive margin, gains of €25,000 or less have no effects, while gains between €50,000 and €100,000 reduce the probability of working by 1.5 to 3.5 percentage points.

The fiscal sources of euro area inflation through the lens of the Bernanke-Blanchard model

11/17/2025 European Central Bank Central banks

We estimate the contribution of discretionary fiscal policy measures to euro area inflation in the post-pandemic era using an extension of Bernanke and Blanchard (2024b)’s semi-structural model. Since the pandemic, aggregate discretionary fiscal measures had a modest yet progressively increasing positive contribution to inflation that partly worked through an indirect effect on wage growth and inflation expectations. However, net indirect taxes helped to contain inflationary pressures, both during the pandemic and energy crises.

The fiscal sources of euro area inflation through the lens of the Bernanke-Blanchard model

11/17/2025 European Central Bank Central banks

We estimate the contribution of discretionary fiscal policy measures to euro area inflation in the post-pandemic era using an extension of Bernanke and Blanchard (2024b)’s semi-structural model. Since the pandemic, aggregate discretionary fiscal measures had a modest yet progressively increasing positive contribution to inflation that partly worked through an indirect effect on wage growth and inflation expectations. However, net indirect taxes helped to contain inflationary pressures, both during the pandemic and energy crises.

Supply chain decoupling in green products: a granular input-output analysis

11/13/2025 European Central Bank Central banks

This paper introduces a novel methodology to enhance the granularity of Inter-Country Input-Output (ICIO) tables. While our general methodology can be applied to any products of interest, we show that the well-documented distortions caused by sectoral aggregation in ICIO tables are particularly pronounced for products with a low substitutability, such as those essential to the green transition (e.g. electric batteries, rare earths). We therefore apply our framework to construct a disaggregated ICIO table that singles out 129 products essential to the energy transition.

Supply chain decoupling in green products: a granular input-output analysis

11/13/2025 European Central Bank Central banks

This paper introduces a novel methodology to enhance the granularity of Inter-Country Input-Output (ICIO) tables. While our general methodology can be applied to any products of interest, we show that the well-documented distortions caused by sectoral aggregation in ICIO tables are particularly pronounced for products with a low substitutability, such as those essential to the green transition (e.g. electric batteries, rare earths). We therefore apply our framework to construct a disaggregated ICIO table that singles out 129 products essential to the energy transition.

Not all prices disinflate alike: disentangling the dynamics of sticky and flexible-price items

11/13/2025 European Central Bank Central banks

This box draws on micro price evidence on the frequency of price adjustments to disentangle the roles of sticky and flexible-price items in shaping recent disinflation dynamics in the euro area. Inflation of sticky core items has eased only gradually, while flexible core inflation has returned closer to its pre-pandemic average. Among subcategories, flexible goods drove the surge in non-energy industrial goods inflation, while the persistence of services inflation reflects contributions from both sticky and flexible-price items.

And yet we move: evidence on job-to-job transitions in the euro area

11/13/2025 European Central Bank Central banks

Job-to-job transitions in the euro area are a complementary indicator to standard labour market statistics. These flows, defined as transitions between jobs without a spell of unemployment, capture important adjustment mechanisms in addition to the unemployment rate. Using administrative data for Germany, Spain and France, our analysis highlights the procyclical nature of job-to-job transitions: mobility declines during downturns and rises during expansions. Heterogeneity is also evident across occupations and age groups.

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