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ECB | European Central Bank

The European Central Bank (ECB) is the central bank for the countries in the European Union that have adopted the euro. Its main task is to maintain price stability in the euro area, which helps preserve the purchasing power of the single currency. The ECB also plays a key role in defining and implementing monetary policy, conducting foreign exchange operations, and ensuring the smooth operation of payment systems. Additionally, the ECB is involved in banking supervision and financial stability within the euro area.
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RSS Hunter RSS Hunter • Aug 19, 2024

Thread Of Notes

Import tariff transmission in a production network

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. (2) Tariff increases act as negative demand shifters for sectors whose customer sectors suffer negative supply side effects due to tariffs and reduce their production. We show that these results are consistent with a stylized production network model featuring complementarities in production. Overall, our finding suggests that tariffs markedly reduce US manufacturing production and that the role of input–output linkages is key for understanding the transmission of import tariff shocks to output and producer prices.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3258~46133509d4.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 24

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

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. Policy experiments show that releasing capital buffers during economic downturns preserves credit supply by improving risky (lower-tail) credit outcomes, reduces both household and firm defaults, and supports macro-financial resilience by limiting tail bank losses. At the same time, capital buffer accumulation during upturns imposes minimal costs and does not significantly constrain lending. These findings support the active use of releasable buffers to mitigate systemic risk and smooth credit cycles without weakening the banking system.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3257~92e2d05000.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 24

Main findings from the ECB’s recent contacts with non-financial companies

This box summarises the main findings from recent contacts between ECB staff and representatives of 76 leading non-financial companies operating in the euro area. According to these exchanges, which mainly took place between 22 June and 1 July 2026, activity continued to grow moderately in the second quarter with similar momentum expected for the third quarter. While the war in the Middle East was weighing on consumer spending somewhat, the overall impact on activity seemed limited as some firms benefited from less competition and precautionary stockbuilding. Employment dynamics were rather subdued, with many firms in cost-cutting mode. Selling prices rose more quickly in the second quarter, reflecting the pass-through from rising oil prices caused by the Middle East conflict. The acceleration was less than anticipated in the previous survey round, however, with some slowing expected ahead. Contacts continued to anticipate moderating wage growth.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202605_05~8c25c55b38.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jul 24

Bank deposit pricing in the euro area

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. Our estimates suggest that rate-sensitive depositors increasingly switched to alternative, higher-yielding savings products over time, thereby decreasing the average rate-sensitivity of the remaining pool of sight deposits. In turn, banks’ market power over sight deposits increased, thereby accounting for the sluggish increase in overnight deposit rates following the 2022 European Central Bank’s policy rate hikes.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3255~7622aab746.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 15

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

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. These patterns differ markedly across CESEE banking systems during the entire period we analyze.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3256~2bf448ead2.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 15

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

A US-China tariff war has asymmetric macroeconomic effects, with the tariff-imposing country experiencing more inflation and the targeted country a larger output contraction. A 10 percentage-point reciprocal tariff increase leads to this outcome, amplified by production networks that spread the shock. Currency invoicing significantly influences transmission; dollar-priced border prices under heterogeneous invoicing weaken exchange rate expenditure-switching, deepening China's contraction relative to producer-currency pricing. This also alters third-country spillovers. The Euro Area (EA) sees a small aggregate response as positive trade diversion offsets weaker Chinese demand and multilateral adjustments. When tariffs are imposed on individual Chinese sectors, incidence is highly concentrated. Aggregate effects are not solely determined by the directly tariffed sector. Domestic propagation offsets US own-sector gains while reinforcing Chinese losses. The EA's response becomes a net effect of opposing trade margins. Tariff incidence depends on the tariff's target, shock propagation through production networks, and how invoicing affects border prices. This comprehensive framework provides a materially different assessment than one based solely on bilateral trade shares.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3254~34fda3bdcc.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 14

Geoeconomics and trade

We study the role of geoeconomics in shaping globalisation and trade policy. We first review the evolution of world trade since the end of World War II, highlighting the drivers of globalisation and its economic consequences. We then synthesise recent research on geoeconomics, which analyses how countries use trade policy as a tool to pursue geopolitical objectives. Against this background, we argue that the gradual shift in geoeconomic power from the United States toward China since the 2000s has been driving a fragmentation in world trade along geopolitical lines. We provide conceptual policy recommendations for the European Union to navigate an environment characterised by intensifying geopolitical competition.
https://www.ecb.europa.eu//pub/pdf/scpdps/ecb.dp31~0e62e3849a.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 13

Neo-conglomerates and EU regulatory perimeter challenges – state of play and evaluation of policy options

This paper explores the implications of non-bank groups providing bank-like services, especially payment services, within the European Union. It addresses policy options for regulating these "neo-conglomerates" by recalibrating the regulatory perimeter. The paper utilizes five EU case studies to illustrate how financial services are delivered digitally through unbundling, re-bundling, embedded distribution, and white-label partnerships. These case studies map business models, licensing structures, fintech partnership chains, and data frictions. The analysis reveals how these factors can obscure group-wide risks and complicate supervisory cooperation between home and host authorities. The paper identifies potential regulatory blind spots and misalignments in existing prudential, conduct, and operational objectives. It also draws on guidance from standard-setting bodies regarding financial innovation, fintech, and Big Tech supervision. The research pinpoints four priority areas for consideration to limit regulatory arbitrage and systemic interdependencies. Simultaneously, the paper aims to preserve innovation within the evolving financial landscape. The ultimate goal is to ensure a robust and adaptable regulatory framework.
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op394.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 13

Climate regulation, firm emissions, and green takeovers

We show that an unexpected tightening of the EU Emissions Trading System led high-emission-intensity firms to cut emissions relative to low-intensity peers within the same industry, without reducing output, thereby improving emission efficiency. Effects are stronger for power producers than for manufacturing firms. Examining mergers and acquisitions (M&As), we find that high-intensity manufacturing firms acquire more green targets after the tightening than low-intensity firms, with no change in the overall number of acquisitions, indicating a shift in focus rather than activity. Finally, we show that these green M&As contributed to the observed emission reductions over the study period.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3253~e9db09cc25.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 13

A theory of bank liquidity requirements

We develop a general equilibrium theory of financial intermediation and its implications for liquidity regulation. The model is built around an agency problem arising from leveraged intermediation: banks finance loan origination with deposits and face moral hazard in risk management, while holding cash mitigates these incentives at the cost of foregone investment returns. Liquidity demand therefore emerges endogenously from incentive considerations rather than from exposure to exogenous funding shocks. In equilibrium, financial experts choose between allocating equity to the banking sector relative to the non-bank financial sector that can provide ex-post liquidity by buying bank assets. Asset prices are determined endogenously in liquidation states, linking banks’ ex ante liquidity choices to market liquidity and the allocation of intermediation across sectors. Comparing the decentralized equilibrium to a planner’s allocation, we show that liquidity regulation mandating higher cash holdings improves incentives within banks but is not sufficient to implement the efficient allocation. In particular, it leads to an inefficiently large banking sector that free-rides on liquidity provision by non-bank investors. Implementing the planner’s allocation requires a second policy instrument, such as limits on bank size or subsidies to equity-financed liquidity provision outside the banking sector.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3252~91761af52b.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 9

How do economies with open labour markets work? The role of temporary migration in the European Union

This paper studies how temporary migration affects macroeconomic fluctuations and the conduct of stabilisation policies using a two-country DSGE model with search-and-matching frictions and endogenous cross-border labour mobility. The analysis shows that migration responds endogenously to both labour market conditions and exchange rate movements, making it an important channel of cross-country adjustment. Labour mobility alters the transmission of shocks in three main ways. First, it redistributes adjustment to productivity shocks across regions, smoothing output fluctuations in receiving economies while producing more nuanced effects in sending economies. Second, it favorably affects policy trade-offs: migration reduces the output costs of monetary tightening, and it mitigates the crowdingout effects of fiscal expansions. Third, it strengthens cross-country spillovers by transmitting labour market shocks across regions and reshaping their domestic propagation. Overall, temporary migration emerges as a powerful but non-neutral adjustment mechanism that affects both the effectiveness of stabilization policies and the distribution of macroeconomic outcomes across integrated economies.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3251~6ae71665ab.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 8

Measuring geoeconomic tension: a large-language-model approach for the euro area

We construct an index of geopolitical and geoeconomic tension for the euro area using Large-Language Models (LLMs) that prompt a large dataset of European, local-language newspaper articles. The resulting LLM Geoeconomic and Geopolitical Tension (LGPT) index and its subindices seek to provide an accurate narrative of tensions and their sources over the past quarter century. The multilingual LLM approach allows for a separation between geopolitical and geoeconomic tensions and for granularity in the identification of the source of such tensions including trade, energy and finance. This lends itself to more accurate economic analysis of the impact of geopolitics and geoeconomics on the euro area economy. The LLM approach is efficient and capable among other things of extracting trends regarding the international institutional actors involved in developments. We also illustrate one potential use of the index by estimating the impact of geoeconomic tensions on output and inflation in the euro area in a Bayesian structural VAR framework.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3250~d58748cc6f.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 7

Barriers to a European Banking Union

We quantify barriers to cross-border bank lending to firms within the euro area and their consequences for credit allocation and output. Using loan-level data from the European credit registry (AnaCredit) and group structures (RIAD),we estimate barriers to relationship formation, loan pricing, and banks’ branching decisions at the country-pair level. We find that barriers to cross-border relationships between banks and firms and cross-border bank entry are large while wedges on interest rates and loan quantities are comparatively small. The estimated wedges are strongly associated with differences in national banking regulations, measured using a novel dataset on regulatory distances. We embed our estimates into a quantitative spatial general equilibrium model with heterogeneous banks and firms subject to cross-border frictions in relationship formation, loan pricing, and bank entry. Partially relaxing frictions predicts sizable and heterogeneous output gains across euro area countries. These gains are primarily driven by increases in capital and labor rather than improvements in allocative efficiency.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3249~d8b9cf2aed.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 7

Monetary policy transmission through the financial system to households

This paper examines how monetary policy impacts households in the euro area, focusing on a less-studied aspect of policy transmission. It emphasizes the significant role of both banks and non-bank financial institutions in influencing household borrowing, saving, and spending decisions. While monetary policy demonstrates overall effectiveness, the transmission of policy rates to household borrowing costs is neither complete nor uniform across the euro area. This incompleteness stems from variations in how institutions fund themselves, their market power, and their specific operating environments. A crucial finding is that household characteristics deeply influence policy transmission. Disparities in households' financial health, access to credit, and housing market conditions lead to varied effects across different income, age, and wealth demographics. These uneven impacts have significant consequences for overall demand and income distribution. Furthermore, research indicates that certain consumption categories react more swiftly to interest rate shifts than previously understood. This rapid response is particularly pronounced in situations involving high household debt and variable interest rates. The findings collectively suggest that a comprehensive, system-wide approach is necessary for evaluating monetary policy transmission. This approach must incorporate various aspects of the financial system and acknowledge household heterogeneity. The research also underscores the importance of accessible, detailed data for uncovering these novel insights.
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op390.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 6

Monetary policy transmission and structural changes

This paper surveys research from the ESCB ChaMP Research Network on how ongoing structural change is affecting monetary policy transmission in the euro area. It shows that transmission is state-dependent and varies systematically with changesin the sectoral composition of the economy, in its international integration, in financial conditions and in inflation regimes. More service-intensive economies exhibit weaker real responses to monetary tightening, while high-inflation environments areassociated with faster and stronger price pass-through, helping explain why the recent disinflation episode entailed relatively low output costs. The paper also shows that variations in leverage, supply shocks and energy-related disturbances alter theinflation-output trade-off and can make appropriate policy responses more contingent on the source and persistence of shocks. Finally, it reviews evidence that monetary policy can affect the supply side through innovation, reallocation and productivity, implying that structural change influences transmission and may itself be influenced by policy.
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op393.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 6

Monetary policy transmission and non-bank financial intermediation

The growing importance of non‑bank financial intermediaries (NBFIs) also has important implications for the transmission of monetary policy in the euro area. It alters the composition of credit supply and strengthens the role of market‑based finance for the corporate sector. In the aggregate, NBFIs tend to amplify the transmission of monetary policy within the financial sector. In particular, intermediaries with uninsured short‑term funding amplify monetary transmission to credit. This becomes particularly pronounced during episodes of financial stress, when liquidity pressures and valuation losses can trigger asset sales and spillovers to banks. By contrast, institutions that benefit from stable long-term funding, such as insurers, pension funds and certain specialised finance companies, may attenuate the transmission of monetary policy to credit, although only to a limited extent. The implications for monetary policy transmission arising from NBFIs also extend beyond lending, notab
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op391.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 6

The propagation of shocks across the production network and implications for monetary policy

Modern economic structures require macroeconomic frameworks that acknowledge supply-chain complexity, as demonstrated by recent disruptions. The ChaMP Research Network's findings highlight the value of production network models and firm heterogeneity. These models capture input-output relationships, revealing how shocks propagate based on network structure and sector centrality. Differences in price and wage flexibility also influence shock persistence. Supply shocks amplify inflationary effects, while demand shocks, including monetary policy ones, are dampened. Large shocks can introduce nonlinearities like a steeper Phillips curve. This necessitates analyzing risks to the inflation outlook, aligning with ECB strategy. Production networks and heterogeneity create trade-offs between stabilizing inflation and output gap. Simultaneously stabilizing both requires careful fiscal policy. Incorporating production networks offers a more nuanced and policy-relevant framework for monetary policy.
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op392.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 6

Monetary policy transmission via banks to firms

The ChaMP Research Network has reviewed evidence on the transmission of monetary policy to firms in the euro area. The transmission of monetary policy to firms remains effective, even during the 2022-23 tightening cycle. However, the transmission is not uniform and is influenced by multiple factors, including country-level segmentation and bank balance sheets. Sovereign risk, institutional frameworks, and local lending practices also play a role in shaping transmission, particularly during periods of stress. The composition of banks' liabilities can affect the speed of transmission, leading to different outcomes. Firm characteristics, such as funding mix, also impact the effect of monetary policy on individual firms. At the contract level, factors like collateralisation and interest rate fixation can influence the magnitude and composition of transmission. The heterogeneities in transmission can have aggregate implications in certain circumstances. To address these complexities, a broad and flexible toolkit is necessary to ensure effective monetary policy transmission. This toolkit can include the main policy rate, asset purchases, and targeted liquidity operations, which can be deployed in a proportionate manner to accommodate the diverse needs of the monetary union.
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op389.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jul 6

Tracking euro area labour market developments through restructuring announcements

This box examines whether large-scale restructuring announcements recorded in the European Restructuring Monitor (ERM) compiled by Eurofound contain economically meaningful signals of euro area labour market dynamics. We construct a net job changes indicator, demonstrating that its lagged values contain information on episodes of below-average employment performance ahead of official data releases. While ERM coverage is limited by construction, focusing on large firms and manufacturing-intensive sectors, it captures restructuring events in firms employing between one-third and one-half of the total euro area workforce, making it a timely complement to standard aggregate statistics.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_05~a606096644.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 25

What has kept goods inflation low? The role of the import exposure to China

This box analyses the impact of prices of imports from China on euro area goods inflation. Inflation for China-exposed goods has been persistently lower than total goods inflation, with model-based estimates suggesting that shocks which bring down the prices of imports from China by 10% in exposed sectors reduce inflation by 0.1-0.7 percentage points in key categories such as furniture and appliances. A historical decomposition estimated over the period between January 2002 and April 2026 shows that, cumulatively, import price shocks from China reduced goods inflation by 0.27 percentage points by April 2026, with delayed effects from the appreciation of the euro in 2025 further dampening goods inflation.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_06~f469938e52.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 25

The narrowing of the euro area current account balance in 2025

This box examines the narrowing of the euro area current account surplus from 2.7% of GDP in 2024 to 1.7% in 2025. The decline was driven mainly by services trade and income flows and particularly by developments vis-à-vis the United States and China. For the United States, this reflected the role of US multinational enterprises, whose euro area affiliates supported goods exports but generated larger services and income deficits. Imports from China grew, especially in machinery and manufactured goods. AI-related goods had only a limited direct effect on the goods balance, but it is likely that rising AI adoption boosted imports of digital services. From a saving and investment perspective, the lower surplus reflected reduced net lending by non-financial corporations, owing to both lower saving and higher domestic investment needs. Overall, the euro area current account surplus is expected to remain below its 2024 level over the medium term.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_08~de66a3786d.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 25

How US financial markets react to geopolitical shocks hitting oil supply

This box assesses how energy supply disruptions associated with geopolitical shocks are transmitted to US financial markets, leveraging on the indicator developed by Iacoviello and Tong (2026). Whereas negative geopolitical events typically reduce output, they are ambiguous with respect to inflation. However, those that also constrain global oil supply are inflationary and lead to deeper recessions. In these cases, stock prices fall more persistently, the dollar appreciates markedly, and risk metrics such as corporate bond spreads increase and remain elevated. This pattern is driven by oil price dynamics: instead of falling, as they would if supply were unaffected, oil prices rise sharply and persistently. Applying model-implied elasticities to the war in the Middle East which started in February 2026 suggests that markets have reacted only moderately to the shock. This may reflect confidence in the robustness of the US economy or expectations that the conflict will be short-lived, but it also leaves markets vulnerable to abrupt repricing if these assumptions prove wrong.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_02~7d79ce3c90.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 25

Higher oil prices from the war in the Middle East: assessing the headwinds for euro area growth

Oil supply disruptions related to the war in the Middle East have triggered a sharp rise in oil prices, posing headwinds for euro area economic activity. This box assesses the macroeconomic effects of the shock using a Bayesian vector autoregressive model with identified geopolitical oil supply shocks. The results suggest that supply-driven oil price increases associated with geopolitical events have a persistent negative effect on euro area growth, operating through lower private consumption and investment. Historical evidence from past geopolitical oil supply disruptions indicates that the current shock is likely to weigh noticeably on euro area growth, although the magnitude of the effects remains uncertain and will depend on the future path of oil prices and the evolving geopolitical situation.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_04~9b6a4036fc.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 24

Five years of the ECB Survey of Monetary Analysts: evolution and insights

The Survey of Monetary Analysts (SMA) is a valuable information set for understanding the expectations of financial market participants regarding monetary policy and macroeconomic developments in the euro area. This article reviews the evolution of the SMA over the past five years, highlighting key development milestones, including changes to the panel, questionnaire and analytical use of the survey. It explains how SMA data enhance regular monetary policy assessments and the understanding of expectation formation. In particular, the links between the expected policy rate path and the macroeconomic expectations of respondents provide structured insights into the views of the analysts. This has proven to be particularly valuable during periods of economic uncertainty, including during the post-pandemic surge in inflation and the subsequent period of disinflation. The article also evaluates the forecast accuracy of the SMA, as well as the disagreement among respondents, and the dispersion of their macroeconomic expectations.
https://www.ecb.europa.eu//press/economic-bulletin/articles/2026/html/ecb.ebart202604_01~1fcadce39a.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 23

State aid in the EU: an evolving landscape

State aid expenditure in the EU has risen in recent years against the background of economic shocks such as the COVID-19 pandemic, Russia’s unjustified war against Ukraine and, most recently, the crisis in the Middle East, as well as a global resurgence of interventionist industrial policy. While traditionally aimed at addressing market failures and achieving policy objectives like regional cohesion and environmental transition, State aid has increasingly shifted towards supporting industrial competitiveness, decarbonisation and strategic resilience. This box provides first evidence of this evolution, while further analysis is warranted on how State aid can effectively support shared EU objectives and new industrial priorities while safeguarding competition within the Single Market and maintaining fiscal sustainability.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_03~a3ff0e07f6.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 23

AI and the US labour market: effects on employment growth

The adoption of AI is reshaping the US labour market, with its impact on employment growth varying across occupations. AI has led to a job reallocation, particularly disadvantaging occupations with a high risk of AI substitution compared to those with low substitution risk. An econometric analysis confirms that AI has widened the gap in employment growth between employment in high-risk occupations and low-risk occupations between 2019 and 2025. However, this divergence in employment growth has not translated into wage disparities.
https://www.ecb.europa.eu//press/economic-bulletin/focus/2026/html/ecb.ebbox202604_01~d9259db536.en.html ecb.europa.eu
RSS Hunter RSS Hunter • Jun 22

Beat the heat, the role of heat waves and droughts in regional EU economies

Europe is increasingly exposed to heat waves and droughts, but their short-term economic effects across sectors remain hard to predict. This study develops climate-augmented models to predict real growth in per capita value added across 1,117 EU regions (2002–2022), by combining economic indicators with high-frequency climate data. When using machine learning (ML, Random Forest and XGBoost), climate variables improve predictions in agriculture, while gains for other sectors are limited and do not outperform economic models. Heat wave indicators consistently enhance predictive performance, whereas drought effects vary by sector. Simulations of extreme combined heat and drought scenarios suggest that agricultural annual growth could fall by 1.9 to 7.6 percentage points in most regions, whereas industry, and manufacturing in particular, is less affected, although impacts are more pronounced in Eastern Europe and the Baltic states. Overall, ML models better reflect complex climate–economic interactions, supporting their use for early warning, policy planning, and targeted adaptation.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3248~f871c3bd85.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 17

Effectiveness of supervisory activities in mitigating banks’ commercial real estate risk

We assess the effectiveness of supervisory activities in mitigating credit risk stemming from banks’ commercial real estate portfolios. We analyse two activity types deployed by European banking supervisors: (a) on-site inspections, which assess in depth banks’ risk-taking and internal controls, but can only be selectively applied, and (b) off-site targeted reviews, which survey risk management practices across institutions, are less intrusive but are applied more widely. Using quarterly confidential supervisory data for large euro area banks between 2020 and 2024, we employ a Difference-in-Differences framework with an event-study design to capture the effects of these activities on the coverage ratio of banks’ commercial real estate portfolios. We find that on-site inspections are followed by persistent increases in coverage ratios, while targeted reviews are associated with immediate improvements which are significant but short-lived. The results highlight the complementary nature of the two activity types, which have different outreach possibilities and effects.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3247~e9939db1a7.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 16

Innovation without borders? The geography of technological diffusion

How well does innovation diffuse across geographic boundaries? To shed light on this question, we present a large-scale field experiment involving 3,300 firms across twelve European Union countries. We elicit firms’ perceptions of the share of similar firms in their own country that had invested in artificial intelligence (AI), as well as the corresponding share among similar firms in Germany, France, and Italy. We randomly provide half of the sample with accurate information about both domestic and foreign AI investment. We show that firms substantially underestimate competitors’ current AI investment, both domestically and abroad, and that they update their expectations about competitors’ future AI investment in response to the information treatment. The treatment also causes a statistically significant increase in firms’ own expected AI investment rate. We find strong strategic complementarities within borders: a 1 pp increase in the expected share of domestic peers investing in AI raises a firm’s own expected AI investment rate by 0.570 pp. These complementarities are absent across borders: the effect of an increase in the expected share of foreign peers investing in AI on a firm’s own expected AI investment rate is statistically insignificant. Overall, our evidence shows that innovation diffusion and strategic complementarities in AI investment are much stronger domestically than internationally.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3246~e9aa80d0b9.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 16

Household Finance and Consumption Survey: Methodological report for the 2023 wave

This report summarises the methodologies used in the fifth wave of the Eurosystem Household Finance and Consumption Survey, which provides household-level data collected in a harmonised way in the 20 euro area countries at the time of collection, as well as in the Czech Republic and Hungary. The total sample size comprises almost 90,000 households. Although the survey does not refer to the same time period in all countries, the most common reference period for the data is 2023. The report presents the methodologies applied in areas such as data collection, sample design, weighting, imputation and variance estimation. It also addresses statistical disclosure control issues and analyses issues that may have an effect on the comparability of the survey data across countries and waves.
https://www.ecb.europa.eu//pub/pdf/scpsps/ecb.sps52~20e2b58784.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 16

Household Finance and Consumption Survey: Results from the 2023 wave

This report summarises the stylised facts from the 2023 wave of the Eurosystem Household Finance and Consumption Survey, which provides household-level data collected in a harmonised way in 20 euro area countries, as well as in the Czech Republic and Hungary, for a sample of almost 90,000 households. When compared with previous waves, the 2023 results are strongly affected by the temporary surge in inflation experienced in the euro area between 2021 and 2023. Since asset prices had not caught up with the price level by the time the survey was conducted, the real value of both assets and liabilities decreased for most households. In terms of net wealth, therefore, reductions were more pronounced for asset-rich households, while poorer, more indebted households tended to lose less, and sometimes benefit, from the price level increase. For real gross incomes, due to the slow adjustment of nominal wages, declines were recorded in the lower and middle parts of the distribution, including the median household, while those in the top income decile experienced gains. Expenditures on food were mostly stable in the aggregate, while those on utilities recorded some increase.
https://www.ecb.europa.eu//pub/pdf/scpsps/ecb.sps53~7267e5b389.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 16

Financial stability considerations for monetary policy at the European Central Bank: conceptual framework and quantitative tools

The paper documents models used to analyse the interactions and trade-offs between price and financial stability at the European Central Bank. The paper describes a simple conceptual framework to think about the short- and medium-term trade-offs between price and financial stability. Short-term trade-offs arise whenever current inflationary pressure is high, but the financial system is experiencing stress. Medium-term trade-offs arise whenever current inflationary pressure is low, but risk is building up in the financial system. We document four main sets of models used to quantify trade-offs: time series models, balance sheet models, credit risk models and DSGE models with banking and financial frictions.
https://www.ecb.europa.eu//pub/pdf/scpdps/ecb.dp30~efc21667a0.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 15

FDI, gravity, and aggregation: revisiting the distance elasticity with sector-level FDI data

This paper re-examines foreign direct investment motives in the ‘FDI gravity’ model (Kleinert and Toubal, 2010), focusing on the role of distance. More precisely, we investigate whether aggregate and pooled gravity models for FDI obscure relevant heterogeneities across sectors. This is possible through the novel MREID dataset, which provides us with FDI data at the 2-digit NAICS level for 184 countries over the period 2010 to 2020. Our results reveal that aggregate and pooled models mask significant sector heterogeneities in two aspects: (i) in the importance of horizontal versus vertical FDI motives, and (ii) in the distance elasticity. Distance is negatively correlated with FDI on an aggregate level, which is robust to multiple econometric specifications, but exhibits significant sector heterogeneity. Our analysis suggests the presence of complex sector-specific components that cannot easily be explained with standard economic rationales.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3245~4d5ee7e8ea.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 15

Herding in the foreign exchange market

Using a recent and comprehensive data set covering nine of the most actively traded currencies on a monthly basis from 1995 to 2024, this paper explores the presence and potential drivers of herding behaviour in foreign exchange rate forecasts. The dataset features an average of 40–50 forecasters per currency, representing a broader range of currencies, a longer time frame, and a larger cross section of forecasters than is commonly found in the FX herding literature. Our results provide mixed evidence on herding, where the balance tends towards anti-herding conclusions.While some revision-based tests suggest herding when current consensus forecasts are used, this evidence weakens considerably when lagged information is employed. In contrast, forecast-error based tests, Bernhardt et al. statistics, and over-reaction regressions more often point to anti-herding, particularly at longer horizons. Overall, we interpret the findings as suggesting thatdifferences among forecasters are largely attributable to heterogeneous views, noise, or idiosyncratic error rather than systematic convergence toward the consensus. When alternative explanations for expectation formation or revisions are considered, the main findings remain unchanged across a wide range of measures, including different types of uncertainty and FX predictors such as the forward premium, the real exchange rate, and the depreciation rate.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3243~a05b1e07b4.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 3

Fiscal policy transmission through production networks with heterogeneous households

We study how sector-specific fiscal policy propagates in an economy with heterogeneous households and production networks. We develop a multisector New Keynesian model in which input-output linkages interact with differences in households’ marginal propensities to consume (MPCs). We show that fiscal multipliers depend on sectors’ positions in the production network, as network linkages reallocate income across households with heterogeneous consumption responses. We derive an intersectoral Keynesian cross and introduce an MPC-augmented network multiplier that jointly characterize the transmission of fiscal shocks. The interaction between heterogeneous consumption responses and production networks is non-additive: network linkages can either amplify or attenuate fiscal transmission depending on how income is redistributed across households. Fiscal policy is most effective when spending is directed toward labor-intensive, downstream sectors that employ a large share of high-MPC households. Using data from the Survey of Consumer Finances, we document substantial sectoral heterogeneity in household balance sheets and in the prevalence of hand-to-mouth households. Calibrating the model to the U.S. economy, we find sizable variation in sectoral fiscal multipliers and significant distributional effects of government spending.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3244~0e92afef7d.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 3

Investment composition and growth: the role of intangible and tangible ICT capital in the EU and other economies

This paper examines whether differences in the composition of investment help explain economic growth disparities in the EU and other advanced economies from 1996 to 2021. While overall investment levels in the EU and the US are broadly similar, the EU invests less in intangible and tangible ICT capital. This difference in composition is associated with part of the EU’s productivity gap with the US. Employing panel fixed effects and local projection methods, we find that intangible and tangible ICT investments -particularly in communications equipment, R&D, and other intellectual property products- are associated with higher GDP per capita growth than other forms of investment. To quantify these differences, we construct a novel investment efficiency ratio that relates the estimated economic growth contribution of each asset to its share in total investment. The results are robust across empirical methods, country samples, and time periods, and reveal substantial heterogeneity: the growth association of ICT-related investment is stronger in countries with higher income levels and greater human capital. Overall, the findings suggest that improving the allocation and efficiency of investment, rather than simply increasing its volume, is key to enhancing long-term growth.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3242~873057c617.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 2

The rise of China in academic research

Analyzing more than 300,000 articles across 40 top-tier journals between 2000 and 2022, this study demonstrates that China’s 2006 National Medium-and Long-Term Plan for the Development of Science and Technology catalyzed a surge in publication volume and citations, propelling China past the United States as the world’s leading producer of scientific research. Controlling for national income, population, and human capital, we find these gains are concentrated in fields explicitly targeted by the government’s plan—physics, chemistry, biology, and medicine—while fields excluded from the plan, such as mathematics and economics, show significantly less growth. Our findings suggest that targeted state-led investment can effectively drive scientific progress, at least within a centrally planned economy.
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3241~e5f6278489.en.pdf ecb.europa.eu
RSS Hunter RSS Hunter • Jun 1