Monetary policy

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
Post n°212

Why can sovereign and corporate borrowers in some countries borrow at negative rates?

Published on 04/23/2021

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by Sylvérie Herbert, Maria Sole Pagliari and Adrian Penalver

For several decades, advanced economies have seen their borrowing costs decrease, including amid the coronavirus pandemic. This is especially true at the long end of the yield curve. Even long-term bonds issued by some private corporations in the euro area trade at negative interest rates. This decrease in borrowing costs primarily reflects a decline in the natural real rate of interest due to population ageing and slower productivity growth, as well as the more recent compression of the long end of the yield curve resulting from central banks’ bond purchases.

Chart 1: 10-year sovereign yields and asset purchases
Chart 1: 10-year sovereign yields and asset purchases Sources: Bloomberg, ECB
Updated on 04/23/2021 15:57
Post n°210

Climate risks and collateral: a methodological experiment

Published on 04/14/2021

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By Oustry Antoine, Erkan Bünyamin, Svartzman Romain and Weber Pierre-François

The securities accepted as a guarantee under the Eurosystem collateral framework are not, in aggregate, “aligned” with the climate targets of the Paris Agreement. They can therefore be considered to be exposed to so-called “transition” risks related to climate change. Technically, it would be possible to ensure that the collateral pools pledged by each counterparty are more aligned, but this raises methodological questions.

Chart 1: Coverage rate and climate alignment of the pools of collateral pledged by Eurosystem counterparties, based on the methodology developed by Carbon4Finance
Chart 1: Coverage rate and climate alignment of the pools of collateral pledged by Eurosystem counterparties, based on the methodology developed by Carbon4Finance Sources: Carbon4Finance, Eurosystem and authors’ calculations.
Updated on 04/14/2021 16:15
Post n°209

Understanding the expansion of central banks’ balance sheets

Published on 03/25/2021

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By Emmanuel Cerclé, Hervé Le Bihan and Michaël Monot

Central banks' balance sheets have grown significantly, as a result of the "non-standard" monetary policies conducted in response to the 2008 crisis and the Covid-19 crisis. Reflecting the net asset purchase programmes in place, they are still expanding. However, over the longer term, their size could stabilise and then gradually decline once inflation has consistently returned to close to its target. Adjusting the size of their balance sheets should nevertheless remain in central banks' toolbox.

Chart1: Balance sheets of the Eurosystem, the FED and the BoJ (in amounts and as a % of GDP)
Chart1: Balance sheets of the Eurosystem, the FED and the BoJ (in amounts and as a % of GDP) Source: ECB, FED, BoJ, Eurostat Note: Top panel: amount in billions of euros (G€), dollars (G$), and yen (G¥). Bottom panel: as a % of GDP.
Updated on 03/30/2021 11:12
Post n°208

What conclusions can be drawn from the implementation of the two-tier system?

Published on 03/12/2021

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By Samuel Bieber

The two-tier system, which has been in place for over a year in the euro area, exempts part of banks' excess reserve holdings with the central bank from negative remuneration. This system aims to support the bank-based transmission of monetary policy. It has not unduly influenced money market rates.

Chart 1: Excess reserves exempted and non-exempted from negative remuneration (EUR billion)
Chart 1: Excess reserves exempted and non-exempted from negative remuneration (EUR billion) Source: Banque de France, European Central Bank
Updated on 03/12/2021 16:25

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