European Central Bank

Financial market volatility and economic policy uncertainty: bridging the gap

06/16/2025 European Central Bank Central banks

This box explores the relationship between financial market volatility and economic policy uncertainty (EPU). Historically, financial market volatility and news-based measures of EPU have displayed close co-movement, albeit diverging at times and across countries. More recently, the rise in euro area EPU has reflected an intensification of an upward trend observed over a number of years, largely driven by developments in Germany.

Determinants of inflation expectations of firms in the SAFE

06/16/2025 European Central Bank Central banks

This box explores the factors shaping the euro area inflation expectations of firms in the survey on the access to finance of enterprises (SAFE). It finds that the short-term inflation expectations of firms are more volatile and closely tied to current inflation trends compared with their medium-term and long-term expectations. The determinants of these expectations considered in the analysis include the individual characteristics of firms, the sectors these operate in, their country of operation, their anticipated business decisions and euro area inflation.

A new model to forecast energy inflation in the euro area

06/12/2025 European Central Bank Central banks

Energy inflation is a major source of headline inflation volatility and forecast errors, therefore it is critical to model it accurately. This paper introduces a novel suite of Bayesian VAR models for euro area HICP energy inflation, which adopts a granular, bottom-up approach – disaggregating energy into subcomponents, such as fuels, gas, and electricity. The suite incorporates key features for energy prices: stochastic volatility, outlier correction, high-frequency indicators, and pre-tax price modelling.

From losses to buffer - calibrating the positive neutral CCyB rate in the euro area

06/11/2025 European Central Bank Central banks

We study the impact of cyclical systemic risks on banks’ profitability in the euro area within a panel quantile regression model, with the ultimate goal to inform the calibration of the Countercyclical Capital buffer (CCyB). Compared to previous studies, we augment our model to control for unobserved bank-specific characteristics and year-fixed effects and find a lower degree of heterogeneity in the estimated effects across the conditional distribution of bank returns on assets.

Organized crime and banks: assessing the effects of anti-mafia police actions on lending

06/11/2025 European Central Bank Central banks

This study examines how dismantling Mafia-connected firms affects banks’ lending practices. Using a unique dataset of 667 such firms and loan-level data from the European Central Bank, our analysis shows that anti-Mafia operations precede an increase in bank loans to businesses that operate in areas that are directly affected by these actions. Specifically, overall loan volumes increase by approximately 0.8 percent, which translates to an increase of €1.38 billion in bank loans to these firms.

Private safe asset supply and financial instability

05/27/2025 European Central Bank Central banks

This article studies the supply of private safe assets by banks and its implications for financial stability. Banks originate loans and improve loan quality through hidden screening efforts. They can then create safe assets by issuing debt backed by the safe payoffs, from both loans they have originated and a diversified pool of loans from other banks. The interaction between banks’ screening efforts and diversification decisions determines the volume of safe assets they supply.

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.

Just another crypto boom? Mind the blind spots

05/21/2025 European Central Bank Central banks

The market capitalisation of crypto-assets has surged recently, fuelled by positive and broadening investor interest, including from traditional finance. Several key financial stability risks associated with crypto-assets have been identified in past editions of this publication and by the Financial Stability Board. They include, among others, interconnectedness with traditional finance

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.

Pages

Subscribe to European Central Bank