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INTERVIEW
13 February 2025
Digital euro would make lives easier
The digital euro would make life easier for all European consumers and enhance our payments sector, fostering competition and innovation across the entire euro area, Executive Board member Piero Cipollone explained in an interview for the Frankfurt Digital Finance conference.
ECONOMIC BULLETIN
13 February 2025
ECB publishes Economic Bulletin
This publication presents the economic and monetary information which forms the basis for the Governing Council’s policy decisions. It is released eight times a year, two weeks after each monetary policy meeting.
Read the new Economic Bulletin
EVENT
11 February 2025
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- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 11 February 2025
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 7 February 2025
- PRESS RELEASE
- 4 February 2025
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 4 February 2025
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 4 February 2025
- MFI INTEREST RATE STATISTICS
- 31 January 2025
- GOVERNING COUNCIL DECISIONS - OTHER DECISIONSEnglishOTHER LANGUAGES (23) +
- 12 February 2025
- Introductory remarks by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the MNI Webcast on Climate Change: Impact on Monetary Policy and Bank Supervision
- 11 February 2025
- Slides by Isabel Schnabel at the Nuremberg Talks Series' panel discussion organised by the Institut für Arbeitsmarkt- und Berufsforschung in Nürnberg, Germany
- 10 February 2025
- Speech by Christine Lagarde, President of the ECB, at the plenary session of the European Parliament
- 5 February 2025
- Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Peterson Institute for International Economics (PIIE)
- 30 January 2025
- Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 30 January 2025EnglishOTHER LANGUAGES (22) +Related
- 30 January 2025
- 30 January 2025
- EnglishOTHER LANGUAGES (23) +
- 6 February 2025
- Interview with Piero Cipollone, conducted by Balazs Koranyi and Francesco Canepa
- 5 February 2025
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Mário Blaščák
- 17 January 2025
- Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Arend Clahsen and Han Dirk Hekking
- 13 January 2025
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by András Szigetvari
- 9 January 2025
- Interview with Piero Cipollone, conducted by Federico Fubini
- 11 February 2025
- At the heart of the euro area’s competitiveness challenges lies weak productivity growth. The ECB Blog looks at how this makes it more difficult to carry out monetary policy.Details
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
- 5 February 2025
- The monetary policies of the ECB and the US Federal Reserve are not always in sync. But how does the Fed’s policy affect the euro area economy? This ECB Blog looks at how monetary policy in the United States travels across the Atlantic and what this means for the ECB.Details
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 1 February 2025
- Remaining competitive is fundamental for Europe’s future. We need faster economic growth and higher productivity to protect the quality of life for Europeans – from their jobs and incomes to their security and welfare.
- 20 January 2025
- Stress tests are of crucial importance to assess banks’ resilience under adverse economic conditions. In previous stress tests, however, some banks submitted overly optimistic projections. Despite thorough quality assurance by supervisors, this behaviour makes it more likely that the risks some banks face are underestimated. To address this, we are now taking a closer look at insufficiently prudent projection submissions. In line with our supervisory focus on banks’ risk data aggregation and reporting capabilities, we are also looking more closely at poor data quality issues in stress tests.Details
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
- 15 January 2025
- Central banks project future developments based on past data patterns and a set of assumptions. Crises can change economic structures, complicating this forecasting. The ECB Blog explains how scenario, risk and sensitivity analyses address the new uncertainty.Details
- JEL Code
- E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
C15 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Statistical Simulation Methods: General
- 13 February 2025
- WORKING PAPER SERIES - No. 3026Details
- Abstract
- Institutional investors, such as investment funds, are playing an increasingly important role in residential real estate markets. This raises the possibility that their actions might drive aggregate market outcomes and may change how and which macrofinancial shocks transmit to house prices. In a Bayesian vector autoregression setting, we show that a demand shock from institutional investors has a positive and persistent effect on aggregate euro area house price growth and mortgage lending volumes. Institutional investors also increase their purchase activity following a loosening of monetary policy. Exploiting regional heterogeneity in eight euro area countries, we show in a panel regression setting that institutional investors weaken the link between house price growth and local economic fundamentals, but strengthen the sensitivity to monetary policy and financial market developments.
- JEL Code
- R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 13 February 2025
- WORKING PAPER SERIES - No. 3025Details
- Abstract
- Using supervisory data of alternative investment funds investing in bonds, I exploit the COVID-19 crisis to examine the effectiveness of redemption restrictions from a financial stability perspective. First, I find that redemption restrictions reduced outflows during the March 2020 market turmoil but did not result in higher outflows in the periods following the crisis episode. Second, I find that funds with higher redemption restrictions engaged less in procyclical cash hoarding during the COVID-19 crisis period, even after controlling for the size of their outflows. Third, I find that redemption restrictions do not have a significant impact on the sensitivity of investor inflows to good performance, but they significantly reduce the sensitivity of outflows to bad performance. These findings suggest that redemption restrictions can mitigate fragility in open-ended investment funds.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 13 February 2025
- ECONOMIC BULLETIN
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- Monetary policy communication is important for managing policy expectations and enhancing the effectiveness of central bank policy decisions. The prevalence of topics in the ECB’s communication has shifted over time with the focus of its work: from the creation and introduction of the euro to addressing financial crises with new policy instruments, and more recently, to tackling the effects of the 2021-22 inflation surges. The analysis shows that, while press releases and monetary policy statements following Governing Council meetings lead to significant immediate changes in asset prices, communication taking place between these meetings also has a meaningful impact, with a substantial cumulative effect over time. A holistic understanding of the impact of Governing Council communication – both immediately after its meetings and between one meeting and the next – is central for managing expectations and shaping monetary policy outcomes.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- The collateral framework for Eurosystem credit operations contributes to an effective, robust, flexible and efficient implementation of the ECB’s monetary policy. The framework has evolved over time, primarily in response to economic and financial market developments, supporting bank lending and the provision of liquidity. Recent Governing Council decisions will increase the harmonisation of the framework, while simultaneously preserving a broad collateral basis.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E65 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Studies of Particular Policy Episodes
G01 : Financial Economics→General→Financial Crises
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- Major floods have become recurrent events in Europe and their frequency is set to increase with climate change. Drawing on several pieces of ECB analysis, we show that the economic effects depend largely on economic and institutional factors at the regional level. There is evidence of high-income regions “building back better”, whereas lower-income regions can suffer prolonged periods of lower activity. Insurance and spending on adaptation measures like flood defences can already contain the potential damages from further extreme weather events in the near future.
- JEL Code
- D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J22 : Labor and Demographic Economics→Demand and Supply of Labor→Time Allocation and Labor Supply
R11 : Urban, Rural, Regional, Real Estate, and Transportation Economics→General Regional Economics→Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- The euro area unemployment rate has been declining for the past two years. This box explores the role of labour supply factors in driving this decline. To this end, it examines in particular whether changes in the labour force composition of certain demographic groups have contributed to this trend. The results show that, even within the relatively short time frame considered, shifts in the labour force composition – and especially the rising proportions of older workers and workers with a tertiary education – have contributed to reducing the unemployment rate.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- The inflation surge seen in the past few years has had a negative impact on consumer perceptions about real incomes. These perceptions seem to persist even as real income has actually improved over time. This behaviour, which can be seen as a form of pessimism, is particularly strong among lower and middle-income households and has had a negative impact on actual consumption. These findings underscore the importance of perceptions in economic behaviour. As pessimism following large economic shocks typically disappears, albeit gradually, consumption should gain momentum as perceptions about real incomes improve.
- JEL Code
- D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
G51 : Financial Economics
- 13 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- While headline inflation has decelerated significantly across advanced economies in the past two years, services inflation has remained high. This box examines the key factors influencing services inflation in the United States and the United Kingdom, highlighting the role of labour market tightness and catch-up dynamics in non-rent services inflation, and the contribution of rent inflation to overall services inflation. Looking ahead, services inflation is expected to moderate amid a lower contribution from catch-up inflation dynamics, a cooling of labour markets and decreasing inflation for new rental agreements.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 12 February 2025
- WORKING PAPER SERIES - No. 3024Details
- Abstract
- We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights. Based on a sample of over one million European firms, we document substantial heterogeneity in terms of firms’ investment response: when conditions tighten, fixed capital stock of labor-intensive firms decreases relative to capital-intensive production. These findings cannot be explained by other proxies for financial constraints such as age, size or financial leverage. Our results suggest that the impact of monetary policy is driven by borrowing constraints of high labor share firms, and that monetary policy is more potent in an economy characterized by a high labor share.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E23 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 12 February 2025
- WORKING PAPER SERIES - No. 3023Details
- Abstract
- Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies. AMCs enhance average returns to bank lending, promoting additional lending (bank lending channel) and improving corporate borrowers’ balance sheets (balance sheet channel). The welfare gains of well-designed and well-managed AMCs are between 0.2% and 0.5% of steady-state consumption, independent of whether they are financed through fiscal transfers or sterilized monetary transfers; AMCs can complement traditional fiscal and monetary policies in managing financial crises.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 12 February 2025
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 1, 2025Details
- Abstract
- The green transition of the EU economy will require substantial investment to 2030 and beyond, to reduce greenhouse gas (GHG) emissions by 55% from 1990 levels by 2030 and reach net-zero emissions by 2050. Estimates of green investment needs vary and are surrounded by high uncertainty, but these all point to a requirement for faster and more ambitious action. Green investment will need to be financed primarily by the private sector, with support from the public sector. While banks are expected to make a key contribution to funding the green transition, capital markets need to deepen further, especially to support innovation financing. Public funds will be vital to complement and de-risk private green investment. Finally, structural reforms should be tailored to encourage firms, households and investors to step up their green investment activities.
- JEL Code
- E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices
Q50 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→General
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
- 12 February 2025
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 1, 2025Details
- Abstract
- This article describes developments in wage indicators during and after the high inflation period. It illustrates that, following high volatility during the pandemic, all wage indicators recorded levels well in excess of historical averages in 2023-24. The drivers of wage growth, namely inflation, labour market tightness and productivity growth, also developed differently from how they have developed in the past, and there is a need to reassess how they are reflected in wage developments. Using the augmented wage Phillips curve we find that the inflationary shock was the main driver of wage growth dynamics in the period under investigation, while labour market tightness supported workers in recovering real wage losses. We illustrate the link between wage growth and inflation in the euro area through the lens of the Bernanke-Blanchard model. ECB wage tracker data confirm the important role of catching up in recent wage growth and point to labour market institutions having a strong role in the speed of pass-through of prices to wages. Meanwhile, wage pressures are expected to ease as real wage catch-up becomes less significant and labour demand eases.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
J52 : Labor and Demographic Economics→Labor?Management Relations, Trade Unions, and Collective Bargaining→Dispute Resolution: Strikes, Arbitration, and Mediation, Collective Bargaining
- 11 February 2025
- OTHER PUBLICATIONAnnexes
- 11 February 2025
- ANNEX
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- 11 February 2025
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 1, 2025Details
- Abstract
- This article discusses the role institutions play in supporting European competitiveness and makes the case for urgent and concrete structural reforms. Productivity growth in Europe has been disappointingly low in the last three decades, which is closely linked to the shortcomings in firm dynamism, investment, breakthrough innovation and the diffusion of digital technology. Efficient and effective institutions at the national and EU levels are needed to support innovation and investment and boost productivity, which in turn will raise competitiveness. This is particularly important in the context of increased geopolitical tensions and the need to facilitate the digital and green transitions.
- JEL Code
- O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth
O32 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Management of Technological Innovation and R&D
O18 : Economic Development, Technological Change, and Growth→Economic Development→Urban, Rural, Regional, and Transportation Analysis, Housing, Infrastructure
J24 : Labor and Demographic Economics→Demand and Supply of Labor→Human Capital, Skills, Occupational Choice, Labor Productivity
F02 : International Economics→General→International Economic Order
- 11 February 2025
- WORKING PAPER SERIES - No. 3022Details
- Abstract
- The digitalisation of payments has accelerated over the last decades with the internet and ever faster and cheaper computing. Now, many believe that decentralised finance (“DeFi”) offers fundamentally new possibilities for trading, payments and settlement. Moreover, for a few years central banks have launched work on what has been called retail and wholesale central bank digital currencies (“CBDC”). Concurrent to the rise of innovative technologies has been the advent of new terminology, which is widely used, but which often seems to be biased, confusing, or is used inconsistently. By providing an etymology of key concepts and reviewing terminology and definitions, this paper also provides a new approach to clarifying the essence of new technologies in the field of payments to facilitate ongoing discussions about their eventual merits and use cases.
- JEL Code
- B26 : History of Economic Thought, Methodology, and Heterodox Approaches→History of Economic Thought since 1925→Financial Economics
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
- 11 February 2025
- WORKING PAPER SERIES - No. 3021Details
- Abstract
- Homeownership rates and holdings of housing wealth differ immensely across countries. Using micro data from five economies, we estimate a life-cycle model with illiquid housing in which households face a discrete–continuous choice between renting and owning a house. We use the model to decompose the cross-country differences in the homeownership rate and the value of housing wealth into three groups of explanatory factors: house price expectations, the institutional set-up of the housing market and preferences. We find that all three groups of factors matter, although preferences less so. Differences in homeownership rates are strongly affected by (i) house price beliefs and (ii) the rental wedge, the difference between rents and housing maintenance costs, which reflects the quality of the rental market. Differences in the value of housing wealth are substantially driven by maintenance costs.
- JEL Code
- D15 : Microeconomics→Household Behavior and Family Economics
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G51 : Financial Economics
- 7 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- This box provides an update on estimates of the natural rate of interest, or r*, published in Issue 1, 2024 of the Economic Bulletin. r* is commonly referred to as the real rate of interest that is neither expansionary nor contractionary. Broad trends in r* can be used to gauge economic risks, such as the potential constraint of the lower bound on interest rates. However, estimating r* is fraught with wide-ranging uncertainties and conceptual limitations. These uncertainties stem from model selection, parameter estimation, filter techniques and variation in real-time data. The inherent uncertainty in estimating r* and its conceptual challenges limit its practical use to determine the appropriate stance of monetary policy at a specific point in time.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
- 7 February 2025
- WORKING PAPER SERIES - No. 3020Details
- Abstract
- An increase of e100 per tonne in the EU carbon price reduces the carbon footprint but lowers GDP due to higher energy costs and carbon leakage. Using a dynamic multi-sector, multi-country model augmented with an energy block that includes endogenous renewable energy investment, we analyze the macroeconomic and emissions effects of a carbon price. Investment in renewable energy mitigates electricity price increases in the medium term, leading to a smaller GDP loss (up to -0.4%) and a larger emissions reduction (24%) in the EU. Neglecting renewable energy investment overestimates the negative economic impact. We also find that a Carbon Border Adjustment Mechanism (CBAM) reduces carbon leakage but slightly hurts GDP and inflation as the competitive gain is offset by the higher costs of imported intermediate inputs.
- JEL Code
- C6 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling
H2 : Public Economics→Taxation, Subsidies, and Revenue
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 6 February 2025
- WORKING PAPER SERIES - No. 3019Details
- Abstract
- This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the US with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns. Our findings contribute to explaining the Great Moderation and provide empirical support for theories that predict that banking integration facilitates the insurance of region-specific risk and the efficient allocation of resources as markets become more complete.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
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