European Central Bank

Sectoral interconnectedness in the euro area economies: insights from network analysis

05/05/2026 European Central Bank Central banks

Using who-to-whom data for the last quarter of 2024, I build networks of financial interconnections in the euro area countries. After representing them in chord diagrams, I consider centrality metrics and find that banks dominate, with four exceptions: Cyprus, Ireland, Luxembourg and Malta. In these countries, other financial institutions and investment funds are at the core, with limited links to domestic sectors and strong ones with the rest of the world.

Disciplining digital risk: evidence from cyber stress tests

05/05/2026 European Central Bank Central banks

Investment in cybersecurity in an interconnected banking system has public-good proper- ties: positive externalities can generate systemic underinvestment. Using conﬁdential supervi- sory data from the European Central Bank, we ﬁrst identify “laggard” European banks that underinvest relative to their cyber-risk proﬁles, and then examine how supervisory scrutiny af- fects their incentives to invest. We exploit the 2024 ECB Cyber Resilience Stress Test (CyRST) as a quasi-natural experiment.

Beyond borders, within societies: inequality and the global transmission of US monetary policy

05/04/2026 European Central Bank Central banks

This paper provides novel evidence on how income inequality shapes the heterogeneity of US monetary policy spillovers to GDP across foreign economies. Using state-dependent local projections and exploiting variation in disposable income inequality across 87 countries over 1966-2020, we show that household heterogeneity influences how foreign GDP responds to a US monetary tightening. GDP contracts up to one and a half times more when inequality is above average. However, while higher inequality amplifies negative spillovers in advanced economies, it mitigates them in emerging markets.

Messaging to a public with its own view on central bank confidence

04/22/2026 European Central Bank Central banks

We model central bank communication when there is disagreement between the markets and the central bank about the central bank’s confidence surrounding its point forecast. We show that such a disagreement leads the markets to misunderstand a given announcement, so that the markets either over- or underreact to the bank’s announcement. Communicating only a part of the central bank’s information set is a way to correct the markets’ over- or underreaction.

Bank to non-bank lending and the reallocation of credit

04/16/2026 European Central Bank Central banks

We analyze how bank lending to non-bank financial institutions (NBFIs) affects credit supply to the real economy. Using granular supervisory and loan-level data, we document rapid growth in bank lending to NBFIs relative to lending to non-financial firms. This growth is driven primarily by reverse repos to NBFIs that invest in securities, e.g., investment funds, rather than by loans to NBFIs that extend credit to firms, e.g., private credit funds.

Quantile selection in the gender pay gap

04/14/2026 European Central Bank Central banks

We propose a new approach to estimate selection-corrected quantiles of the gender wage gap. Our method employs instrumental variables that explain variation in the latent variable but, conditional on the latent process, do not directly affect selection. We provide semiparametric identification of the quantile parameters without imposing parametric restrictions on the selection probability, derive the asymptotic distribution of the proposed estimator based on constrained selection probability weighting, and demonstrate how the approach applies to the Roy model of labor supply.

Monetary policy without an anchor

04/13/2026 European Central Bank Central banks

Policymakers often cite the risk that inflation expectations might “de-anchor” as a key reason for responding forcefully to inflationary shocks. We develop a model to analyze this trade-off and to quantify the benefits of stable long-run inflation expectations. In our framework, households and firms are imperfectly informed about the central bank’s objective and learn from its policy choices. Recognizing this interaction, the central bank raises interest rates more aggressively after adverse supply shocks and accepts short-run output costs to secure more stable inflation expectations.

Monetary policy under multiple financing constraints

04/09/2026 European Central Bank Central banks

We revisit the credit channel of monetary policy when firms face multiple financing constraints, a common feature of corporate financing we document empirically. Our theory shows that the multiplicity of constraints dampens the transmission of expansionary policy to firm borrowing and investment notably but amplifies the transmission of policy tightening. This asymmetry arises because, when policy tightens (eases), the most (least) responsive constraint binds. Using U.S.

Dynamic credit constraints: theory and evidence from credit lines

04/08/2026 European Central Bank Central banks

We use a comprehensive Swedish credit register to document that firms across the size distribution have access to substantial borrowing capacity via credit lines. However, most firms choose not to use all available credit, even though interest rates are low compared to their return on equity. The low utilization of credit is consistent with a theoretical model in which utilization rates decrease with both real and financial uncertainty.

Who owns crypto in the euro area? Drivers of crypto adoption, payment use, and its interaction with fiat cash

04/07/2026 European Central Bank Central banks

Using a survey of 39,507 adults in 17 euro-area countries, I find that crypto-asset owners and the niche subgroup of payers have distinct profiles. Owners – typically younger, male, and financially active – exhibit mixed preferences, valuing both cash-like privacy and card-like speed. Crypto payers display a cash-centric profile, seeking to replicate physical cash’s privacy and ease of use in digital form.

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