Econometric Models of the Euro-area Central Banks

2005 ◽  
Author(s):  
Gabriel Fagan ◽  
Julian Morgan
Keyword(s):  
Euro Area ◽  
Central Banks ◽  
Econometric Models

Inflation expectations matter more than unemployment

2021 ◽  
Keyword(s):  
Euro Area ◽  
Central Banks ◽  
Inflation Expectations ◽  
Trade Off ◽  
Content Type

Significance The surge in inflation this year owes more to supply bottlenecks caused by the release of pent-up demand than to falling unemployment. In the decade before the pandemic, US unemployment more than halved and euro-area unemployment nearly halved, but inflation remained below target in both economic areas. Impacts Central banks face the dilemma of raising rates too early for growth and too late for inflation, and may struggle to dampen expectations. The threat of a possible revival of the pandemic will help temporarily to cool inflation expectations that have surged in 2021. The trade-off between unemployment and inflation that has been missing for many years may emerge again once the pandemic is finally over.

Tighter global money risks exposing banks’ fault lines

2019 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Financial Services ◽  
Stress Test ◽  
The United States ◽  
Central Banks ◽  
Mortgage Lending ◽  
Stress Tests ◽  
Content Type ◽  
Credit Cycle

Significance Addressing the concerns this raises for banks' profitability, the Financial Services Agency announced that it would stress test Japan's 105 regional banks in mid-2019. Central banks in Japan, the euro area, Sweden, Denmark and Switzerland have cut their policy rates more aggressively than other countries since the 2008-09 financial crisis. Authorities have done this to spur banks to lend more, but in doing so have increased banks' risk-taking. Impacts Central banks with policy rates close to zero or negative will require higher countercyclical buffers from banks failing stress tests. In Japan, banks will be highly exposed to asset price fluctuations when the BoJ winds down QE. The BoJ holds a large amount of US collateralised loan obligations, exposing it to a credit cycle downturn in the United States. The less efficient euro-area banks and high-deposit banks involved in syndicated loans will be most at risk when interest rates rise. Danish, Swedish and Swiss banks are vulnerable to higher rates and a property crash because of their large mortgage lending portfolios.

scholarly journals Forecasting Euro Area Inflation Using Single-Equation and Multivariate VAR–Models

2017 ◽  
Vol 17 (2) ◽  
pp. 19-34
Author(s):  
Dieter Gerdesmeier ◽  
Barbara Roffia ◽  
Hans-Eggert Reimers
Keyword(s):  
Euro Area ◽  
Single Equation ◽  
Central Banks ◽  
Var Models ◽  
Vector Autoregressive ◽  
Policy Transmission ◽  
Information Set ◽  
Forecasting Inflation ◽  
Monetary Policy Transmission Mechanism

AbstractForecasting inflation is of key relevance for central banks, not least because the objective of low and stable inflation is embodied in most central banks’ mandates and the monetary policy transmission mechanism is well known to be subject to long and variable lags. To our best knowledge, central banks around the world use conditional as well as unconditional forecasts for such purposes. Turning to unconditional forecasts, these can be derived on the basis of structural and non-structural models. Among the latter, vector autoregressive (VAR)-models are among the most popular tools.This study aims at assessing and deriving a set of unconditional forecasts for euro area inflation based on several specifications which take into account the information content of, inter alia, monetary and credit variables. The models are ordered and based on their in-sample performance and the “best” model is selected accordingly. The results indicate that the inclusion of money and credit variables in the information set improves the quality of the forecasts over a horizon of one to eight quarters. This supports the view that central banks should regularly monitor developments in money and credit.

scholarly journals Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom

2018 ◽  
Vol 32 (4) ◽  
pp. 147-172 ◽  
Author(s):  
Giovanni Dell’Ariccia ◽  
Pau Rabanal ◽  
Damiano Sandri
Keyword(s):  
Monetary Policy ◽  
United Kingdom ◽  
Interest Rates ◽  
Euro Area ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Unconventional Monetary Policy ◽  
Monetary Policies ◽  
The United Kingdom

The global financial crisis hit hard in the euro area, the United Kingdom, and Japan. Real GDP from peak to trough contracted by about 6 percent in the euro area and the United Kingdom and by 9 percent in Japan. In all three cases, central banks cut interest rates aggressively and then, as policy rates approached zero, deployed a variety of untested and unconventional monetary policies. In doing so, they hoped to restore the functioning of financial markets, and also to provide further monetary policy accommodation once the policy rate reached the zero lower bound. In all three jurisdictions, the strategy entailed generous liquidity support for banks and other financial intermediaries and large-scale purchases of public (and in some cases private) assets. As a result, central banks’ balance sheets expanded to unprecedented levels. This paper examines the experience with unconventional monetary policies in the euro zone, the United Kingdom, and Japan. The paper starts with a discussion of how quantitative easing, forward guidance, and negative interest rate policies work in theory, and some of their potential side effects. It then reviews the implementation of unconventional monetary policy by the European Central Bank, the Bank of England, and the Bank of Japan, including a narrative of how central banks responded to the crisis and the evidence on the effects of unconventional monetary policy actions.

scholarly journals The rise of national central banks' TARGET balances: a response to Andrea Terzi

2019 ◽  
Vol 16 (2) ◽  
pp. 169-175
Author(s):  
Marcello Minenna ◽  
Giovanni Dosi ◽  
Andrea Roventini
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Central Banks ◽  
Balance Of Payments ◽  
Causal Relationships ◽  
Strong Causality

In response to our paper, ‘ECB monetary expansions and euro area TARGET2 imbalances: a balance-of-payment-based decomposition,’ Professor Andrea Terzi has criticized our approach of TARGET2 balance decomposition, by highlighting a lack of causality between balance-of-payments (BP) flows and TARGET2 net balances. Proving a strong causality link was not within the scope of our paper; while acknowledging that causal relationships are difficult to prove from data that have to fulfill an accounting identity, we still believe that useful information can be extracted from the analysis of BP accounting correspondences. From this perspective a long-term BP reconstruction for Italy and Germany is performed that confirms Terzi's claim about the rise of TARGET2 balances under specific monetary policy configurations.

scholarly journals The rise of national central banks' TARGET balances in the euro area: a comment

2019 ◽  
Vol 16 (16.2) ◽  
pp. 161-168
Author(s):  
Andrea Terzi
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
European Central Bank ◽  
Central Banks ◽  
Capital Flight ◽  
Current Account Surplus ◽  
Decomposition Approach ◽  
Portfolio Rebalancing ◽  
European Central ◽  
Cross Border

With the implementation of the Eurosystem's asset purchase programme (APP), national central banks’ TARGET balances have risen. For the European Central Bank, this reflects cross-border payments and portfolio rebalancing in the context of the APP. Minenna et al. (2018) disagree and claim that the causes of rising TARGET balances (2015–2017) have been the persistent current-account surplus of Germany and ‘capital flight.’ This comment explains that rising TARGET balances occur under specific monetary policy configurations and that the context of the APP was critical to account for rising TARGET balances. It then questions the decomposition approach employed by the authors by arguing that it shows accounting correspondences, not causality, and concludes that there is no established two-way association between TARGET balances and actual vulnerabilities of the euro area.

Applying Complexity Theory to Interest Rates: Evidence of Critical Transitions in The Euro Area

2019 ◽  
Vol 52 (1) ◽  
pp. 1-33
Author(s):  
Jan Willem van den End
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Complexity Theory ◽  
Euro Area ◽  
Central Banks ◽  
Jel Classification ◽  
Tipping Points ◽  
Critical Transitions ◽  
Excess Liquidity ◽  
The Right

Abstract We apply complexity theory to financial markets to show that excess liquidity created by the Eurosystem has led to critical transitions in the configuration of interest rates. Complexity indicators turn out to be useful signals of tipping points and subsequent regime shifts in interest rates. We find that the critical transitions are related to the increase of excess liquidity in the euro area. These insights can help central banks to strike the right balance between the intention to support the financial system by injecting liquidity and potential unintended side-effects on market functioning. Zusammenfassung Wir wenden Komplexitätstheorie auf Finanzmärkte an, um zu zeigen, dass die vom ­Eurosystem geschaffene Überschussliquidität zu kritischen Übergängen bei der Konfiguration der Zinssätze geführt hat. Komplexitätsindikatoren erweisen sich als nützliche Signale von Kipppunkten und nachfolgenden Regimeverschiebungen bei Zinssätzen. Wir stellen fest, dass die kritischen Übergänge mit dem Anstieg der Überschussliquidität im Euroraum zusammenhängen. Diese Einblicke können Zentralbanken helfen, das richtige Gleichgewicht zwischen der Absicht, das Finanzsystem mit zusätzlicher Liquidität zu unterstützen, und möglichen unbeabsichtigten Nebenwirkungen auf das Marktgeschehen zu finden. JEL Classification: E43, E58, E52

Evolution of Central Banking

2021 ◽  
pp. 68-85
Author(s):  
Federica Branca ◽  
Ixart Miquel-Flores ◽  
Francesco Paolo Mongelli
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Exchange Rate Volatility ◽  
Central Banks ◽  
Central Banking ◽  
East African ◽  
Fiscal Discipline ◽  
African Countries ◽  
Policy Frameworks ◽  
Domestic Prices

This chapter provides some observations regarding the evolution of central banking. It is noted that the practice of monetary policy and the scope of central banks have changed over time. The chapter reflects on the path to East African Economic and Monetary Union (EA-EMU). First, how does East Africa stand in terms of economic and financial convergence? Second, what are the milestones of central banking that all central banks of the EA-EMU should master? Third, which monetary lessons could the euro area offer? Fourth, what worked, and has not, in the euro area, what is being fixed? It is noted that East African countries have differences in income per capita, exchange rate volatility, domestic prices, and fiscal discipline. To support sustainable convergence, they should align their monetary policy frameworks and have solid fiscal arrangement.

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