EU institutions

Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin, Giovanni Ricco, 16 October 2019

What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve. Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle. 

Olli Rehn, 15 October 2019

It has been recently suggested by a group of seasoned central bankers that there has been no danger of a deflationary spiral in the euro area. This column argues instead that the threat of a deflationary spiral was avoided by several reinforcements of the degree of monetary policy accommodation since 2015, and that a key lesson of monetary policy of the last ten years is that timely action is essential to avoid the sort of profoundly harmful equilibrium that might arise from prolonged low inflation and zero interest rates.

Lucio R Pench, Stefan Ciobanu, Marcin Zogala, Cristiana Belu Manescu, 14 October 2019

Much of the debate on fiscal discipline and policy has focused on fiscal rules and their appropriate design. Using recent work by the European Commission on national fiscal frameworks in the EU member states, this column shows that other elements of the fiscal framework are just as important as national fiscal rules for fiscal discipline. Independent monitoring of compliance, more realistic macroeconomic and budgetary forecasts, comprehensive and timely fiscal statistics and medium-term fiscal planning are also key for fiscal discipline in the EU.

Carlo Altavilla, Luca Brugnolini, Refet Gürkaynak, Roberto Motto, Giuseppe Ragusa, 04 October 2019

The newly released Euro Area Monetary Policy Event-Study Database makes available high-resolution data on asset price responses to ECB monetary policy announcements. In this column, the authors – the creators of the dataset – show that market perceptions of ECB policy communication comprise four factors: policy target, timing, forward guidance, and quantitative easing. These factors elicit large and long-lasting market reactions and help explain asset price changes in response to policy maker speeches and other news as well.

Spyros Alogoskoufis, Sam Langfield, 03 October 2019

At a leaders’ summit in June 2012, euro area governments recognised the imperative of breaking the doom loop resulting from sovereigns being exposed to bank risk and vice versa. But bank regulation still treats sovereign debt as risk-free and does not penalise concentrated portfolios. This column, part of the Vox debate on euro area reform, asks whether banks would reduce portfolio concentration in response to reforms, and whether they would reduce exposures to sovereign credit risk. Simulations show that the answer is never an unambiguous and simultaneous ‘yes’ to both questions under reforms envisaged by the Basel Committee on Banking Supervision.

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