European Central Bank

For whom the bill tolls: redistributive consequences of a monetary-fiscal stimulus

11/08/2024 European Central Bank Central banks

During the COVID-19 pandemic, governments in the euro area sharply increased spending while the European Central Bank eased financing conditions. We use this episode to assess how such a concerted monetary-fiscal stimulus redistributes welfare between various age cohorts. Our assessment involves not only the income side of household balance sheets (mainly direct effects of transfers) but also the more obscure financing side that, to a substantial degree, occurred via indirect effects (with a prominent role of the inflation tax).

Financial returns, sentiment and market volatility. A dynamic assessment.

11/08/2024 European Central Bank Central banks

In 1936, John Maynard Keynes proposed that emotions and instincts are pivotal in decision-making, particularly for investors. Both positive and negative moods can influence judgments and decisions, extending to economic and financial choices. Intuitions, emotional states, and biases significantly shape how people think and act. Measuring mood or sentiment is challenging, but surveys and data collection methods, such as confidence indices and consensus forecasts, offer some solutions.

Time-varying agglomeration economies and aggregate wage growth

11/07/2024 European Central Bank Central banks

We examine how agglomeration economies have influenced labour earnings in France over forty years. First, we define cities dynamically to account for their changing footprints. Our findings show that aggregate wage growth is mainly driven by growth in larger cities, rather than smaller ones or by population shifts across cities. We estimate individual wages incorporating time-varying city and individual fixed effects, and analyse how city characteristics (employment density, area, and market access) and their returns impact wage evolution.

Time-varying agglomeration economies and aggregate wage growth

11/07/2024 European Central Bank Central banks

Fiscal policy and inflation: accounting for non-linearities in government debt

11/07/2024 European Central Bank Central banks

This paper investigates the interplay between discretionary fiscal policy and inflation in the euro area, emphasizing the role of public debt levels in modulating this relationship. It explores how fiscal expansions or contractions influence inflationary pressures, particularly under varying debt conditions. The analysis reveals that fiscal policy’s effect on inflation is non-linear, with debt levels significantly affecting the inflationary outcome of fiscal measures.

Fiscal policy and inflation: accounting for non-linearities in government debt

11/07/2024 European Central Bank Central banks

Mapping the maze: a system-wide analysis of commercial real estate exposures and risks

11/05/2024 European Central Bank Central banks

This article analyses the complex linkages between commercial real estate (CRE) markets and the financial system. Examining data from a wide range of sources this article presents the first system-wide mapping of CRE exposures in the euro area. The exercise identifies several sectors – real estate companies, real estate investment funds and real estate investment trusts – with particularly large CRE exposures. Structural vulnerabilities among these key players increase their exposure to CRE market shocks and the likelihood that they could amplify these shocks.

The link between oil prices and the US dollar: evidence and economic implications

10/31/2024 European Central Bank Central banks

In recent years rising oil prices have often coincided with a strengthening of the US dollar. A positive correlation means that oil imports priced in local currencies become more expensive for oil importers such as the euro area, adding to inflation dynamics. Historically, there has been no systematic co-movement between oil prices and the US dollar. However, recent studies suggest that a positive correlation might have become the new normal since the United States became a significant oil exporter.

Decoding revisions in policy rate expectations: insights from the Survey of Monetary Analysts

10/31/2024 European Central Bank Central banks

This box analyses the revisions in policy rate path expectations observed in the Survey of Monetary Analysts (SMA) and identifies key drivers of these revisions. Amid the interest rate hikes of 2022 and 2023, financial markets and analysts made frequent and sizeable adjustments to their expectations for ECB policy rate levels. SMA participants’ macroeconomic expectations, particularly changes regarding headline inflation and GDP growth, played a significant role in shaping revisions to expectations for deposit facility rate (DFR) levels, especially during the surge in inflation.

The impact of special-purpose entities on euro area cross-border financial linkages

10/31/2024 European Central Bank Central banks

This box presents newly released data on the activities of special-purpose entities (SPEs) in the external sector of the euro area. It shows that SPEs make a significant contribution to cross-border financial linkages. Overall, SPEs account for around a third of euro area foreign direct investment positions and more than 10% of total euro area cross-border financial linkages. Their importance varies substantially across countries. Although SPEs inflate the gross external positions of the euro area, their impact on the net international investment position is limited.

European Central Bank

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