🇪🇺 ECB & Eurozone Central Bank Monitor

The fact that monetary policy tightening has stronger effects than easing is a longstanding puzzle in monetary economics. This article studies monetary transmission in settings where firms face multiple financing constraints – a common and well-documented feature of corporate financing. Our theory shows that the multiplicity of financing constraints notably dampens the transmission of expansionary policy to firm borrowing and investment, while amplifying the transmission of policy tightening. This asymmetry arises because, when policy tightens, the most responsive constraint binds; whereas, wh

Europe is increasingly exposed to heat waves and droughts, but their short-term economic effects across sectors remain hard to predict. This study develops climate-augmented models to predict real growth in per capita value added across 1,117 EU regions (2002–2022), by combining economic indicators with high-frequency climate data. When using machine learning (ML, Random Forest and XGBoost), climate variables improve predictions in agriculture, while gains for other sectors are limited and do not outperform economic models. Heat wave indicators consistently enhance predictive performance, wher

We assess the effectiveness of supervisory activities in mitigating credit risk stemming from banks’ commercial real estate portfolios. We analyse two activity types deployed by European banking supervisors: (a) on-site inspections, which assess in depth banks’ risk-taking and internal controls, but can only be selectively applied, and (b) off-site targeted reviews, which survey risk management practices across institutions, are less intrusive but are applied more widely. Using quarterly confidential supervisory data for large euro area banks between 2020 and 2024, we employ a Difference-in-Di

How well does innovation diffuse across geographic boundaries? To shed light on this question, we present a large-scale field experiment involving 3,300 firms across twelve European Union countries. We elicit firms’ perceptions of the share of similar firms in their own country that had invested in artificial intelligence (AI), as well as the corresponding share among similar firms in Germany, France, and Italy. We randomly provide half of the sample with accurate information about both domestic and foreign AI investment. We show that firms substantially underestimate competitors’ current AI i

This paper re-examines foreign direct investment motives in the ‘FDI gravity’ model (Kleinert and Toubal, 2010), focusing on the role of distance. More precisely, we investigate whether aggregate and pooled gravity models for FDI obscure relevant heterogeneities across sectors. This is possible through the novel MREID dataset, which provides us with FDI data at the 2-digit NAICS level for 184 countries over the period 2010 to 2020. Our results reveal that aggregate and pooled models mask significant sector heterogeneities in two aspects: (i) in the importance of horizontal versus vertical FDI

The paper documents models used to analyse the interactions and trade-offs between price and financial stability at the European Central Bank. The paper describes a simple conceptual framework to think about the short- and medium-term trade-offs between price and financial stability. Short-term trade-offs arise whenever current inflationary pressure is high, but the financial system is experiencing stress. Medium-term trade-offs arise whenever current inflationary pressure is low, but risk is building up in the financial system. We document four main sets of models used to quantify trade-offs:

We study how sector-specific fiscal policy propagates in an economy with heterogeneous households and production networks. We develop a multisector New Keynesian model in which input-output linkages interact with differences in households’ marginal propensities to consume (MPCs). We show that fiscal multipliers depend on sectors’ positions in the production network, as network linkages reallocate income across households with heterogeneous consumption responses. We derive an intersectoral Keynesian cross and introduce an MPC-augmented network multiplier that jointly characterize the transmissi

Using a recent and comprehensive data set covering nine of the most actively traded currencies on a monthly basis from 1995 to 2024, this paper explores the presence and potential drivers of herding behaviour in foreign exchange rate forecasts. The dataset features an average of 40–50 forecasters per currency, representing a broader range of currencies, a longer time frame, and a larger cross section of forecasters than is commonly found in the FX herding literature. Our results provide mixed evidence on herding, where the balance tends towards anti-herding conclusions.While some revision-base

This paper examines whether differences in the composition of investment help explain economic growth disparities in the EU and other advanced economies from 1996 to 2021. While overall investment levels in the EU and the US are broadly similar, the EU invests less in intangible and tangible ICT capital. This difference in composition is associated with part of the EU’s productivity gap with the US. Employing panel fixed effects and local projection methods, we find that intangible and tangible ICT investments -particularly in communications equipment, R&D, and other intellectual property

Analyzing more than 300,000 articles across 40 top-tier journals between 2000 and 2022, this study demonstrates that China’s 2006 National Medium-and Long-Term Plan for the Development of Science and Technology catalyzed a surge in publication volume and citations, propelling China past the United States as the world’s leading producer of scientific research. Controlling for national income, population, and human capital, we find these gains are concentrated in fields explicitly targeted by the government’s plan—physics, chemistry, biology, and medicine—while fields excluded from the plan, suc