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  The global effects of global risk and uncertainty
  

  In this paper, we analyse the effects of a shock to global financial uncertainty and risk aversion on real economic activity. To this end, we extract a global factor, which explains approximately 40% of the variance of about 1000 risky asset returns from around the world. We then study how shock...

  In this paper, we analyse the effects of a shock to global financial uncertainty and risk aversion on real economic activity. To this end, we extract a global factor, which explains approximately 40% of the variance of about 1000 risky asset returns from around the world. We then study how shocks to the factor affect economic activity in 36 advanced and emerging small open economies by estimating local projections in a panel regression framework. We find the output responses to be quite heterogeneous across countries but, in general, negative and persistent. Furthermore, the effects of shocks to the global factor are stronger in countries with a higher degree of trade and/or financial openness, as well as in countries with higher levels of external debt, less developed financial sectors, and higher risk rating.

  • Published: 2018-10-23
  • Corporate Author(s): European Central Bank
  • Subject: econometrics, economic cycle, globalisation, international finance, macroeconomics
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  European business cycle indicators
  3rd quarter 2018

  Latest edition.

  Special topic: Using fat survey data to nowcast euro area GDP growth. After losses in 2018-Q1 and a broad sideways movement in Q2, the euro-area (EA) and EU Economic Sentiment Indicators (ESI) posted moderate decreases of 0.9 (EU) and 1.4 (EA) points in the third quarter. In both cases, the loss...

  Special topic: Using fat survey data to nowcast euro area GDP growth. After losses in 2018-Q1 and a broad sideways movement in Q2, the euro-area (EA) and EU Economic Sentiment Indicators (ESI) posted moderate decreases of 0.9 (EU) and 1.4 (EA) points in the third quarter. In both cases, the losses were concentrated in the last (EU) / last two (EA) months of the quarter. At 111.3 (EU) and 110.9 (EA) points, both indicators remain nevertheless at historically elevated levels. EU- and EA-confidence decreased among industry managers and consumers, while confidence in retail trade and construction brightened, especially in the EA. Confidence in services remained broadly unchanged in both regions. Among the seven largest EU economies, 2018-Q3 brought significant losses in economic sentiment in Spain (-3.9) and France (-3.3), as well as more contained ones in Poland (-2.2) and Italy (-1.6). Sentiment in Germany (+0.6) and the Netherlands (-0.4) changed only little. The UK defied the trend, gaining 1.5 points on the quarter. Capacity utilisation in manufacturing decreased in both the EA and the EU by 0.2 percentage points (pp) compared to the last survey wave in April. Currently, capacity utilisation is at 84.1% (EA) and 83.8% (EU), i.e. markedly above the two regions' respective long-term averages of around 81%. Capacity utilisation in services saw a 0.4pp-increase in the EA and a 0.3pp-decrease in the EU. The current rates of 90.6% (EA) and 89.7% (EU) correspond to levels well above the series' long-term averages of around 88.7%.

  • Published: 2018-11-07
  • Corporate Author(s): Directorate-General for Economic and Financial Affairs (European Commission)
  • Subject: data processing, economic analysis, economic cycle, economic forecasting, economic indicator, economic policy, economic survey, euro area, macroeconomics, serial publication
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  International spillovers of quantitative easing
  

  This paper develops a two-country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy. The model is able to replicate the key empirical facts on emer...

  This paper develops a two-country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy. The model is able to replicate the key empirical facts on emerging countries' response to large scale asset purchases conducted abroad, including in ow of capital to local sovereign bond markets and an increase in international comovement of term premia. According to our simulations, quantitative easing abroad boosts domestic demand in the small economy, but undermines its international competitiveness and depresses aggregate output, at least in the short run. This is in contrast to conventional monetary easing in the large economy, which has positive spillovers to output in other countries. We also find that limiting these spillovers might require policies that affect directly international capital flows, like imposing capital controls or mimicking quantitative easing abroad by purchasing local long-term bonds.

  • Published: 2018-08-20
  • Corporate Author(s): European Central Bank
  • Subject: banking policy, central bank, international finance, macroeconomics, monetary policy
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  Economic and monetary union
  Main legal texts & policy documents for further strengthening of the Economic and Monetary Union. Part 2, Policy documents and legislative proposals setting out steps towards a stronger Economic and Monetary Union

  Latest edition.

  The Economic and Monetary Union (EMU) is designed to create the foundation for sustainable long-term economic growth by providing macroeconomic stability, while, at the same time, constituting a natural complement to Europe’s single market. It involves close co-ordination of economic and fiscal ...

  The Economic and Monetary Union (EMU) is designed to create the foundation for sustainable long-term economic growth by providing macroeconomic stability, while, at the same time, constituting a natural complement to Europe’s single market. It involves close co-ordination of economic and fiscal policies and, for those countries fulfilling certain conditions, a single monetary policy and a single currency – the euro. Against the background of the debt crisis, important measures to improve the economic governance in the EU and the euro area in particular have been taken in the last years.

  • Published: 2018-11-05
  • Corporate Author(s): Directorate-General for Economic and Financial Affairs (European Commission)
  • Subject: consolidation of EU law, Economic and Monetary Union, economic growth, EU law, euro, euro area, European currency, macroeconomics, Treaty on European Union, Treaty on the Functioning of the EU
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  Who bears interest rate risk?
  

  We study the allocation of interest rate risk within the European banking sector using novel data. Banks’ exposure to interest rate risk is small on aggregate, but heterogeneous in the cross-section. In contrast to conventional wisdom, net worth is increasing in interest rates for approximately ...

  We study the allocation of interest rate risk within the European banking sector using novel data. Banks’ exposure to interest rate risk is small on aggregate, but heterogeneous in the cross-section. In contrast to conventional wisdom, net worth is increasing in interest rates for approximately half of the institutions in our sample. Cross-sectional variation in banks’ exposures is driven by cross-country differences in loan-rate fixation conventions for mortgages. Banks use derivatives to partially hedge on-balance sheet exposures. Residual exposures imply that changes in interest rates have redistributive effects within the banking sector.

  • Published: 2018-10-23
  • Corporate Author(s): European Central Bank
  • Subject: banking, financial institution, financial market, interest, macroeconomics
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  Structural credit ratios
  

  This paper studies the relation between the credit-to-GDP ratio and macroeconomic trends. We estimate a long run equation on a sample of EU countries; our findings suggest that the macroeconomic factors with which the credit ratio associates most strongly are economic development, the investment...

  This paper studies the relation between the credit-to-GDP ratio and macroeconomic trends. We estimate a long run equation on a sample of EU countries; our findings suggest that the macroeconomic factors with which the credit ratio associates most strongly are economic development, the investment share in GDP, and inflation. We then obtain projections for past and future trends. First, we study the evolution of the credit ratio in the past. We find that most of the increase starting in 1985 is associated with economic development and falling inflation, while the decrease of investment may have slowed down this trend. Second, we offer a forward-looking estimate of the structural credit ratio, defined as the long run, or sustainable, component. We offer band estimates based on two alternative assumptions on future economic outcomes, which can be interpreted as a structural and a cyclical view of current macroeconomic dynamics. Estimates of structural credit ratios based on this method are useful to policy makers having to decide on the activation of the countercyclical capital buffer, especially when assessing the sustainability of credit growth.

  • Published: 2018-10-23
  • Corporate Author(s): European Systemic Risk Board
  • Subject: credit policy, economic stabilisation, macroeconomics, monetary crisis, monetary policy, structural policy
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  Revenue- versus spending-based consolidation plans
  The role of follow-up

  The literature on fiscal multipliers finds that spending-based fiscal consolidations tend to have more benign macro-economic consequences than revenue-based consolidations. By directly comparing ex-post data with consolidation plans, we present evidence of a systematically weaker follow-up of sp...

  The literature on fiscal multipliers finds that spending-based fiscal consolidations tend to have more benign macro-economic consequences than revenue-based consolidations. By directly comparing ex-post data with consolidation plans, we present evidence of a systematically weaker follow-up of spending-based consolidation plans. Next, using a newly-developed dataset of consolidation announcements, panel VAR regressions confirm the weaker follow-up of spending-based plans and their more benign macro-economic effects compared to those of revenue-based plans. We disentangle the role of the difference in follow-up from that of the difference in the composition of revenue- and spending-based consolidations. While the latter channel, which works through the difference between revenue and spending multipliers, explains the largest fraction of the difference in economic trajectories, the difference in follow-up plays a non-negligible role as well.

  • Published: 2018-10-23
  • Corporate Author(s): European Central Bank
  • Subject: budget policy, fiscal policy, macroeconomics, public expenditure, revenue
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  Beyond spreads
  Measuring sovereign market stress in the euro area

  In this paper we propose a composite indicator that measures multidimensional sovereign bond market stress in the euro area as a whole and in individual euro area member states. It integrates measures of credit risk, volatility and liquidity at short-term and long-term bond maturities into a bro...

  In this paper we propose a composite indicator that measures multidimensional sovereign bond market stress in the euro area as a whole and in individual euro area member states. It integrates measures of credit risk, volatility and liquidity at short-term and long-term bond maturities into a broad measure of sovereign market stress. The statistical framework builds on that of the ECB's Composite Indicator of Systemic Stress (CISS) developed by Holló, Kremer and Lo Duca (2012), so that we call our metric the Composite Indicator of Systemic Sovereign Stress or "SovCISS". We implement the SovCISS for eleven euro area member states and also present four options of a SovCISS for the entire monetary union. In addition, we suggest a linear decomposition of the SovCISS, singling out contributions of the different components and of the time-varying correlations across these components. Comparing develoments in the SovCISS and the CISS over the crisis period clearly illustrates the usefulness of the latter for the real-time monitoring of systemic instabilities in the financial system as a whole. Finally, an application of the country-specific SovCISS indicators to the VAR-based spillover literature suggests that stress mainly originates from a few euro area countries, and that spillover patterns vary over time.

  • Published: 2018-10-23
  • Corporate Author(s): European Central Bank
  • Subject: debt, euro area, financial market, financial policy, macroeconomics, statistical method
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  ECB staff macroeconomic projections for the euro area
  March 2018

  The economic expansion in the euro area is projected to remain robust, with growth rates staying above potential. Real GDP growth is projected to slow from 2.5% in 2017 to 1.7% in 2020 as some tailwinds slowly fade away. HICP inflation is expected to pick up to 1.7% in 2020, supported by a gradu...

  The economic expansion in the euro area is projected to remain robust, with growth rates staying above potential. Real GDP growth is projected to slow from 2.5% in 2017 to 1.7% in 2020 as some tailwinds slowly fade away. HICP inflation is expected to pick up to 1.7% in 2020, supported by a gradual rise in underlying inflation as capacity constraints become more binding.

  • Published: 2018-10-24
  • Corporate Author(s): European Central Bank
  • Subject: central bank, economic forecasting, euro area, European Central Bank, European Monetary System, European System of Central Banks, macroeconomics, monetary policy, multiannual financial framework, serial publication, single monetary policy
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  Euro area quarterly financial accounts
  Quality report 2017. June 2018

  This annual report provides a quality review of the quarterly euro area and national financial accounts. The report fulfils the formal requirement of the ECB Executive Board to inform the Governing Council of the quality of these statistics, as set out in Article 7(2) of Guideline ECB/2013/24 (h...

  This annual report provides a quality review of the quarterly euro area and national financial accounts. The report fulfils the formal requirement of the ECB Executive Board to inform the Governing Council of the quality of these statistics, as set out in Article 7(2) of Guideline ECB/2013/24 (hereafter the “ECB Guideline”). Furthermore, the report provides information supporting the Macroeconomic Imbalances Procedure (MIP) data quality assurance process as laid down in the “Memorandum of Understanding between Eurostat and the ECB/DG-S on the quality assurance of statistics underlying the MIP” (“the MoU”).

  • Published: 2018-07-23
  • Corporate Author(s): European Central Bank
  • Subject: data collection, debt, euro area, financial policy, household budget, macroeconomics, national accounts