European Central Bank

Business cycles with pronounced inflation can have sectoral origins and often feature a growing share of price-adjusting firms. Rationalizing such phenomena requires enhancing our modeling toolkit. We do that by building a non-linear equilibrium multi-sector framework featuring a general input-output network and optimal decisions on the timing and size of price adjustments. The interaction of our ingredients creates equilibrium cascades: large movements in aggregates trigger price adjustment decisions on the extensive margin.

This study examines the drivers of inflation levels, inflation variability, and growth variability collectively representing long-term central bank performance across 37 advanced economies in the Great Moderation era. A key finding is that central bank performance is consistently linked to the overall quality of institutions, while central bank-specific factors such as independence, exchange rate regimes, or inflation targeting show no significant impact. The analysis is extended to the 2022 inflation resurgence, using pre-2022 country characteristics.

This study introduces a novel approach to dictionary-based sentiment analysis that extracts valuable insights from economic newspaper articles in the euro area without requiring article translation. We develop sentiment indices that accurately measure economic, labour, and inflation perceptions in Germany, France, Italy, and Spain using native-language texts. The aggregation of these country-specific sentiments provides a reliable indicator for the euro area as a whole, demonstrating the effectiveness of our approach in several nowcasting and forecasting experiments.

How large are the distributional effects of monetary policy in the euro area? Does heterogeneity matter for monetary policy? We answer these questions based on the results of research projects conducted at the ECB under the aegis of a dedicated research task force. A monetary policy easing causes a temporary reduction in consumption inequality; this is the case for both conventional and unconventional monetary policy.