European Central Bank

Banking on assumptions? How banks model deposit maturities

11/03/2025 European Central Bank Central banks

How do banks manage the behavioural maturity of non-maturing deposits (NMDs)? Using a rich and confidential dataset, we investigate how banks model deposit maturities based on internal assumptions. Although NMDs are contractually floating-rate liabilities with zero maturity, banks reallocate them across different maturity buckets using models that reflect past customer behaviour. Notably, only 20% of NMDs are treated as having zero maturity, while about 10% are assigned maturities beyond seven years. We assess whether these modelling assumptions align with banks’ deposit structures.

Fiscal announcements and households’ beliefs: evidence from the euro area

10/20/2025 European Central Bank Central banks

This paper studies the effects of fiscal policy announcements on household expectations. We document announcements of price-related expansionary fiscal measures in response to the cost-of-living crisis in the four largest euro area economies and exploit the exogenous timing of fiscal actions relative to household survey participation to estimate their causal effects. Following fiscal announcements, households revise their beliefs: inflation perceptions rise, and unemployment perceptions fall.

Decomposing US economic fluctuations: a trend-cycle approach

10/14/2025 European Central Bank Central banks

This paper proposes a unified framework to study the permanent and transitory origins of US economic fluctuations. The model provides a reasonable account of the evolution of the economy in the post-war period and of the recent inflation episode. Overall, it constitutes a comprehensive framework to offer policy guidance and a flexible empirical counterpart to more heavily-parametrized structural models.

Inflation and monetary policy in medium-sized New Keynesian DSGE models

10/13/2025 European Central Bank Central banks

This chapter of the Research Handbook of Inflation (2025) reviews the evolution and current relevance of medium-scale New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models, which serve as part of the core analytical framework in central banks and academic macroeconomics. The chapter assesses their capacity to analyse inflation dynamics, monetary transmission mechanisms, and policy interventions.

Fiscal drag in theory and in practice: a European perspective

10/09/2025 European Central Bank Central banks

This paper presents a comprehensive characterization of “fiscal drag”—the increase in tax revenue that occurs when nominal tax bases grow but nominal parameters of progressive tax legislation are not updated accordingly—across 21 European countries using a microsimulationapproach. First, we estimate tax-to-base elasticities, showing that the progressivity built in each country’s personal income tax system induces elasticities around 1.7–2 for many countries, indicating a potential for large fiscal drag effects.

Details matter – how loan pricing affects monetary policy transmission in the euro area

10/09/2025 European Central Bank Central banks

We present novel empirical evidence on lending practices across all euro area countries, using AnaCredit data covering nearly seven million new loans issued to non-financial corporations in 2022-23. We document substantial variation in (a) the prevalence of fixed versus floating-rate loans, (b) rate fixation periods, and (c) reference rates. This variation results in lending rates being exposed to different segments of the risk-free rate yield curve which, in turn, influences their sensitivity to monetary policy changes.

Decoding climate-related risks in sovereign bond pricing: a global perspective

10/08/2025 European Central Bank Central banks

Climate change poses a significant risk to financial stability by impacting sovereign credit risk. Quantifying the exact impact is difficult as climate risk encompasses different components– transition risk and physical risk – with some of these, as well as the policies to address them, playing out over a long time horizon. In this paper, we use a large panel of 52 developed and developing economies over two decades to empirically investigate the extent to which climate risks influence sovereign yields.

The slope of the euro area price Phillips curve: evidence from regional data

10/07/2025 European Central Bank Central banks

This paper contributes to the literature on the price Phillips curve by exploiting subnational regional data from 11 euro area countries. Beyond controlling for aggregate fluctuations common across euro area regions, our approach accounts for country-specific dynamics, including national inflation expectations, thereby addressing key limitations in previous studies. Our results suggest that the Phillips curve in the euro area is relatively flat, but statistically significant.

A study on the interaction of capital, liquidity and bank stability

10/07/2025 European Central Bank Central banks

The purpose of this paper is to empirically examine the effects of capital and liquidity on bank stability as well as the existence of a potential complementary or substitute relationship between both dimensions to explain bank stability. We use a sample of 16,061 banks from 27 countries during the period 2013-2023. Our results show that both capital and liquidity increase bank stability. However, the joint interactive effect presents a negative coefficient indicating the existence of a potential substitution effect between both variables.

From Brussels to Bangkok: how investment funds transmit financial spillovers

10/06/2025 European Central Bank Central banks

We explore whether investment funds transmit spillovers from local shocks to financial markets in other economies. As a laboratory we consider shocks to financialmarket beliefs about the probability of a rare, euro-related disaster and their spillovers to Asian sovereign debt markets. Given their geographic distance from and relatively limited macroeconomic exposure to the euro area, these markets are an ideal testing ground a priori stacking the deck against finding evidence for investment funds transmitting spillovers from euro disaster risk shocks.

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