RegStream

A new strategy for a changing world

Isabel Schnabel, Member of the ECB’s Executive Board

University of Sofia Youth Dialogue, 24 November 2021

Aggregated results of pre-meeting survey question on the tasks of a central bank Rubric

Note: Word cloud is based on the responses to the pre-meeting survey question “What issues should the central bank primarily deal with in its monetary policy?”. Sample size: 28 responses. The size of individual terms indicates the relative frequency of responses.

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Structural forces put downward pressure on real equilibrium interest rates Rubric

Estimates of US equilibrium rate

(percentage per annum)

Estimates of euro area equilibrium rate

(percentage per annum)

Range of estimates

Median of estimates

Range of all natural rate estimates

Range of smoother estimates

6

4

2

0

-2

-4

6

4

2

0

-2

-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).

Note: Ranges span point estimates to reflect filter and parameter uncertainty.

Latest observation: 2019 Q4.

Sources: WGEM Report “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, OP, No 217; Ajevskis (2018); Brand, Goy, Lemke (2020); Brand, Mazelis (2019); Fiorentini, Galesi, Pérez-Quirós, Sentana (2018); Geiger and Schupp (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: 2019 Q4.

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Secular decline in euro area inflation but recent spike Rubric

Headline HICP

(annual percentage changes)

HICP excluding energy and food

(annual percentage changes)

HICP

Average 1999-2008

Average 1970-1998

Average 2009-2019

HICPX

Average 1999-2008

Average 1991-1998

Average 2009-2019

20

15

10

5

0

-5

6. 3%

4. 1%

2. 2%

1. 3%

5

4

3

2

1

0

-1

2. 8%

1. 6%

2. 0%

1. 1%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

1991

1996

2001

2006

2011

2016

2021

Sources: Eurostat and ECB calculations.

Latest observation: October 2021.

Sources: Eurostat and ECB calculations.

Note: HICPX refers to HICP excluding energy and food.

Latest observation: October 2021.

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Conventional policy space largely exhausted already well before the pandemic Rubric

ECB policy rates

(percent)

Marginal lending facility

Main refinancing operations

Deposit facility

7. 0

6. 0

5. 0

4. 0

3. 0

2. 0

1. 0

0. 0

-1. 0

1999

2004

2009

2014

2019

Source: ECB.

Latest observation: 19 November 2021.

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Commitment to integrate owner-occupied housing into inflation measurement Rubric

Residential property prices

(annual percentage changes)

Euro area

Germany

HICP and HICP including owner-occupied

housing

(annual percentage changes)

Difference (rhs)

HICP

HICP+OOH (net acquisition)

4

3

2

1

0

-1

-2

-3

-4

0. 4

0. 3

0. 2

0. 1

0. 0

-0. 1

-0. 2

-0. 3

-0. 4

12

10

8

6

4

2

0

-2

-4

-6

1999

2002

2005

2008

2011

2014

2017

2020

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: ECB.

Latest observation: 2021 Q2.

Source: ECB.

Latest observation: 2021 Q3 for HICP and 2021 Q2 for HICP-H.

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Perceptions of asymmetric reaction function may affect inflation expectations Rubric

Macroeconomic outcomes over the longer-run: symmetry

Survey and market-based measures of

around 1. 9% versus asymmetry

(annual percentage change and percentage deviation)

inflation expectations (annual percentage changes)

5y ahead SPF mean

1y4y ILS

3. 0

2. 5

2. 0

1. 5

1. 0

0. 5

0. 0

Source: Cecioni, Grasso and Pisani (2020).

Notes: Results based on stochastic simulations imposing the lower bound on nominal interest rates.

Absent the lower bound, average inflation would be equal to the target and the output gap would be zero. The long-run level of the real rate is assumed to be 0. 5%. It is assumed that the central bank abstains from using non-standard measures.

Sources: Bloomberg, Refinitiv, and ECB calculations.

Notes: The 1y4y ILS refers to the inflation-linked swap curve. Survey expectations from the Survey of Professional Forecasters (SPF) refer to the mean of the reported probability distributions for year-on-year expectations 5 years ahead.

Latest observation: 2021 Q4 (SPF), October 2021 (market data).

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2006

2008

2010

2012

2014

2016

2018

2020

Greater prominence will be given to financial stability risks in new analytical framework Rubric

Policy Deliberations

Stance

Monetary Policy

Decisions

Instrument choice

and design

Proportionality

assessment

Economic Analysis

Monetary and Financial Analysis

Analytical inputs

Macro-financial linkages

Transmission

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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Rising physical risks of climate change Rubric

Global insured catastrophe losses

(left-hand scale: USD billions in 2020; right-hand scale: percentages)

Number of relevant natural loss events globally (left-hand scale: number of events; right-hand scale: percentages)

Man-made disasters Weather- related catastrophes Earthquake/tsunami % weather-related losses - 5-year moving average

Climatological events Hydrological events Meteorological events Geophysical events % climate-related events - 5-year moving average

95

94

93

92

91

90

89

88

87

86

85

100

90

80

70

60

50

40

30

20

10

0

900

800

700

600

500

400

300

200

100

0

160

140

120

100

80

60

40

20

0

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

1985

1990

1995

2000

2005

2010

2015

Sources: Swiss Re Institute and ECB calculations.

Latest observation: June 2020.

Sources: Munich Re NatCatService and ECB calculations.

Latest observation: 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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Emission bias in the ECB’s corporate bond portfolio Rubric

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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Rubric

Thank you very much

for your attention!

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