Central banks

We propose a novel empirical structural inflation model that captures non-linear shock transmission using a Bayesian machine learning framework that combines VARs with non-linear structural factor models. Unlike traditional linear models, our approach allows for non-linear effects at all impulse response horizons. Identification is achieved via sign, zero, and magnitude restrictions within the factor model. Applying our method to euro area energy shocks, we find that inflation reacts disproportionately to large shocks, while small shocks trigger no significant response.

The statistical in-house credit assessment systems (S-ICASs) of the national central banks of the euro area are quantitative systems which can assess the credit quality of a large number of small and medium-sized enterprises in an automated manner. These can help broaden the set of eligible credit claims accepted as collateral in monetary policy operations.

This box examines the effects of the tariffs imposed by the first Trump Administration in 2018. It shows that there was a significant decline in Chinese exports to the United States. Despite the potential for increased competitiveness, the euro area did not increase its market share in the United States. Chinese exports found alternative destinations, including South and South-East Asia and the euro area. The analysis highlights the potential channels through which US tariffs on Chinese goods could affect the euro area.

Average hours worked (AHW) have been declining in recent years, falling particularly strongly during the pandemic before returning to trend. This box examines the key drivers behind the decline in AHW, with two factors playing a dominant role. First, the proportion of employees working zero hours during the reference week spiked during the pandemic – owing to the closure of businesses and higher sick leave rates – and recovered only slowly. Second, the proportion of employees working very long hours has continued to fall over the past decade.