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Restrictive monetary policy dampens inflation effectively, but it also raises stress in financial markets. This happens through revaluations of financial assets on banks’ balance sheets and through dampened economic activity. Moreover, apart from the positive effect of exiting negative interest rates, banks’ net interest margin is generally negatively affected by interest rate hikes. With most of the disinflationary impact of higher interest rates yet to materialise, monetary policy should allow ...

We argue that a hard stagflation scenario is still possible. This would have the potential to create a conflict between price stability and financial stability. We therefore address four questions. Why should central banks be concerned with financial stability? What financial imbalances should central banks be worried about? Are monetary policy and macroprudential regulation two tools for two goals? Is the ECB poised to face the price stability vs. financial stability trade-off?

The rise of policy rates in the euro area has led to a tightening of financing conditions raising concerns for financial stability. The risk of financial crisis should be neither ignored nor overstated. The euro area is not facing conditions for which there would be the highest probability of a crisis. The risk faced by banks depends on the share of adjustable-rate mortgages. At this stage, net interest margin of banks and profitability have slightly improved.

As it brings inflation down, the ECB faces lingering real-side disturbances inherited from the pandemic and the invasion of Ukraine. Its actions sometimes even deepen these disturbances. The paper argues that it simply cannot deal with them, and should not try to.

Inflation is often confused with changes in relative prices. The recent sharp increase in energy prices, which has also pushed up food prices, has hit poorer households especially hard, thus creating the impression that inflation increases inequality. However, it is the large changes in relative prices and not the average inflation rate (of now 7%) that is the real problem. We also show that rents – which are more important for low-income households – provide a significant offset for higher energy ...

Monetary policy tightening has led to a sharp steepening of the yield curve and this has had a negative impact on banks that were not well-positioned to cope with this shock. This paper reviews current banking tensions and argues that they are unlikely to have a major impact on the ECB’s monetary policy decisions in the current cycle.

In this in-depth analysis, we summarise and explain the directions that the ECB has in mind for the digital euro, based on the ECB’s progress reports and statements. We also highlight further questions that have so far received less explicit consideration, but may deserve the legislators’ attention when the European Commission presents a proposal for ordinary legislative procedure. The analysis has been updated following the third progress report and now also entails a summary of external expertise ...

This overview provides a summary of the latest state of play on the implementation of the Recovery and Resilience Plans (RRPs). It focuses on the latest European Commissions’ preliminary assessments of payment request from Austria and Luxembourg; the Commission attested that all related milestones and targets were satisfactorily fulfilled. It also provides some information available in the public domain regarding Italy’s upcoming payment request.

This report considers that the digital euro can be introduced under the ECB's primary mandate as legal tender and be remunerated. However, in order to lawfully create the proposed digital euro app, the ECB would require a mandate from the EU legislator under its secondary mandate which has to comply with article 119 TFEU, fundamental rights and data protection regulation. The supervision should be through the European Data Protection Supervisor. Finally, the digital euro should not exclude those ...

The Bank Crisis Management and Deposit Insurance (CMDI) framework should be enhanced with a view to completing the Banking Union. This study recommends harmonizing some key elements of the national bank insolvency regimes, granting the ECB a role in the provision of ELA and introducing improvements to the deposit guarantee schemes framework that could pave the way for the establishment of EDIS in the near future.