Financial institutions

Monetary asmmetries without (and with) price stickiness

04/19/2024 European Central Bank Central banks

The evidence suggests that monetary policy transmission is asymmetric over the business cycle. Interacting financing frictions with a preference for liquidity provides an explanation for this fact. Our mechanism generates monetary asymmetries in a model that jointly reproduces a set of asset market and business cycle facts. Accounting for the joint dynamics of asset prices and business cycle fluctuations is key; in a variant of the model that is unable to produce realistic macro-finance implications, monetary asymmetries disappear.

Central bank asset purchases and auction cycles revisited: new evidence from the euro area

04/19/2024 European Central Bank Central banks

This study provides new evidence on the relationship between unconventional monetary policy and auction cycles in the euro area. Using proprietary data on purchases of public sector securities implemented by the Eurosystem, the paper examines the flow effects of asset purchase programmes on 10-year government bond yields in secondary markets around dates of public debt auctions. The findings indicate that Eurosystem’s asset purchase flows mitigate yield cycles during auction periods and counteract the amplification impact of market volatility.

Monetary asmmetries without (and with) price stickiness

04/19/2024 European Central Bank Central banks

The evidence suggests that monetary policy transmission is asymmetric over the business cycle. Interacting financing frictions with a preference for liquidity provides an explanation for this fact. Our mechanism generates monetary asymmetries in a model that jointly reproduces a set of asset market and business cycle facts. Accounting for the joint dynamics of asset prices and business cycle fluctuations is key; in a variant of the model that is unable to produce realistic macro-finance implications, monetary asymmetries disappear.

Central bank asset purchases and auction cycles revisited: new evidence from the euro area

04/19/2024 European Central Bank Central banks

This study provides new evidence on the relationship between unconventional monetary policy and auction cycles in the euro area. Using proprietary data on purchases of public sector securities implemented by the Eurosystem, the paper examines the flow effects of asset purchase programmes on 10-year government bond yields in secondary markets around dates of public debt auctions. The findings indicate that Eurosystem’s asset purchase flows mitigate yield cycles during auction periods and counteract the amplification impact of market volatility.

Unlocking efficiency: optimal monetary policy when capital misallocation matters

04/19/2024 European Central Bank Central banks

Some firms have the capacity to contribute significantly to economic productivity but cannot obtain the necessary capital for investment, which instead flows to less productive firms. While “misallocation of capital” and its detrimental impact on productivity is traditionally beyond the scope of central banks, monetary policy can influence it through firms’ investment decisions. Using a New Keynesian model and granular data on Spanish firms, our results show that expansionary monetary policy reduces capital misallocation.

Climate change-related statistical indicators

04/18/2024 European Central Bank Central banks

Climate change entails risks to the global economy and impacts financial stability. Beyond managing related risks, the financial sector can also contribute to the transition toward a net-zero economy. Guided by the ECB’s climate and nature plan, this paper discusses the methodology and key findings of statistical indicators developed in three areas: sustainable finance, carbon emissions, and physical risk. Our work aims to enhance data transparency in climate change analysis, while informing monetary policy, financial stability and banking supervision.

Digital euro safeguards – protecting financial stability and liquidity in the banking sector

04/17/2024 European Central Bank Central banks

A digital euro would provide the general public with an additional means of payment in the form of risk-free central bank money in digital form that is universally accepted for digital payments across the euro area. A digital euro would offer a wide range of financial stability benefits, including safeguarding the role of public money and strengthening the strategic autonomy and monetary sovereignty of the euro area in the digital era. It would be designed to have no material impact on financial stability or the transmission of monetary policy.

Transactional demand for central bank digital currency

04/16/2024 European Central Bank Central banks

We shed light on the demand for a central bank digital currency (CBDC) as a means of payment, based on survey payment data. We provide a quantitative framework to assess transactional demand for CBDC at the point of sale, accommodating a wide range of design choices. We develop a structural model of payment means adoption and usage and estimate CBDC demand based on individuals’ preferences for payment method attributes.

Transactional demand for central bank digital currency

04/16/2024 European Central Bank Central banks

We shed light on the demand for a central bank digital currency (CBDC) as a means of payment, based on survey payment data. We provide a quantitative framework to assess transactional demand for CBDC at the point of sale, accommodating a wide range of design choices. We develop a structural model of payment means adoption and usage and estimate CBDC demand based on individuals’ preferences for payment method attributes.

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