European Central Bank

Climate change policies and technologies: diffusion and interaction with institutions and governance

02/14/2025 European Central Bank Central banks

Climate change is a global-scale structural change, affecting economies across the world, alongside global fragmentation, digitalisation and demographics. This paper analyses the diffusion of climate policies and technologies and the role of institutions and governance in that process. It discusses theory, models and data available to date, and the empirical evidence for the 20 European Union and all 40 countries covered by the OECD’s Environmental Policy Stringency index.

Institutional investors and house prices

02/13/2025 European Central Bank Central banks

Institutional investors, such as investment funds, are playing an increasingly important role in residential real estate markets. This raises the possibility that their actions might drive aggregate market outcomes and may change how and which macrofinancial shocks transmit to house prices. In a Bayesian vector autoregression setting, we show that a demand shock from institutional investors has a positive and persistent effect on aggregate euro area house price growth and mortgage lending volumes.

Mitigating fragility in open-ended investment funds: the role of redemption restrictions

02/13/2025 European Central Bank Central banks

Using supervisory data of alternative investment funds investing in bonds, I exploit the COVID-19 crisis to examine the effectiveness of redemption restrictions from a financial stability perspective. First, I find that redemption restrictions reduced outflows during the March 2020 market turmoil but did not result in higher outflows in the periods following the crisis episode. Second, I find that funds with higher redemption restrictions engaged less in procyclical cash hoarding during the COVID-19 crisis period, even after controlling for the size of their outflows.

Mitigating fragility in open-ended investment funds: the role of redemption restrictions

02/13/2025 European Central Bank Central banks

Using supervisory data of alternative investment funds investing in bonds, I exploit the COVID-19 crisis to examine the effectiveness of redemption restrictions from a financial stability perspective. First, I find that redemption restrictions reduced outflows during the March 2020 market turmoil but did not result in higher outflows in the periods following the crisis episode. Second, I find that funds with higher redemption restrictions engaged less in procyclical cash hoarding during the COVID-19 crisis period, even after controlling for the size of their outflows.

The outlook for services inflation in the United States and the United Kingdom

02/13/2025 European Central Bank Central banks

While headline inflation has decelerated significantly across advanced economies in the past two years, services inflation has remained high. This box examines the key factors influencing services inflation in the United States and the United Kingdom, highlighting the role of labour market tightness and catch-up dynamics in non-rent services inflation, and the contribution of rent inflation to overall services inflation.

From press conferences to speeches: the impact of the ECB’s monetary policy communication

02/13/2025 European Central Bank Central banks

Monetary policy communication is important for managing policy expectations and enhancing the effectiveness of central bank policy decisions. The prevalence of topics in the ECB’s communication has shifted over time with the focus of its work: from the creation and introduction of the euro to addressing financial crises with new policy instruments, and more recently, to tackling the effects of the 2021-22 inflation surges.

Changes to the Eurosystem collateral framework to foster greater harmonisation

02/13/2025 European Central Bank Central banks

The collateral framework for Eurosystem credit operations contributes to an effective, robust, flexible and efficient implementation of the ECB’s monetary policy. The framework has evolved over time, primarily in response to economic and financial market developments, supporting bank lending and the provision of liquidity. Recent Governing Council decisions will increase the harmonisation of the framework, while simultaneously preserving a broad collateral basis.

The role of demographics in recent developments in the unemployment rate

02/13/2025 European Central Bank Central banks

The euro area unemployment rate has been declining for the past two years. This box explores the role of labour supply factors in driving this decline. To this end, it examines in particular whether changes in the labour force composition of certain demographic groups have contributed to this trend. The results show that, even within the relatively short time frame considered, shifts in the labour force composition – and especially the rising proportions of older workers and workers with a tertiary education – have contributed to reducing the unemployment rate.

Are real incomes increasing or not? Household perceptions and their role for consumption

02/13/2025 European Central Bank Central banks

The inflation surge seen in the past few years has had a negative impact on consumer perceptions about real incomes. These perceptions seem to persist even as real income has actually improved over time. This behaviour, which can be seen as a form of pessimism, is particularly strong among lower and middle-income households and has had a negative impact on actual consumption. These findings underscore the importance of perceptions in economic behaviour.

The economic impact of floods

02/13/2025 European Central Bank Central banks

Major floods have become recurrent events in Europe and their frequency is set to increase with climate change. Drawing on several pieces of ECB analysis, we show that the economic effects depend largely on economic and institutional factors at the regional level. There is evidence of high-income regions “building back better”, whereas lower-income regions can suffer prolonged periods of lower activity. Insurance and spending on adaptation measures like flood defences can already contain the potential damages from further extreme weather events in the near future.

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