European Central Bank

Green QE and carbon pricing: looking at potential tools to fight climate change

09/28/2022 European Central Bank Central banks

While there is broad consensus that carbon pricing is an effective instrument for combatting climate change, the potential contribution of central banks is still debated. Central banks around the world have adopted different strategies to consider climate change in their monetary policy frameworks. This article focuses on green quantitative easing (QE). Compared with a carbon tax, we find that green QE would contribute only moderately to reducing global temperatures, while partially crowding out green private investment.

Striking a bargain: narrative identification of wage bargaining shocks

07/27/2022 European Central Bank Central banks

Labour market developments are important drivers of the business cycle and are therefore closely watched by monetary policymakers. One process with significant macroeconomic ramifications are wage negotiations, where workers and employers bargain over the surplus income generated by an employment relationship. Bargaining power determines how this surplus is split between negotiating parties. However, it is unobserved, and can be driven by a number of factors.

Systemic risk and policy interventions: monetary and macroprudential policy

06/24/2022 European Central Bank Central banks

Throughout the world, the global financial crisis fostered the design and adoption of macroprudential policies to safeguard the financial system. This raises important questions for monetary policy, which, by contrast, primarily focuses on maintaining price stability. What, if any, is the relationship between (conventional) monetary policy and macroprudential policy? In particular, how does the effectiveness of macroprudential policies influence the conduct of monetary policy? This article reviews recent theoretical and empirical research addressing these questions.

Europe's growing league of small corporate bond issuers: new players, different game dynamics

06/15/2022 European Central Bank Central banks

While historically only very large firms issued in the European corporate bond market, recent years have seen the entry of many new players: small, private, and unrated issuers. Firm-level data show these new players face different game dynamics. They are disconnected from aggregate market movements and still depend heavily on banks. This means hey could potentially affect financial stability and be less responsive to policy interventions.

Tax thy neighbour: local corporate taxes and consumer prices across German regions

05/27/2022 European Central Bank Central banks

To what extent are corporate taxes passed on to consumers? And more generally, how do wholesaleproducers affect retail prices? Using data from Germany, where individual municipalities set local corporate taxrates, we shed new light on these questions. To estimate the impact of changes in producers’ tax rates onconsumer prices, we link 1,058 tax changes between 2013 and 2017 to changes in the retail prices of morethan 125,000 food and personal care products sold across Germany.

Household spending and fiscal support during the pandemic – the role of public perceptions

04/21/2022 European Central Bank Central banks

The coronavirus (COVID-19) pandemic shock posed an enormous challenge to fiscal policy in supporting household consumption. In this analysis, we report the results of a recent study (Georgarakos and Kenny, 2022) on the extent to which the pandemic-related fiscal interventions influenced consumers’ spending behaviour. The study finds that improving public perceptions about the adequacy of fiscal interventions incentivises spending. Importantly, this perceptions channel operates equally strongly for consumers who receive government support and for those who do not.

Monetary policy communication – past ECB policymakers commend Bank’s progress and call for more

03/24/2022 European Central Bank Central banks

A survey among former ECB policymakers about the Bank’s monetary policy communication provides broad support for recent innovations in communication practices. It suggests that communication with expert audiences is generally adequate. Nevertheless, it highlights room for improvement along several dimensions, in particular in communication with the wider public.

Monetary and macroprudential policies: trade-offs and interactions

02/24/2022 European Central Bank Central banks

There are always trade-offs to weigh up when taking monetary and macroprudential policy actions. Thechoice is between supporting the economy by ensuring a smooth supply of credit at favourableconditions, on the one hand, and containing financial stability risks, on the other hand. There are alsosignificant spillovers between the two policies since they are both implemented and transmitted throughthe financial system. Monetary and macroprudential authorities need to take these interactions intoaccount when deciding on interventions.

European Central Bank

Pages