Analysis

Identifying indicators of systemic risk

In the aftermath of the global financial crisis, a consensus rapidly emerged that systemic risk – a central concept in financial stability – needed to be contained going forward. However, to this day experts cannot agree on how to measure systemic risk in the first place, with researchers having proposed a plethora of indicators. This column proposes an analytical approach designed to lend structure to this universe of indicators for measuring systemic risk.

The populist damage to the trading system

Around the world, populism has weaponised anxieties over globalisation and other forms of social change. This column argues that populist trade policies have damaged the global trading system through protectionist policies themselves and by undermining the rules and norms of the WTO. The author suggests that the Trump administration’s national security tariffs and Brexit have inflicted the greatest populist damage on trade rules and trade integration so far and that economic and institutional reforms will be necessary to break the populist influence on trade policy.

Digitalisation and the future of banking

New technologies are changing how banks produce and provide financial services. These changes have implications for traditional banks, creating novel sources of systemic risk which could in turn pose regulatory and policy challenges. This column introduces a new report by the Advisory Scientific Committee of the European Systemic Risk Board that discusses the impact that digitalisation may have on the structure of the European banking system. Based on three scenarios for the future development of European banking, the authors derive an array of macroprudential policy recommendations.

Fable of the Squirrels: New Research on Wealth Inequality Among Animals Sparks Debate on Human Economies

Can we live by values of mutual aid and the sharing of resources, or are we destined for heavily stratified inequality? As long as there have been economies – and one-percenters benefiting from their design -- there have been arguments about the “naturalness” of unequal conditions. We’re selfish creatures, so the argument goes, and some of us will just naturally be better off. Suck it up.

Working from home and corporate real estate

As employers and employees established ways of working remotely to limit physical interaction during outbreaks of Covid-19, teleworking became increasingly routine. This column examines how corporate real-estate market participants adjusted to the growth of teleworking in France, and finds that it has already made a noticeable difference in office markets. In départements more exposed to telework, the pandemic prompted higher vacancy rates, less construction, and lower prices. Forward-looking indicators suggest that market participants believe the shift to teleworking will endure.

The impact of shortages on manufacturing in the EU

Shortages in material and equipment weighed heavily on activity and sentiment in the European economy in 2021. This column uses cross-country and cross-sector data from the European Commission’s Business and Consumer Surveys and finds a strong negative relationship between shortages and industrial output. Shortages appear to have detracted some 5 percentage points from the EU manufacturing output growth between January and October 2021.

Reducing public debt need not be a punishment

An important vulnerability of the EU economy is high public debt levels. This column proposes revisions to the EU fiscal rules to stimulate debt reduction, which would create budgetary room for stabilisation and growth-promoting spending and also support growth convergence among member states. Climate investment should not interfere with the fiscal rules but be financed through an EU fund, in line with the idea of subsidiarity. It should co-exist with uniform pricing of all greenhouse gas emissions.

Tracking business dynamism during the COVID-19 pandemic

Business dynamism is key for creative destruction and to foster resource reallocation – both crucial elements of long-run economic growth. This column uses a new data visualisation tool to reveal large sector- and country-level heterogeneity in the impact on business dynamism of the COVID-19 crisis in 2020 and in recovery. Initially, firm entry fell sharply in all countries, but the pace of recovery varied across countries. Bankruptcies fell and remained below pre-crisis levels well into 2021.

The Mussa puzzle and the optimal exchange rate policy

The Mussa puzzle refers to the existence of a large and sudden jump in the volatility of the real exchange rate after the adoption of a floating exchange rate regime in 1973. It is a central piece of evidence in favour of monetary non-neutrality. In contrast to conventional wisdom, this column argues that the puzzle cannot be explained with sticky prices, and instead provides strong evidence in favour of monetary transmission via the financial market. This has important consequences for the design of optimal monetary and exchange rate policy.

Views on monetary policy communication by former ECB policymakers

Central bank communication, like monetary policy itself, has evolved significantly since the global financial crisis. This column reports on a survey among former ECB policymakers on the ECB’s monetary policy communication, which provides broad support for recent innovations in communication practices and suggests that communication with expert audiences is generally adequate. Nevertheless, it highlights some room for improvement along several dimensions, in particular related to communication with the wider public.

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