Post n°168

The liquidity trap, monetary policy and the health crisis

Published on 06/30/2020

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By Stéphane Lhuissier

With nominal interest rates close to zero, the scope for using conventional monetary policy becomes very limited. However, this liquidity trap does not undermine central banks’ capacity for action. A recent study shows that they can stimulate the economy even in periods of low interest rates, and that they are therefore equipped to act effectively in response to the Covid-19 crisis.

Chart 1 – The effect of monetary easing remains positive in the euro area in ELB times
Chart 1 – The effect of monetary easing remains positive in the euro area in ELB times Source: Lhuissier, Mojon and Jubio-Ramirez (2020). NB: The accommodative monetary policy decision (“monetary policy shock”) corresponds to a fall in two-year sovereign interest rates of the order of 10 basis points.
Updated on 06/30/2020 17:11
Post n°167

Banks’ climate commitment and lending to brown industries

Published on 06/25/2020

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By Jean-Stéphane Mésonnier

We assess the link between banks' commitments to take climate issues seriously, measured by a climate performance rating based on their declarations, and the changes in their lending in France to greenhouse gas emitting industries between 2010 and 2017. A higher score appears to be associated with lower growth in lending to large enterprises in the five most carbon-intensive industries. However, lending to SMEs is not affected.

Chart 1: Banks’ pro-climate commitments and share of loans to firms in the most carbon-intensive industries in France.
Chart 1: Banks’ pro-climate commitments and share of loans to firms in the most carbon-intensive industries in France. Source: Banque de France, authors’ calculations.
Updated on 06/25/2020 14:32
Post n°166

Monetary policy measures taken by the Eurosystem in response to COVID-19

Published on 06/12/2020

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By Vincent Grossmann-Wirth

The Eurosystem responded quickly to the COVID-19 crisis, deploying significant measures to support the provision of financing to the economy through the bank lending and market financing channels. The measures take three forms: credit operations have been adjusted and extended, collateral easing measures have been introduced, and securities purchase programmes have been strengthened.

Table: main monetary policy decisions taken in March-June 2020
Table: main monetary policy decisions taken in March-June 2020 Source: Banque de France
Updated on 06/17/2020 09:49
Post n°165

Historical lessons from large increases in government debt

Published on 06/10/2020

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By Vincent Bignon and Pierre Sicsic

Sharp increases in government debt have occurred in post-war periods. While inflation, albeit at times moderate, was the norm in the 20th century, this had not occurred in previous centuries, even though wars had led to similar increases in public debt. One of the reasons for this is that this debt was set aside in a sinking fund for repayment at a later date.

Chart 1: Inflation and government debt in the United Kingdom (1700-1950)
Chart 1: Inflation and government debt in the United Kingdom (1700-1950) Source: Bank of England
Updated on 06/10/2020 17:00
Post n°164

Why should central banks react strongly in the event of a crisis?

Published on 06/05/2020

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By Grégory Levieuge and Jean-Guillaume Sahuc

The Covid-19 pandemic has prompted lender-of-last-resort interventions and massive asset purchases by central banks. Such responses are all the more necessary since the transmission of monetary policy to the real economy is asymmetric. Evidence suggests that the effects of an expansionary monetary policy are more limited than those of a contractionary policy. One reason lies in the existence of downward bank lending rate rigidity.

Chart 1 - Year-on-year changes in Eonia and bank lending rates in the euro area (per cent)
Chart 1 - Year-on-year changes in Eonia and bank lending rates in the euro area (per cent) Source: Levieuge and Sahuc (2020)
Updated on 06/05/2020 16:02
Post n°163

International cooperation in times of Covid 19: less disappointing than it appears

Published on 05/27/2020

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By Bruno Cabrillac

A pandemic is the type of challenges that can only be overcome by global action. Despite a pre-crisis context fraught with geopolitical and trade tensions, this necessary international coordination has been achieved in the economic field. However, the post-crisis phase will exacerbate conflicts of interest and constitute a "stress test" for multilateralism.

Chart 1. Measures taken by governments in response to the Covid 19 crisis (as a % of G20+ countries)
Chart 1. Measures taken by governments in response to the Covid 19 crisis (as a % of G20+ countries) Source: IMF, April 2020.
Updated on 05/27/2020 16:17
Post n°162

There is nothing magic in central bank money

Published on 05/20/2020

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By Jean Barthelemy and Adrian Penalver

Is central bank money “magic money” that could avoid issuing government debt or extinguish existing debt? This blog explains what is central bank money, how it is created, and the relationship between central bank and government finances. There are no easy options to avoid paying for fiscal deficits.

Figure 1: Sovereign debt held by the Eurosystem as % of GDP
Figure 1: Sovereign debt held by the Eurosystem as % of GDP Source : ECB ; Note : last data point 2019 Q4.
Updated on 05/20/2020 17:17
Post n°161

The Covid-19 economic crisis: what would Roosevelt have done?

Published on 05/12/2020

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By Jean Barthélemy and Vincent Bignon

History remembers Roosevelt for pulling the United States out of the Great Depression. He did it through communication – responding to the concerns of the American people – and by changing economic policy. His goal? To break out of the vicious circle in which pessimism amplifies a recession. Although the crises may differ, this blog looks at the lessons that we can learn from this strategy for the current crisis.

Franklin D. Roosevelt during one of his “fireside chats” in1934
Franklin D. Roosevelt during one of his “fireside chats” in 1934 Source: Harris & Ewing, Library of Congress
Updated on 05/12/2020 12:30
Post n°160

How firms are adapting to the lockdown: insights from text mining

Published on 05/07/2020

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By Mathilde Gerardin and Martial Ranvier

Using the additional comments collected at the end of the monthly business survey for March, we used text mining to construct indicators of how firms are adapting to the lockdown (short-time work, teleworking, etc.). This information provides an overview of the way industry-specific organisational structures are being adapted, and both confirms and expands on the findings of the survey.

Chart 1: Features of the 3 industry clusters
Chart 1: Features of the 3 industry clusters Source: The Banque de France's monthly business survey (MBS).
Updated on 05/07/2020 16:52
Post n°159

Current and past recessions: a long-term perspective

Published on 04/27/2020

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By Antonin Bergeaud, Gilbert Cette, and Rémy Lecat

The current recession is expected to be shallower than the Great Depression of 1929, but deeper than the Great Recession of 2008. It could be shorter than these two financial crises because of the temporary and exogenous nature of the shock that caused it. It could contribute to the deployment of the digital economy, thereby boosting productivity and growth.

Chart 1a: The current recession compared to previous ones. Euro Area.
Chart 1a: The current recession compared to previous ones. Euro Area. Source: www.longtermproductivity.com Note: (GDP growth in %, periods of war in dotted lines, IMF forecast in orange)
Updated on 04/27/2020 15:59
Post n°158

Short-time work: a useful tool in times of crisis.

Published on 04/20/2020

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By Clémence Berson, Hadrien Camatte and Sandra Nevoux 

The short-time work mechanism has recently been bolstered to limit the repercussions of the Covid-19 pandemic on employment. By preventing dismissals due to temporary difficulties, the reduction in hours worked allows firms to preserve their human capital and will foster the resumption of activity. Certain windfall effects should nevertheless be avoided, outside crisis periods, even though they generally remain minor compared with the benefits of such schemes during times of crisis.

Short-time work: a useful tool in times of crisis.
Chart 1: Development of short-time work in France due to Covid-19 (1 March – 14 April 2020). Source: Dares. Note: In France, the number of requests for short-time work due to Covid-19 amounted to 904,000 at 14 April 2020, representing 8.7 million employees (34% of salaried employment).
Updated on 04/20/2020 16:17
Post n°157

What central banks have done to help the economy survive Covid-19

Published on 04/15/2020

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By Florens Odendahl, Adrian Penalver, Urszula Szczerbowicz

Covid-19 is a public health emergency. Economic activity has been suspended due to the necessary confinement measures taken almost everywhere in the world. The targeted policies of major central banks to address this economic crisis share many common features but differ in details and labels.

Chart 1: Timeline of central banks’ main responses to the Covid-19 crisis.
Chart 1: Timeline of central banks’ main responses to the Covid-19 crisis. Source: Banque de France.
Updated on 04/21/2020 11:16

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