Monetary policy

Post n°275

What are business leaders’ inflation expectations?

Published on 06/23/2022

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By Paul Bouche, Julien Demuynck, Erwan Gautier, Frédérique Savignac

For the first time, the Banque de France is publishing the results of a survey on business leaders’ inflation expectations, collected since the end of 2021. One-year inflation expectations have increased since the beginning of the year and their median stands at 5% in the second quarter of 2022. Longer-term expectations (3-5 years) are also rising, but more slowly, with a median of 3%. This survey was conducted prior to the ECB's monetary policy normalisation announced on 9 June, which is expected to contribute to the gradual "re-anchoring" of inflation expectations.

Chart 1: Changes in inflation expectations since end-2021 in France (median in %)
Chart 1: Changes in inflation expectations since end-2021 in France (median in %) Note: median weighted by the number of employees in the company and the value added in the company's sector, 1% of the highest responses are not taken into account in the calculations. Source: IE-Banque de France survey.
Updated on 06/23/2022 16:33
Post n°261

Advantages of point targets and drawbacks of target ranges

Published on 03/15/2022

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By Christoph Grosse Steffen and Magali Marx

A central bank’s inflation objective can be formulated using a point target, a target range or a combination of the two. In this blog, we show the disadvantages of a target range for anchoring inflation expectations and for macroeconomic stabilisation. The analysis thereby underpins the ECB’s adoption of a clear and symmetric 2% inflation point target.

Chart 1: Inflation objectives, Q2 2020
Chart 1: Inflation objectives, Q2 2020 Source: Central bank websites, authors’ illustration.
Updated on 03/15/2022 17:33
Post n°253

Including owner-occupied housing costs in the measurement of inflation

Published on 01/31/2022

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By Julien André, Yannick Kalantzis , Antoine Lalliard and Paul Vertier

The harmonised measure of inflation currently published in the euro area does not take into account costs related to owner-occupied housing. There are several ways of capturing these costs, including the “imputed rent” and “net acquisition” approaches. Incorporating these costs into the measure of inflation produces different results depending on the method used, and the size and sign of the impact vary over time.

Chart 1: HICP and HICP augmented with imputed rents and with the acquisition price of housing in the euro area (% change year-on-year)
Chart 1: HICP and HICP augmented with imputed rents and with the acquisition price of housing in the euro area (% change year-on-year) Source: Eurostat for the HICP, Banque de France calculations for the augmented HICP. By convention, a weighting of 15% is applied to the price of owner-occupied housing in the euro area.
Updated on 01/31/2022 17:13
Post n°251

Monetary-fiscal policy interactions: the post-pandemic challenges

Published on 01/18/2022

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By Jean Barthélemy, Katja Schmidt and Giulia Sestieri

Both monetary and fiscal expansions have been needed during the past recent period in the euro area to sustain demand and inflation, mitigate the costs of the pandemic crisis and ensure a robust recovery. Conflicts of objectives between the two policies could, however, arise again in the future, in particular as a result of the ongoing accumulation of public debts and the large expansion of the Eurosystem’s balance sheet. Building on the work done during the recent ECB strategy review, this blog recalls the recent monetary and fiscal actions and presents some of the trade-offs for the post-pandemic period.

Chart 1. Public debt to GDP ratio in the euro area and for its largest countries (left hand side axis) and evolution of the Eurosystem balance sheet over GDP (right hand size axis)
Chart 1. Public debt to GDP ratio in the euro area and for its largest countries (left hand side axis) and evolution of the Eurosystem balance sheet over GDP (right hand size axis) Source: Eurostat, National accounts, Eurosystem data. Authors’ calculation.
Updated on 01/18/2022 18:46
Post n°250

The Fed’s monetary policy influences the US corporate debt structure

Published on 01/14/2022

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Urszula Szczerbowicz

The Fed’s monetary policy influences firms’ debt composition. Conventional monetary policy (CMP) easing increases firms’ bank loans and reduces their bond issuance, while unconventional monetary policy (UMP) easing stimulates corporate bond issuance. UMP affects the US corporate debt structure through a portfolio-rebalancing channel, rather than a bank lending one.

Chart 1: Evolution of loans and debt securities of US non-financial corporations
Chart 1: Evolution of loans and debt securities of US non-financial corporations Source: Financial Accounts of the United States, L.103.
Updated on 01/14/2022 14:15
Post n°244

Clear, consistent and inclusive ECB communication

Published on 12/09/2021

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By Katrin Assenmacher, Gabriel Glöckler, Sarah Holton, Klodiana Istrefi, Adrian Penalver

To ensure public understanding and trust, the ECB has to explain better what it does to all the people it serves. With these goals in mind, the Governing Council modernised its communication in July 2021, to have a stronger influence on interest rates and inflation expectations. The ECB will also listen more to citizens’ economic concerns.

Chart 1: High support for the euro; the recovery of trust in ECB is slow
Chart 1: High support for the euro; the recovery of trust in ECB is slow Source: Eurobarometer.
Updated on 12/09/2021 10:48
Post n°241

The ECB mandate through the lens of the new monetary strategy

Published on 11/30/2021

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Yolaine Fischer and Giulia Sestieri

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?
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.
Updated on 12/01/2021 11:32
Post n°240

A clear and symmetric 2% inflation target for the ECB

Published on 11/24/2021

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Martina Cecioni, Günter Coenen, Rafael Gerke, Hervé Le Bihan, Roberto Motto, Adrian Penalver

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
Chart 1: Inflation in the euro area, 1999 until June 2021 Source: ECB.
Updated on 11/24/2021 18:00
Post n°239

The analysis behind the ECB’s Strategy Review

Published on 11/24/2021

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By Adrian Penalver

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.

Source: European Central Bank
Updated on 12/20/2021 18:56
Post n°237

Monetary policy, fragmentation risks and the euro

Published on 11/04/2021

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By Klodiana Istrefi, Maria Sole Pagliari and Urszula Szczerbowicz

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.
Updated on 11/04/2021 19:37

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