European Central Bank

Consumer participation in the credit market during the COVID-19 pandemic and beyond

03/27/2024 European Central Bank Central banks

This paper analyses the consumer’s decision to apply for credit and the probability of the credit being accepted in the euro area during a period characterized by the unprecedented concomitance of events and changing borrowing conditions linked to the global COVID-19 pandemic and the Russian invasion of Ukraine. We use data between 2020Q1 and 2023Q2 from the ECB’s Consumer Expectations Survey. We find that the credit demand is highest when the first lockdown ends and drops when supportive monetary compensation schemes are implemented.

Consumer participation in the credit market during the COVID-19 pandemic and beyond

03/27/2024 European Central Bank Central banks

This paper analyses the consumer’s decision to apply for credit and the probability of the credit being accepted in the euro area during a period characterized by the unprecedented concomitance of events and changing borrowing conditions linked to the global COVID-19 pandemic and the Russian invasion of Ukraine. We use data between 2020Q1 and 2023Q2 from the ECB’s Consumer Expectations Survey. We find that the credit demand is highest when the first lockdown ends and drops when supportive monetary compensation schemes are implemented.

Business as usual: bank climate commitments, lending, and engagement

03/22/2024 European Central Bank Central banks

This paper studies the impact of voluntary climate commitments by banks on their lending activity. We use administrative data on the universe of bank lending from 19 European countries. There is strong selection into commitments, with increased participation by the largest banks and banks with the most pre-existing exposure to high-polluting industries. Setting a commitment leads to a boost in a lender’s ESG rating. Lenders reduce credit in sectors they have targeted as high priority for decarbonization.

The impact of regulatory changes on rating behaviour

03/21/2024 European Central Bank Central banks

We examine rating behaviour after the introduction of new regulations regarding Credit Rating Agencies (CRAs) in the European securitisation market. Employing a large sample of 12,469 ABS tranches issued between 1998 and 2018, we examine the information content of yield spreads of ABS at the issuance and compare the pre- and post-GFC periods. We find that the regulatory changes have been effective in tackling conflicts of interest between issuers and CRAs in securitisation. Rating catering seems to have disappeared in the post-GFC period.

US monetary policy is more powerful in low economic growth regimes

03/21/2024 European Central Bank Central banks

We use nonlinear empirical methods to uncover non-linearities in the propagation of monetary policy shocks. We find that the transmission on output, goods prices and asset prices is stronger in a low growth regime, contrary to the findings of Tenreyro and Thwaites (2016). The impact is stronger on private investment and durables and milder on the consumption of nondurable goods and services. In periods of low growth, a contractionary monetary policy implies lower expected Treasury rates and higher premia along the entire Treasury yield curve.

An update on the accuracy of recent Eurosystem/ECB staff projections for short-term inflation

03/21/2024 European Central Bank Central banks

This box looks at errors in Eurosystem and ECB staff inflation projections over the post-pandemic period, updating and extending earlier analysis published in 2022 and 2023. Projection errors have come down considerably since the end of 2022 and now stand close to pre-pandemic levels. The low predictability of energy commodity prices (which surprised markets on the downside in 2023) explains a significant share of the recent errors in HICP inflation projections.

How geopolitics is changing trade

03/21/2024 European Central Bank Central banks

Rising trade tensions and a spate of policies aiming to bring national security concerns to bear in trade relations have sparked growing concern about the potential implications of global trade fragmentation. Yet, empirical evidence that geopolitical concerns are already materially affecting trade patterns is scant. This box addresses the issue using a structural gravity model augmented with a geopolitical distance measure based on UN General Assembly voting to investigate the role played by geopolitical factors for trade in manufacturing goods over the period 2012-22.

Speculation in oil and gas prices in times of geopolitical risks

03/21/2024 European Central Bank Central banks

Recent volatility in oil and gas prices has rekindled interest in understanding how much fundamental factors – global supply and demand – and non-fundamental factors contribute to price movements. This box constructs indices of speculation based on futures positions. Overall, speculation has only a limited role in both oil and gas price dynamics, although the degree of speculation is somewhat higher in European gas markets than in US gas markets.

What were the drivers of euro area food price inflation over the last two years?

03/20/2024 European Central Bank Central banks

Food price inflation was one of the main contributors to the strong rise in euro area headline inflation in 2022 and to the period of disinflation that followed. An extraordinary surge in energy costs was the main factor behind higher consumer food inflation in 2021 and 2022. Increases in global food commodity prices and euro area farm gate prices also contributed significantly. In the high inflation environment, domestic factors – such as wage and profit developments – have gradually emerged as increasingly important factors in keeping food inflation elevated.

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