How large are the distributional effects of monetary policy in the euro area? Does heterogeneity matter for monetary policy? We answer these questions based on the results of research projects conducted at the ECB under the aegis of a dedicated research task force. A monetary policy easing causes a temporary reduction in consumption inequality; this is the case for both conventional and unconventional monetary policy.
In surveys with information provision experiments, researchers can observe how people change beliefs, and sometimes also actions, after having been confronted with information. This article interprets information provision experiments from the perspective of the theory of rational inattention, discussing what survey findings tell us about economic behaviour outside the survey and deriving implications for central bank communication.
This paper assesses the environmental performance of sustainability-related investment funds compared to conventional ones across three dimensions: financed activities, portfolio carbon footprint, and investment in firms with ambitious science-based targets. We identify ESG funds using Morningstar (MS) strategies, the Sustainable Finance Disclosure Regulation’s Article 8/9 classification, and funds’ self-naming. We find that the greenest funds invest more in low-carbon sectors, but their carbon footprints are comparable to conventional funds.
The COVID-19 pandemic and Russia’s invasion of Ukraine have complicated macroeconomic forecasting and policymaking due to unprecedented disruptions in supply chains and energy markets, suggesting a new macroeconomic regime. However, we are unable to reject the null hypothesis of no structural break in March 2020. We then examine whether these shocks have increased post-COVID-19. Their sizes were initially elevated, but then have been gradually returning to pre-pandemic levels.
This paper introduces the European Central Bank’s Multi Country model (ECB-MC), a coherent macroeconomic framework designed to support economic forecasting and policy analysis within the Eurosystem. The ECB-MC captures the economic dynamics of the five major economies in the euro area – Germany, France, Italy, Spain, and the Netherlands – which account for more than 80 percent of the euro area total GDP.
We investigate the impact of climate risks on sovereign credit ratings worldwide. Our analysis shows that higher temperature anomalies and more frequent natural disasters – measures of physical risk – correlate with lower credit ratings. We find that long-term shifts in climate patterns (“chronic risk”) primarily affect advanced economies, while the increased frequency and severity of extreme weather events (“acute risk”) matters more for emerging economies. However, the estimated impact of both types of risk on credit ratings is low and the economic effects are negligible.
Our paper uses a general equilibrium framework to examine the effects of temperature on firm-level demand, productivity and input allocative efficiency. Using data from Italian firms and detailed climate data, it uncovers a sizeable negative effect of extreme temperatures on firm-level productivity. Based on these estimates, the model generates aggregate productivity losses from local temperature fluctuations that are higher than previously thought, ranging from 0.60% to 6.82% depending on the scenario and the extent of adaptation.
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.
The recent surge in inflation has led to a significant increase in the frequency of price changes, making prices more flexible. Conventional models assume a constant price change frequency, but in state-dependent models the frequency varies with economic conditions. Price flexibility has an impact on the effectiveness of monetary policy. In high inflation periods, frequent price changes make monetary policy more effective in reducing inflation with less impact on economic activity. Therefore, monetary policy should be more aggressive during such periods to stabilise prices efficiently.
This article investigates how firms transmit monetary policy shocks to individual labour market outcomes at both the intensive and extensive margins. Using matched employer-employee administrative data from Germany, we study the effects of monetary policy shocks on individual employment and of labour income conditioning on characteristics of workers and firms. First, we find that the employment of workers at young firms is especially sensitive to monetary policy shocks.
