Eco Notepad features educational articles that present the research, studies and economic expertise of the Banque de France. The blog is aimed at students, professionals, journalists and academics. Some articles will be devoted to analyses carried out by the Bank's branch network, on specific topics. The opinions expressed are those of the authors and do not necessarily reflect the position of the Banque de France, the Eurosystem, or the institutions employing these authors.
Eco Notepad editors asks authors submitting a post to the blog to confirm that they have no conflicts of interest. If one of the authors of a blog benefits of an external financing, he should state the sources of financial support for the particular research it describes.
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People’s views diverge as to which economic priorities the ECB should focus on. After recalling the economic rationale of the ECB mandate, as well as the legal framework, this posts gives some insights into the reasons why its new strategy takes account of other considerations, such as climate change, in the way in which the ECB fulfils its mandate.
Chart 1. What is the primary objective of the ECB monetary policy? Source: Survey conducted by Kantar on behalf of the Banque de France in October 2020 by phone. Note: Sample: 1,005 individuals, 18 years and over.
In July 2021, the ECB announced that its price stability objective is best served by a 2% inflation target over the medium term. This clear and symmetric inflation target reinforces the buffer against deflation risks and supports the anchoring of inflation expectations.
Chart 1: Inflation in the euro area, 1999 until June 2021 Source: ECB.
In July 2021, the ECB announced a new monetary policy strategy. Behind the scenes, staff of the Eurosystem produced a comprehensive and detailed analysis to support the Governing Council. This blog summarises the main outcomes and will provide links to future blogs explaining the background material.
The Covid-19 crisis led to a collapse of French exports in April and May 2020. Using customs data, we investigate the role of the performance of individual exporters. Although the number of exporters contracted by roughly a quarter, excluding aeronautics, it was the reduction in exports of the hundred or so largest exporters (representing 36% of French exports before Covid) that accounted for approximately half of the decline observed at the aggregate level.
Chart 1: Largest exporters contributed more than their pre-crisis share (April-May 2020 relative to April-May 2019) Source: Authors' calculations based on Customs data.
The ECB’s monetary policy can affect the euro through sovereign spreads. A policy surprise that reduces sovereign spreads during the ECB press conference will lead to an appreciation of the euro. This relationship is generally observed when redenomination risk is high, suggesting that monetary policy counters fragmentation risks, thus supporting the solidity of the euro.
Chart 1: EUR/USD exchange rate vs. 10-year sovereign spreads in the euro area. Note: Sovereign spreads are calculated with respect to the 10-year German Bund. Sources: Banque de France, Bloomberg.
The EU post-Covid recovery plan is the largest European-wide fiscal stimulus in 70 years. This post revisits the experience of the Marshall Plan by highlighting the role of structural effects, conditionality design, the need to prepare the plan exit, the influence of fundamentals and the importance of the plan’s success as a vector of European integration.
Chart 1: Marshall Plan and European plan by type of aid and size of investments financed (% of GDP of recipient countries)
Given the recent outperformance of those sectors best-positioned to accompany the ecological transition, some commentators have voiced fears that a bubble might be emerging in “green” equities. A systematic analysis based on the environmental scores (the “E “in ESG) of over 2,500 stocks in the Datastream Global Equity Index suggests that these fears may be overdone.
Chart 1: Trajectory of prices for clean, neutral and polluting sectors Source: Datastream. Scope: World. BdF calculations.
Using out-of-court proceedings to resolve companies’ financial difficulties can help them to recover by preserving their reputation. However, directors seldom use them, partly because of a lack of information available about these facilities. It would be beneficial for small companies to make use of these "crisis exit" restructuring mechanisms, which are designed for them.
Chart 1: Out-of-court proceedings, which are more effective in helping businesses to recover, account for only 5% of proceedings initiated in 2019 Note: judicial liquidation is “direct” when the company has not made use of other proceedings beforehand. Source: Ministry of Justice - Statistical analysis of the general civil register, 2019
A 1% increase in the price of imported refined diesel ultimately translates into a 0.75% increase in the pre-tax price and a 0.3% increase in the pump price of diesel including taxes in France. The adjustment does not occur immediately but is rapid: after one week, the increase in the pre-tax price is 0.45%, i.e. more than 50% of the final pass-through. Prices respond in the same way to an upward or downward shock.
Chart 1: Response of diesel prices to a 1% shock in the commodity cost Sources: Ministry for the Ecological and Solidarity Transition, Reuters. Authors' calculations.
Does requiring financial institutions to be more transparent about the climate impact of their portfolios encourage them to reduce their investments in the most polluting industries? We study the effect of a French law passed in 2015, the first to impose such an obligation. We show that investors subject to mandatory reporting have significantly reduced their holdings of securities issued by fossil fuel companies, compared to investors not targeted by the law.
Chart 1: Cumulated outstanding amount of securities issued by fossil fuel companies, held by treated financial institutions vs control group financial institutions Source: Mésonnier and Nguyen (2021)
The recent rise in French inflation is temporary in nature but could last for a few more quarters. It is linked to a normalisation of prices after the lows seen in 2020, and to the increase in industrial goods and energy prices. After reaching a peak on the back of these temporary effects, inflation should come back to below the 2% mark over the course of 2022.
Chart 1: Banque de France projection for French inflation (Harmonised Index of Consumer Prices, %) Source: INSEE data up to the second quarter of 2021 and for the data point in the third quarter of 2021. Shaded area shows Banque de France projections. For the third quarter, only the inflation figure for July was available at the time of the projections
After a sluggish first half of the year, international travel picked up in the summer of 2021. In France, travel receipts amounted to EUR10.6 billion, down 29% compared to the summer of 2019 but up 25% compared to 2020. This rebound can be attributed to travellers from nearby countries. However, French travel spending abroad is also more dynamic, so that the surplus is still slightly lower than in the summer of 2020.
Chart 1: France’s monthly travel receipts (EUR billions, non-seasonally-adjusted data) Source: Banque de France