European Central Bank

Central banks, debt managers, and specialness in the Bund repo market

07/27/2026 European Central Bank Central banks

Elevated repo rate specialness for German government bonds in 2016–17, and particularly in 2022-23, has often been linked to the absorption of these securities by the ECB’s asset purchase programmes. We provide the first evidence on how the debt management office mitigates these effects by jointly analyzing daily secondary-market trades and repo operations of the Deutsche Finanzagentur (DFA) alongside Eurosystem transactions in Bunds from 2015–2024.

Import tariff transmission in a production network

07/24/2026 European Central Bank Central banks

We find that whether US import tariffs have supply-side effects or demand-side effects on US manufacturing sectors depends on where the affected sectors are located in the US production network. Using local projections in a panel of US manufacturing sectors, we find that US import tariffs —including the 2018-19 tariff hikes— led to sectoral output contractions via two different channels: (1) Tariff increases act as negative supply shifters for sectors that use goods from tariff-facing sectors as input in production and thus face rising input costs.

The devil in the DeTail: assessing state-contingent tail effects of a releasable macroprudential capital buffer using a parsimonious agent-based framework

07/24/2026 European Central Bank Central banks

This paper develops an agent-based framework (DeTail) to assess the state-contingent tail effects of releasable macroprudential capital buffers. The model features heterogeneous firms, households, and banks, and a single central bank, all interacting in a fully integrated, stock-flow consistent framework which generates endogenous credit cycles. Using this approach, we evaluate how time-varying capital requirements affect the time-varying distributions of credit growth, firm and household default rates, and bank losses along the credit cycle.

The changing geography of banking in CESEE. Branch closures outpace openings

07/15/2026 European Central Bank Central banks

We study the evolution of bank branch networks in ten CESEE countries between 2013 and 2021. Using a manually compiled dataset of all branches and their geocoordinates, we document a decline exceeding 30%, with substantial heterogeneity across and within countries. We show that banking market consolidation is a key driver of closures, while profitability and local economic growth mitigate them. Branches in highly urban or very rural areas close more often. Competitive effects are nonlinear: moderate clustering lowers closure risk, but intense competition increases it.

Bank deposit pricing in the euro area

07/15/2026 European Central Bank Central banks

We investigate the supply and demand drivers of bank deposit pricing in the Euro area during the period 2007–2024. We document that the pass-through of policy rates to sight deposit rates is low, asymmetric, varies across the monetary policy regimes, and decreases over time. We build and estimate an equilibrium model of bank deposit markets, and find that the price sensitivity of depositors exhibits large heterogeneity between households and firms, across countries, and over time.

Tariffs, production networks, and spillovers: the case of a US-China trade war

07/14/2026 European Central Bank Central banks

We study the short-run macroeconomic transmission of a US–China tariff war in an open economy multi-sector New Keynesian model with input–output linkages, sectoral nominal rigidities, and heterogeneous currency invoicing. A reciprocal 10 percentage-point tariff increase generates asymmetric incidence: the tariff-imposing country bears more of the inflationary burden, while the targeted country experiences the larger output contraction. Production networks amplify this contraction by propagating the shock beyond the directly tariffed bilateral margin.

Monetary policy under multiple financing constraints

06/23/2026 European Central Bank Central banks

The fact that monetary policy tightening has stronger effects than easing is a longstanding puzzle in monetary economics. This article studies monetary transmission in settings where firms face multiple financing constraints – a common and well-documented feature of corporate financing. Our theory shows that the multiplicity of financing constraints notably dampens the transmission of expansionary policy to firm borrowing and investment, while amplifying the transmission of policy tightening.

Financial stability in the age of artificial intelligence: the role of algorithmic architecture

05/21/2026 European Central Bank Central banks

Artificial intelligence (AI) is rapidly transforming financial decision-making. To explore the implications for financial stability we ran simulation-based experiments on two different AI architectures. We found that Q-learning algorithms, a form of reinforcement learning, achieved a high degree of coordination, but were prone to bank run-like dynamics. In contrast, large language models , which rely on contextual reasoning, were less prone to such runs but generated heterogeneous and unpredictable behaviour.

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.

Green supply chains at risk: measuring the true economic and environmental costs

03/24/2026 European Central Bank Central banks

Our new methodology builds an inter-country input-output table that distinguishes green products from the rest, allowing us to assess vulnerabilities in green value chains. In a multi-country, multi-sector model, our table reveals that a decoupling of green supply chains between a US-centric West and a China-centric East could globally cut trade in green products by up to 20%, lower welfare by up to 3% and raise yearly global greenhouse gas emissions by about 50 million tonnes.

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