A new strategy for a changing world - Isabel Schnabel, Member of the ECB Executive Board Peterson Institute for International Economics, 14 July ...
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A new strategy for a changing world Isabel Schnabel, Member of the ECB Executive Board Peterson Institute for International Economics, 14 July 2021
Structural
Rubric forces putting downward pressure on real equilibrium interest rates
Estimates of US equilibrium rate Estimates of euro area equilibrium rate
(percentage per annum) (percentages per annum)
Range of estimates Median of estimates Range of all natural rate estimates Range of smoother estimates
6 6
4 4
2 2
0 0
-2 -2
-4 -4
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Sources: Holston, Laubach, Williams (2017); Fiorentini, Galesi, Pérez-Quirós, Sentana (2018). Sources: WGEM Report “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, OP, No 217; Ajevskis
Notes: Ranges span point estimates to reflect filter and parameter uncertainty. (2018); Brand, Goy, Lemke (2020); Brand, Mazelis (2019); Fiorentini, Galesi, Pérez-Quirós, Sentana (2018); Geiger and Schupp
Latest observation: 2019Q4. (2018); Holston, Laubach, Williams (2017); Jarocinski (2017); Johannsen and Mertens (forthcoming).
Notes: Ranges span point estimates across models to reflect model uncertainty and no other source of r* uncertainty. The dark
shaded area highlights smoother r* estimates that are statistically less affected by
cyclical movements in the real rate of interest. Latest observation: 2019Q4.
2
www.ecb.europa.eu ©Secular
Rubric decline in euro area inflation
Headline HICP HICP excluding energy and food
(annual percentage changes) (annual percentage changes)
HICP Average 1970-1998 HICPX Average 1970-1998
Average 1999-2008 Average 2009-2021 Average 1999-2008 Average 2009-2021
5
20
4
15
3 2.8%
10
6.3% 2 1.6%
5 1.1%
2.2% 1
1.2%
0
0
-5 -1
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 1991 1995 1999 2003 2007 2011 2015 2019
Sources: Eurostat and ECB calculations. Sources: Eurostat and ECB calculations.
Latest observation: June 2021 (flash). Note: HICPX refers to HICP excluding energy and food.
Latest observation: June 2021 (flash).
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3House
Rubricprices rising more quickly than consumer prices
HICP and residential property prices
(annual percentage changes)
HICP Residential property prices
10
8
6
4
2
0
-2
-4
-6
1999 2004 2009 2014 2019
Source: ECB, Eurostat.
Latest observations: June 2021 for HICP (flash) and 2021 Q1 for ECB residential property
price index.
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4Perceptions
Rubric of asymmetric reaction function affecting inflation expectations
Macroeconomic outcomes over the longer-run: Survey- and market-based measures of
symmetry around 1.9% versus asymmetry inflation expectations
(annual % changes and % deviation) (annual percentage changes)
5y ahead SPF mean 1y4y ILS
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2006 2008 2010 2012 2014 2016 2018 2020
Sources: Cecioni, Grasso and Pisani (2020). Sources: Bloomberg, Refinitiv, and ECB calculations.
Note: Results based on stochastic simulations imposing the lower bound on nominal interest rates. The 1y4y ILS refers to the inflation-linked swap curve. Survey expectations from the
Absent the lower bound, average inflation would be equal to the target and the output gap would be Survey of Professional Forecasters (SPF) refer to the mean of the reported probability
zero. The long-run level of the real rate is assumed to be 0.5%. It is assumed that the central bank distributions for year-on-year expectations 5 years ahead. Latest observation: 2021 Q2
abstains from using non-standard measures. (SPF), June 2021 (market data).
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5Diminishing
Rubric and state-contingent effectiveness of monetary policy
Effect of monetary policy-induced FCI Effect of monetary policy-induced FCI
easing on industrial production growth easing on industrial production growth
during different policy regimes during different business cycle phases
(annualised percentage, cumulated after 6 months) (annualised percentage, cumulated after 6 months)
1.0 2.5
0.8 2.0
0.6
1.5
0.4
1.0
0.2
0.0 0.5
-0.2
0.0
-0.4
-0.5
-0.6
-0.8 -1.0
Full sample Tight FCI Loose FCI Full sample Recessions Slowdown Upturns Booms
Source: ECB staff calculations.
Source: ECB staff calculations..
Notes: The dot represents the mean response of industrial production growth in a panel of advanced
Note: The dot represents the mean response of industrial production growth in a panel of advanced
economies (USA, EA, GBR, JPN) following a 0.1 change in the FCI as caused by monetary policy shocks.
economies (USA, EA, GBR, JPN) following a 0.1 change in the FCI as caused by monetary policy shocks.
The monetary-policy induced FCI is generated using country-specific BVAR models and the effect on
The monetary-policy induced FCI is generated using country-specific BVAR models and the effect on
industrial production is estimated using panel threshold local projections. “Full sample” refers to the
industrial production is estimated using panel threshold local projections. “Slowdowns” are periods when
estimates over the complete sample period, “tight (loose) FCI” to when the FCI is in an endogenously
GDP is growing below potential and the output gap is negative, “Upturns” are when GDP is growing above
estimated tight (loose) FCI regime. www.ecb.europa.eu ©
potential but the output gap is negative and “Booms” when GDP grows above potential and the output gap is
6 positive. The “Slowdown” episode is only tested for the EA and shows the response after 12 months.“Unconventional”
Rubric monetary policy tools effective in easing financing conditions
EA GDP-weighted yield curve Euro area financial conditions
(percentage) (standardized index)
Euro area Financial Conditions Index
10/06/2014 Latest
2.5 1.5
Easing
2.0 1.0
1.5
0.5
1.0
0.0
0.5
-0.5
0.0
-1.0
-0.5 Tightening
-1.0 -1.5
1 2 3 4 5 6 7 8 9 10 2005 2008 2011 2014 2017 2020
Source: ECB Statistics Data Warehouse Sources: Refinitiv Datastream, Bloomberg and ECB staff calculations.
Latest observation: 13 July 2021 Notes: The FCI is aggregated using GDP PPP shares and includes DE, ES, IT and FR. National FCIs
are computed as a weighted average of five financial variables, i.e. 10-year government bond yields,
short-term interest rates, NEER, PE ratio and corporate spread. Variables are standardized.
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Latest observation: 12/07/2021.
7Phillips
Rubric curve models pointing to structural factors explaining low inflation
Euro area Phillips curves: Euro area Phillips curves:
coefficient on slack across range of models decomposition of HICP excluding energy and food
(annual percentage changes and percentage points contributions)
Economic slack External prices
68% confidence band Median Inflation expectations Unexplained
HICPX inflation
0.45 0.40
0.40
0.20
0.35
0.30 0.00
0.25
-0.20
0.20
0.15 -0.40
0.10
-0.60
0.05
0.00 -0.80
2003 2005 2007 2009 2011 2013 2015 2017 2019 2013 2014 2015 2016 2017 2018 2019
Sources: Eurostat and ECB staff calculations. The HICPX series is seasonally adjusted and
Sources: ECB staff calculation.
displays a kink in 2015 due to a methodological change.
Note: Sample: 1999Q1 to 2019Q4. Based on a pool of models as detailed in Bobeica, E. and
Notes: Same models used as for left-hand chart. All values are in terms of deviations from their
Sokol, A. (2019), "Drivers of underlying inflation in the euro area over time: a Phillips curve
averages since 1999 or later, depending on the specification. The bars show average contributions
perspective," Economic Bulletin Article, European Central Bank, Vol. 4.
across specifications. The sample covers 1999Q1 to 2019Q4 to avoid the effect on estimation of the
Covid-19 shock.
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8Pre-pandemic
Rubric fiscal policy largely unresponsive to lower interest rates
Euro area primary balance Euro area public investment
(% of GDP) (% of GDP)
Range Euro area average
2.0 10 7.0
1.0 9
6.0
0.0 8
7 5.0
-1.0
6
-2.0 4.0
5
-3.0 3.0
4
-4.0
3 2.0
-5.0 2
1.0
-6.0 1
-7.0 0 0.0
2010 2012 2014 2016 2018 2020 2022 2010 2012 2014 2016 2018 2020
Source: AMECO Source: AMECO
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9Greater
Rubric prominence for financial stability risks in new analytical framework
Monetary Policy
Decisions
Instrument choice Proportionality
Policy Deliberations Stance and design assessment
Economic Analysis Monetary and Financial Analysis
Macro-financial linkages Transmission
Analytical inputs
Real and nominal developments Enhanced financial stability analysis
Analysis over short, medium and longer-term horizons, covering central scenarios and risks
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10Rising
Rubricphysical risks of climate change
Global insured catastrophe losses Number of relevant natural loss events globally
(left-hand scale: USD billions in 2020; right-hand scale: percentages) (left-hand scale: number of events; right-hand scale: percentages)
Man-made disasters Climatological events
Weather-related catastrophes Hydrological events
Meteorological events
Earthquake/tsunami Geophysical events
% weather-related losses - 5-year moving average % climate-related events - 5-year moving average
160 100 900 95
140 90 800 94
80 700 93
120
70 92
600
100 60 91
500
80 50 90
400
60 40 89
300
30 88
40
20 200 87
20 10 100 86
0 0 0 85
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 1985 1990 1995 2000 2005 2010 2015
Source: Swiss Re institute and ECB calculations. Source: Munich Re NatCatService and ECB calculations.
Latest observation: June 2020. Latest observations: December 2019.
Notes: Climatological events: drought and wildfire. Geophysical events: earthquake, tsunami,
volcanic activity. Hydrological events: floods. Meteorological events: all types of storms.
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11Emission
Rubric bias in the ECB’s corporate bond portfolio
Market portfolio vs. ECB holdings vs. sectoral emission intensity
(market shares)
Emission ECB holdings Market portfolio
Automobile
Agriculture
Dirty
Manufacturing
Utilities
Transportation
Other
Manufacturing
Services
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
Source: Papoutsi, Piazzesi, Schneider (2021). Data sources: ECB (SHS & CSDB), Eurostat, Orbis. Notes: Market shares measured as capital income by sector. Emission intensity measured by Scope 1 air
emissions by sector. “Dirty Manufacturing” = oil & coke, chemicals, basic metals, nonmetallic minerals. Other Manufacturing = food, beverages, tobacco, textiles, leather, wood, paper, pharmaceuticals,
electronics, electrical equipment, machinery, furniture, construction, and other manufacturing.
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12Rubric
Thank you for your attention
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