Central banks

Pricing or panicking? Commercial real estate markets and climate change

05/21/2025 European Central Bank Central banks

This paper provides the first study of climate risk pricing in euro area commercial real estate markets. We pay particular attention to changes in risk pricing over time, as a sudden market shift may significantly amplify the financial stability and macroeconomic implications of these risks. We find evidence of investors applying a penalty to buildings exposed to physical risk and that this penalty has increased significantly over the 2007-2023 period we study, particularly for properties exposed to risks associated with climate change.

The poor, the rich, and the credit channel of monetary policy

05/20/2025 European Central Bank Central banks

Monetary policy can have contrasting effects on economic inequality via distinct channels. We examine the effect working via the credit channel, whereby monetary policy induces heterogeneous access to credit for business owners based on their wealth. Using unique data on business loan applications from small firms, we find that monetary expansions increase the bank’s likelihood to approve loan applications, particularly so for low-wealth entrepreneurs, translating to higher future income and wealth.

The impact of monetary policy and macroprudential policy on corporate lending rates in the Euro area

05/20/2025 European Central Bank Central banks

We examine the differential impact of monetary policy and macroprudential policy on bank lending rates in the euro area, using granular corporate loan-level data for the period 2019-2023. We find three results: First, consistent with the predictions of a stylized theoretical model of bank lending rates, monetary policy exerts an order of magnitude larger impact on lending rates than macroprudential policy. Second, the effectiveness of monetary policy transmission weakens when interest rates are close to or below zero.

Liquidity dependencies in the euro area

05/19/2025 European Central Bank Central banks

This study investigates to what extent the significant liquidity injections by the ECB over the past 15 years may have created a dependency by banks on central bank liquidity itself. Following Acharya et al. (2024), I examine whether the ECB's liquidity provision changed banks' incentives to increase liquid deposits, potentially heightening their susceptibility to liquidity shocks.

From purchases to exit: central bank interventions in corporate debt markets

05/13/2025 European Central Bank Central banks

Central banks increasingly act as market-makers-of-last-resort, yet the impact and exit of such interventions remain poorly understood. Using euro-area data, we analyze the cycle of market freeze, intervention, and exit in short-term debt markets. A run on money market funds (MMFs) triggered a collapse in these markets in March 2020. Firms replaced only 27% of lost funding through credit lines. The European Central Bank intervened, fully replacing MMFs for some firms and allowing them to issue more debt at lower rates and longer maturities.

Rational inattention during an RCT

05/12/2025 European Central Bank Central banks

We introduce an information provision experiment into a standard dynamic rational inattention model. We derive analytical results about how the treatment effect varies with characteristics of the environment and the individual. We use these results to discuss findings in the empirical literature on information provision experiments that can be explained by rational inattention of survey respondents and what this interpretation implies about behavior outside the survey.

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