Browsing by Subject "Euro area"

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  • Łyziak, Tomasz; Paloviita, Maritta (2017)
    European Journal of Political Economy January
    ECB Working Paper 1945/2016
    This article analyses the anchoring of inflation expectations of professional forecasters and consumers in the euro area. We study anchoring, defined as the central bank's ability to manage expectations, by paying special attention to the impact of the ECB inflation target and ECB inflation projections on inflation expectations. Our analysis indicates that in the post-crisis period longer-term inflation expectations have become somewhat more sensitive to shorter-term ones and to actual HICP inflation. We also find that the ECB inflation projections have recently become more important for short- and medium-term expectations of professional forecasters and at the same time the role of the ECB inflation target for those expectations has diminished. Overall, our analysis suggests that in recent years inflation expectations in the euro area have shown some signs of de-anchoring.
  • Ristolainen, Kim (2018)
    Bank of Finland Research Discussion Papers 11/2018
    The recent financial crises have brought into focus questions regarding the quality of banks' assets. We study the patterns in banks reserving for and reporting of loan losses in the EU before and after implementation of the Single Supervisory Mechanism (SSM). We find that banks that 1) have less tier 1 capital, 2) are smaller, 3) are less liquid and 4) have smaller net interest margins either report relatively smaller loan loss reserves or less loan losses, even after including various controls. This supports the hypothesis that financially weaker banks may have a larger incentive to engage in balance sheet window dressing. We further find that the SSM has reduced but not eliminated the under-reserving and under-reporting bias. In addition, there has been a separate positive effect on the overall proportion of nonperforming loans (NPLs) that are realised as losses among the banks that have been under direct supervision by the SSM since implementation of the SSM.
  • Łyziak, Tomasz; Paloviita, Maritta (2018)
    Economic Modelling June
    Published in Bank of Finland Research Discussion Papers 13/2017.
    Studying formation of inflation expectations in the euro area we propose a novel method, integrating rational, adaptive and sticky-information models. We find that in recent turbulent times, formation of inflation expectations by professional forecasters has displayed less inertia with the increased role of the perceived inflation target. Despite its slightly negative trend observed recently, the perceived target has remained broadly consistent with the ECB's announced inflation target. The direct impact of ECB inflation projections on expectations is minor, but growing marginally. However, inflation expectations remain consistent with the views and preferences of the ECB, which suggests effective management of expectations. Our results have implications for the conduct of ECB monetary policy, emphasising the need to monitor risks for price stability and expectations' de-anchoring in the context of complex models of their formation and for macroeconomic modelling, stressing the need to analyse monetary policy communication and changes in expectation formation over time.