Monetary policy

Post n°307

Central banks’ announcements and market inflation expectations

Published on 03/07/2023

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By Sophie Guilloux-Nefussi, Cristina Jude, Adrian Penalver, Urszula Szczerbowicz

This post investigates how monetary policy announcements in the US and the euro area have affected inflation expectations since 2021. We show that a 100bp surprise increase in 2-year rates translated into a 30-50bp drop in medium-term inflation expectations. Central banks’ effective communication was the main factor influencing inflation expectations around these announcements.

Figure 1: Response of inflation expectations to a 100bp monetary policy surprises in 2021-2023
Figure 1: Response of inflation expectations to a 100bp monetary policy surprises in 2021-2023 Source: Bloomberg and authors calculations
Updated on 03/07/2023 08:33
Post n°306

Global tightening of monetary policies, how are emerging countries reacting?

Published on 02/27/2023

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By Valentin Burban and Pavel Diev

In the context of the global monetary tightening cycle, we show that most emerging countries have reacted in line with their price stability objectives. But three major emerging market economies - China, Russia and Türkiye - are currently in an easing phase for idiosyncratic reasons.

Chart 1: Deviation of inflation from target levels at the start of the normalisation phase (percentage points)
Chart 1: Deviation of inflation from target levels at the start of the normalisation phase (percentage points) Source: Consensus Economics, national sources and Banque de France
Updated on 02/27/2023 08:32
Post n°299

New indicators of perceived inflation in France based on media data

Published on 12/27/2022

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By Jean-Charles Bricongne, Olivier de Bandt, Annabelle de Gaye, Julien Denes, Paul Hubert, Pierre-Antoine Robert

The recent rise in inflation could affect households' and businesses' perception of inflation. This post describes new indicators of perceived inflation in France constructed from alternative data: newspaper articles and messages from the social network Twitter. The advantage of such data is that they are available at high frequency and in real time.

Chart 1. Indicators of perceived inflation based on media data (standardised and rescaled) Sources: Factiva, Twitter, European Commission, authors' calculations.
Updated on 12/27/2022 09:49
Post n°294

Natural disasters: exposure and underinsurance

Published on 12/08/2022

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By Céline Grislain-Letrémy

Overseas households are more exposed to natural disasters than in mainland France, with a 20% increase in the sinistrality expected by 2050. However, far fewer of them are insured. Insurance supply is developed and regulated. The low subscription is mainly due to uninsurable housing and the anticipation of assistance.

Figure 1 : Effects of Hurricane Maria, Guadeloupe, 2017
Figure 1 : Effects of Hurricane Maria, Guadeloupe, 2017 Source: https://commons.wikimedia.org/wiki/File:Dégats_Ouragan_Maria_(Aprés_son_Passage).jpg
Updated on 12/08/2022 17:25
Post n°292

How well have ECB rate hikes been transmitted to the money market?

Published on 11/25/2022

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By Benoit Nguyen and Miklos Vari

Since July, the ECB increased its key interest rates by 200 basis points in total (once by 50bps and twice by 75 bps). These are the largest single rate hikes of the ECB key interest rates. In this post, we examine to what extent these changes of policy rates passed through to the money market, the first step of monetary policy transmission. Transmission has been nearly complete in the unsecured market (e.g. on €STR) but subdued in the secured market (i.e. on repo transactions).

Graph 1: Changes for unsecured money market rates from July to November 2022
Graph 1: Changes for unsecured money market rates from July to November 2022 Source: ECB, Statistical Data Warehouse. Note: DFR stands for Deposit Facility Rate.
Updated on 11/25/2022 08:58
Post n°285

What lessons from US evidence on the heterogeneity in inflation expectations?

Published on 10/07/2022

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By Camille Cornand (Univ Lyon, CNRS, GATE), Paul Hubert

Monetary policy consists in part in managing inflation expectations of different agents. New US evidence on heterogeneous frequency of forecast revisions and disagreement among various categories of agents (households, firms, professional forecasters) suggests that targeting communication to specific groups could be a useful tool for central bankers.

Figure 1 – Distribution of inflation expectations in the US
Figure 1 – Distribution of inflation expectations in the US Source: authors’ computations.
Updated on 10/07/2022 08:26
Post n°282

GDP-linked bonds: the bewitching song of the sirens

Published on 09/01/2022

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Par Sarah Mouabbi, Jean-Paul Renne and Jean-Guillaume Sahuc

Debt-to-GDP ratios in advanced economies increased considerably during the Great Recession and the recent pandemic, and may prove to be a source of vulnerability. Commentators propose indexing the debt service to GDP growth to provide the government with an automatic stabilizer for its financing. FNew fndings suggest that GDP-linked bonds are more expensive for the government and can only prevent high tail risks in debt-to-GDP ratios in the short run.

Chart 1 : Realized vs. expected real payoffs of one-year bonds with unit face value
Chart 1 : Realized vs. expected real payoffs of one-year bonds with unit face value Source: Mouabbi, Renne and Sahuc (2021).
Updated on 09/01/2022 08:38
Post n°281

A global shock to bond yields?

Published on 08/03/2022

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By Mattia Girotti, Guillaume Horny, Adrian Penalver and Anna Petronevich  

The co-movement of sovereign bond yields has been unusually strong in the most recent period. A global factor usually explains much of the variation in 10-year yields. What has been particularly striking over the recent months is the importance of a global factor in explaining 2-year yields. This suggests a common shock is driving expectations of monetary policy in the major advanced economies.

Chart 1 Global-local decomposition of French 2-year and 10-year sovereign yields
Chart 1 Global-local decomposition of French 2-year and 10-year sovereign yields Source: Bloomberg, authors’ calculations. Note: Solid lines represent the yields. Areas show the contribution of each factor relative to the 2015-2022 average rate. Latest observation: 06/07/2022.
Updated on 08/03/2022 09:02
Post n°277

Does robot density influence the effects of monetary policy?

Published on 07/05/2022

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By Stéphane Lhuissier

In a context where industrial jobs may be replaced by robots, this post shows that monetary policy is transmitted differently depending on industrial sectors’ degree of robotisation. Jobs in heavily robotised industries are half as sensitive to an interest rate change as those in low-robotisation industries.

Chart 1: Monetary policy transmission is weakened in heavily robotised industries
Chart 1: Monetary policy transmission is weakened in heavily robotised industries Source: Author’s calculations.
Updated on 07/15/2022 12:03
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

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