Central banks

Recent changes in consumers’ medium-term inflation expectations – a detailed look

02/24/2023 European Central Bank Central banks

In this article we exploit the richness and flexible design of the CES to explore in detail recent changes in consumers’ medium-term inflation expectations. The data suggest that over the course of 2022 these expectations became less well anchored around the ECB’s 2% inflation target. By taking the necessary actions and actively communicating how monetary policy is contributing to stabilising future inflation, the ECB can help strengthen public trust and prevent recent price and cost shocks from having longer-lasting inflationary effects.

Recent changes in consumers’ medium-term inflation expectations – a detailed look

02/24/2023 European Central Bank Central banks

Recent changes in consumers’ medium-term inflation expectations – a detailed look

02/24/2023 European Central Bank Central banks

The safe asset potential of EU-issued bonds

01/16/2023 European Central Bank Central banks

A safe asset is of high credit quality, retains its value in bad times and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020 COVID-19 pandemic recession. Recent issuances under the EU’s SURE and NGEU initiatives helped improve EU bonds' market liquidity from previously low levels, also reducing liquidity risk premia. Eurosystem purchases and holdings of EU bonds did not impair market liquidity.

Model-based regulation: lending in times of Covid

12/20/2022 European Central Bank Central banks

When the coronavirus (COVID-19) pandemic struck, it was vital for many firms to retain access to funding from banks. In order to calculate their capital requirements, banks measure borrowers’ credit risk using either “their own”, internal ratings-based (IRB) models, or a standardised approach. This analysis examines whether model-based bank regulation constrained lending during the COVID-19 crisis. Results show that banks using their own models extended less credit than banks using a standardised approach.

Financial stability and macroprudential regulation under diagnostic expectations

11/23/2022 European Central Bank Central banks

Recent empirical findings (Bordalo et al., 2018, 2019; Greenwood et al., 2022) have vindicated the view thatsystemic risk in financial markets is also influenced by cognitive misperceptions about future economicdevelopments in addition to being influenced by financial frictions. Most of the literature on macroprudentialregulation, nonetheless, has omitted those misperceptions and instead has derived policy implicationsassuming rational expectations.

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