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.

A new partnership, launched at The University of Manchester today, will see existing teachers offered training to deliver A Level economics alongside their core subject.

This box explores the newly available five-year-ahead inflation expectations collected in the ECB Consumer Expectations Survey (CES). While consumers’ beliefs about longer-term inflation expectations are characterised by substantial heterogeneity and dispersion, the median five-year-ahead expectations have been close to the ECB's 2% inflation target since September 2024. This relative stability contrasts with more variable one-year and three-year expectations, which have been more sensitive to actual changes in inflation.

This box provides a model-based analysis of the impact of discretionary fiscal policy measures on economic growth and inflation since the start of the COVID-19 pandemic, as reflected in the March 2025 ECB staff macroeconomic projections for the euro area. Fiscal policy lent substantial support to the euro area economy in response to the pandemic and the energy crisis, while adding to public deficits and debt.