Download publication

Policy Contribution

So far apart and yet so close: Should the ECB care about inflation differentials?

This Policy Contribution was prepared for the Preparatory meeting with Monetary experts panel. It explains that it is crucial to keep the average inflation rate close to two percent so that inflation differentials are possible without deflation in some parts of the euro area, which in turn might endanger area-wide financial stability and price stability.

By: and Date: September 21, 2014 Topic: European Macroeconomics & Governance

Inflation rates can differ across regions of monetary unions. We show that in the euro area, the US, Canada, Japan and Australia, inflation rates have been substantially and persistently different in different regions. Differences were particularly substantial in the euro area. Inflation differences can reflect normal adjustment processes such as price convergence or the Balassa-Samuelson effect, or can reflect the different cyclical position of regions. But they can also be the result of economic distortions resulting from segmented markets or unsustainable demand and credit developments fueled by low real interest rates.

In normal times, the European Central Bank cannot influence such developments with its single interest rate instrument. However, unconventional policy measures can have different effects on different countries depending on the chosen instrument, and should be used to reduce fragmentation and ensure the proper transmission of monetary policy. The new macro prudential policy tools are unlikely to be practical in addressing inflation divergences.

It is crucial to keep the average inflation rate close to two percent so that inflation differentials are possible without deflation in some parts of the euro area, which in turn might endanger area-wide financial stability and price stability.

View comments
Read article More on this topic More by this author

Opinion

Europe can take a bigger role in providing public goods

The EU should invest where it can deliver more value than member states acting alone.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: December 5, 2019
Read article More on this topic More by this author

Blog Post

Who pays for the EU budget rebates and why?

A complex system of EU budget revenue corrections has been developed since the mid-1980s. I quantify their impacts: which countries pay and benefit from it and by how much and highlight several anomalies. The best solution would be to reform EU budget spending to provide only European public goods and eliminate all rebates. But if that’s not possible, then at least the rationale for the rebates should be spelt out clearly, and a transparent system built on clear principles should replace the current ad hoc, complicated, non-transparent and regressive system.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 4, 2019
Read article Download PDF

Policy Contribution

European Parliament

The next generation of digital currencies: in search of stability

Recent developments have re-opened the debate on the future of money. This Policy Contribution discusses two aspects: the implications of the rise of global private stablecoins, such as Facebook's Libra, and the role that public central bank digital currencies could play.

By: Grégory Claeys and Maria Demertzis Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: December 2, 2019
Read article More on this topic More by this author

Opinion

The UK election viewed from continental Europe: Meh

It will take more than the vote on December 12 to make the continent pay attention to the UK. Viewed from the continent, the UK election is one more episode in a Brexit series that “jumped the shark” long ago.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: November 29, 2019
Read article More by this author

Blog Post

Bank regulation in the European Union neighbourhood: limits of the ‘Brussels effect’

The EU model of financial market regulation is increasingly copied by third countries. In this context, the EU’s efforts to promote its model beyond its borders should take into account the underdevelopment of financial markets in many partner countries, and the often insufficient capacity of regulators and supervisors.

By: Alexander Lehmann Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: November 20, 2019
Read about event More on this topic

Past Event

Past Event

Better governance, better economies

This event will feature the presentation of the 2019 EBRD Transition report, which focuses on governance in the EBRD regions.

Speakers: Daniel Daianu, Beata Javorcik, Zsuzsanna Lonti and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Press Club Brussels Europe, Rue Froissart 95, 1000 Brussels Date: November 20, 2019
Read article Download PDF More by this author

Policy Contribution

Crisis management for euro-area banks in central Europe

Euro-area bank integration has decreased as post-financial crisis national rules require banks to hold more capital at home. It might be undermined further by bank resolution planning. Either a Single Resolution Board takes the lead for the entire banking group or independent local intervention schemes need to be developed for crisis resolution.

By: Alexander Lehmann Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: November 19, 2019
Read about event More on this topic

Past Event

Past Event

Improving regulatory policy formulation and institutional resilience in Europe

Are large differences in the resilience of individual economies related to differences in the quality of country-level institutions that shape the absorption and response to these shocks? At this event we'll discuss the evolution of labour markets, and the role of institutional design and good process.

Speakers: Arup Banerji, Maria Demertzis, J. Scott Marcus, Céline Kauffmann and Rogier van den Brink Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 13, 2019
Read article More on this topic More by this author

Opinion

Scholz's improved plan to complete the banking union

The head of German Finance has written in the Financial Times defending the need to deepen the banking union, now London is about to leave

By: Rebecca Christie Topic: European Macroeconomics & Governance Date: November 8, 2019
Read article Download PDF More on this topic

External Publication

A Primer on Developing European Public Goods: A report to Ministers Bruno Le Maire and Olaf Scholz

This report was prepared for the French and German Ministers of Finance.

By: Jean Pisani-Ferry and Clemens Fuest Topic: European Macroeconomics & Governance Date: November 8, 2019
Read article Download PDF

Policy Contribution

How to make the European Green Deal work

Ursula von der Leyen has proposed a European Green Deal that would make Europe climate neutral by 2050. With this Policy Contribution, the authors provide a first analysis on how to make this initiative work.

By: Grégory Claeys, Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance Date: November 5, 2019
Read article More on this topic

Opinion

Politics, not policy will help Lagarde save the eurozone

Her success at helm of Europe’s central bank will depend on her ability to mend fences with hawkish policymakers.

By: Guntram B. Wolff and Rebecca Christie Topic: European Macroeconomics & Governance Date: November 4, 2019
Load more posts