Macroeconomics

Isabel Schnabel: From laggard to leader? Closing the euro area’s technology gap

Retrieved on: 
Saturday, February 17, 2024
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This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework.

Key Points: 
  • This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework.
  • We further show that relying on microprudential regulation alone would not be enough to account for the systemic dimension of transition risk.

Managing the transition to central bank digital currency

Retrieved on: 
Wednesday, February 14, 2024

Key Points: 

    Gas price shocks and euro area inflation

    Retrieved on: 
    Tuesday, February 13, 2024
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    We document

    Key Points: 
      • We document
        how gas price fluctuations have a heterogeneous pass-through to euro area prices
        depending on the underlying shock driving them.
      • How do gas price shocks feed through to euro area
        inflation, and is the pass-through shock-dependent?
      • We analyse the importance of gas price shocks
        for euro area inflation in two steps.
      • We identify three structural shocks driving European gas prices,
        inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
        shock, which reduces the supply of natural gas to the European market, increases the
        gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
        for gas due to higher economic production, and finally (iii) a shock to gas inventories,
        when gas prices are driven by precautionary demand by gas companies.
      • First, all three identified shocks are
        important drivers of gas price dynamics, but they differ in how persistently they push

        ECB Working Paper Series No 2905

        2

        up gas prices.

      • The effect on euro area HICP of a shock to gas supply is more
        persistent and somewhat higher than when gas prices are driven by economic activity
        shocks.
      • A final key finding is that the pass-through of gas market shocks to euro area inflation
        appears non-linear.
      • The unprecedented volatility of gas prices
        contributed to the inflation problem in the euro area, with the gas price shocks feeding
        through producer prices, wages and persistently lifting core inflation.
      • More expensive
        energy contributed substantially to the rise in inflation in Europe during 2022.2

        Figure 1: Gas price and euro area Harmonized Index of Consumer Prices.

      • How do gas price shocks feed through to euro area
        inflation, and is the pass-through shock-dependent?
      • For instance, about 75% of gas imports to the euro area arrives
        through pipelines, making gas imports difficult to substitute and gas markets subject to
        3

        See for example the evidence by Rubaszek and Uddin (2020) for the US economy.

      • We analyse the importance of gas price shocks for
        euro area inflation in two steps.
      • We identify three structural shocks driving European gas prices,
        inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
        shock, which reduces the supply of natural gas to the European market, increases the
        gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
        for gas due to higher economic production, and finally (iii) a shock to gas inventories,
        when gas prices are driven by precautionary demand by gas companies.
      • First, all three identified shocks are
        important drivers of gas price dynamics, but they differ in how persistently they push
        up gas prices.
      • But when gas prices are driven by
        inventory demand shocks, the price effect typically dies out within one quarter.
      • A final key finding is that the pass-through of gas market shocks to euro area inflation appears non-linear.
      • The unprecedented volatility of gas prices
        contributed to the inflation problem in the euro area, with the gas price shocks feeding
        through producer prices, wages and persistently lifting core inflation.
      • (2022) and Alessandri and Gazzani (2023) identify gas supply shocks using VAR models,
        finding that gas price shocks lead to persistent increases in headline inflation.14 Ba?bura
        et al.
      • (2023) find positive effects of gas price shocks on core inflation in a BVAR for
        the euro area that includes one type of gas shock along a longer list of macroeconomic
        shocks.
      • 3.1

        Data

        For the gas market BVAR model, we use gas quantities, gas prices, gas inventories and
        euro area industrial production, as displayed in Figure 2.

      • (2015) to optimize

        ECB Working Paper Series No 2905

        13

        the posterior distribution.16 The vector Y includes the European gas quantity proxy, gas
        inventories, the European gas price benchmark and euro area industrial production.

      • As demand for gas increases, the gas price also rises
        while inventories fall as agents use gas in storage to partially satisfy higher demand.
      • Shocks to gas
        quantities driven by gas supply or inventory shocks tend to revert to pre-shock levels after
        around five to seven months, while economic activity shocks lead to a more long-lived
        increase in gas demand.19 Dynamics in gas inventories are more similar across shocks.
      • 3.4

        Historical events in the European gas market

        Before analysing the transmission of the different types of gas shocks to euro area prices,
        we show how the model interprets the unprecedented gas price rise in 2022 in terms of
        driving factors, and compare it with previous historical episodes of heightened gas price
        volatility as a way of validating the model.

      • Inventory shocks play a
        slightly smaller role, accounting for 17% of gas quantity and 23% of gas price fluctuations
        while the residual component (i.e.
      • 4

        Pass-through of gas price shocks to consumer prices

        The pass-through of gas price shocks to inflation is likely to be multi-faceted.

      • We first consider four outcome variables y: the European gas price, euro area HICP,
        core HICP and energy HICP.
      • Third, depending on the driving factor, gas price increases can pass through to core
        inflation in the euro area.
      • The results underline that gas price shocks can have important implications for inflation in the euro area ? depending on the driving factor of higher gas prices.
      • Casoli, C., Manera, M., and Valenti, D. ?Energy shocks in the euro area: disentangling
        the pass-through from oil and gas prices to inflation?.

    The macroeconomic effects of global supply chain reorientation

    Retrieved on: 
    Saturday, February 10, 2024
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    We analyse the macroeconomic

    Key Points: 
      • We analyse the macroeconomic
        effects of supply chain reorientation through localisation policies, using a global dynamic
        general equilibrium model.
      • While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
        analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
      • The large sensitivity of the global economy to the recent supply chain shocks suggests that
        the international trade reconfiguration implied by localisation policies could also have sizable
        impacts on key macroeconomic variables such as output, employment and inflation.
      • Thus, localisation focuses on the
        goods in our model most closely related to global supply chains.
      • Retaliation also attenuates any positive effects from
        reshoring on output and implies a reduction in the volume of overall international trade.
      • This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
        most susceptible to supply chain disruptions.
      • Either that, or the economic costs are considered a worthwhile trade-off for an increase
        in security of supply, for example.
      • While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
        analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
      • Recent supply chain shocks have had large effects, with disruptions in 2021 estimated
        to have reduced euro area GDP by around two percent and doubled the rate of manufacturing producer inflation (Celasun et al., 2022).
      • To analyse this issue, we simulate a (partial) reshoring of production back to Europe in
        a global dynamic general equilibrium framework.
      • Thus,
        localisation focuses on the goods in our model most closely related to global supply chains.3 We
        model reshoring through a direct change to the export goods? production-function parameters.
      • Since reshoring
        effectively shortens the supply chain, the sum of markups along the chain falls.
      • This means that imports that are at the end of the supply chain (i.e.
      • In particular, our work relates to papers examining the potential for countries to reduce
        their exposure to global supply chains.
      • (2021) demonstrate that reduced reliance on foreign inputs does not mitigate pandemicinduced contractions in labour supply.
      • (2021) find no evidence of a relationship
        between global value chain integration and macroeconomic volatility.
      • This dynamic, along with factors such as natural disasters, climate-change
        induced volatility and terrorism mean that supply chain disruptions could be a new normal
        (Grossman et al., 2021).
      • Our work contributes to the literature providing dynamic general equilibrium analyses of
        protectionist policies, in particular those using global macroeconomic models to quantify trade
        policy changes.
      • (2008) analyse the effect of a rise in protectionism in response
        to rising global trade imbalances.
      • Linde? and Pescatori (2019) find that although the macroeconomic costs of a
        trade war are substantial, a fully symmetric retaliation is the best response.
      • (2020) consider a rich input-output structure and demonstrate that closer integration amplifies
        the adverse effects of protectionist trade policies.
      • Several recent studies have also examined the economic effects of a global trade fragmentation.
      • First, we modify a dynamic general
        equilibrium model of the global economy in order to analyse the transmission of localisation
        policies.
      • This allows for a comprehensive treatment of cross-border macroeconomic interdependences and spillovers between the different regions.
      • 4

        There is, however, substantial cross-country heterogeneity in terms of impact, with small open economies
        (SOEs) reliant on global supply chains more affected.

      • ECB Working Paper Series No 2903

        7

        Second, we are able to assess both long-run effects and the transition dynamics of localisation
        policies.

      • Our model contains a detailed monetary block and captures inflation dynamics, which is a key
        concern for supply chain reorientation.
      • Overall, our paper contains a careful analysis of the key aspects of the localisation debate,
        including effects of localisation on domestic competition and efficiency.
      • Section 2 provides a brief overview of the model, the modifications to examine
        global supply chain reorientation, some key details on the calibration and a brief discussion of
        the nature of our exercise.
      • (2020) for discussions of the relative strengths and weaknesses of
        trade and macroeconomic models in assessing large economic shocks.
      • 2.1

        Supply chain reorientation

        Our analysis focuses on imported inputs used to produce goods for export, as the introduction
        of localisation policies is in response to recent disruptions to global supply chains.

      • Since reshoring
        effectively shortens the supply chain, the sum of markups along the chain falls.
      • Further to
        these effects, engagement with global firms provides an opportunity for knowledge spillovers to
        local firms (Criscuolo et al., 2017).
      • This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
        most susceptible to supply chain disruptions.
      • (B12)

        Adjusting the share of local inputs in export goods, of course, affects prices and quantities all
        along the supply chain.

    Assessing the macroeconomic effects of climate change transition policies

    Retrieved on: 
    Friday, February 9, 2024

    This box assesses the impact on euro area real GDP and inflation of green fiscal discretionary measures as included in the December 2023 Eurosystem staff macroeconomic projections.

    Key Points: 
    • This box assesses the impact on euro area real GDP and inflation of green fiscal discretionary measures as included in the December 2023 Eurosystem staff macroeconomic projections.
    • These simulations suggest modest downside risks to GDP and upside risks to inflation from transition policies to achieve EU targets, but the effects depend on the transition policy mix.

    Get in the Game with E*TRADE from Morgan Stanley

    Retrieved on: 
    Monday, February 5, 2024

    E*TRADE from Morgan Stanley announced today it will air a 30-second spot during the second quarter of the game.

    Key Points: 
    • E*TRADE from Morgan Stanley announced today it will air a 30-second spot during the second quarter of the game.
    • In a recent Q1 2024 study of investors conducted by Morgan Stanley Wealth Management:
      The top financial resolution for 2024 was to learn more about investing, trading, and the markets.
    • 2 To learn more about E*TRADE from Morgan Stanley’s Money Monday and register for the event, click here .
    • Randy Krallman of SMUGGLER, who also directed E*TRADE's last two Big Game ads, was back at the helm to direct.

    Forecasting euro area inflation with machine-learning models

    Retrieved on: 
    Wednesday, January 3, 2024

    The strategy review concluded in 2021 highlighted how most Eurosystem models used to forecast inflation are linear.

    Key Points: 
    • The strategy review concluded in 2021 highlighted how most Eurosystem models used to forecast inflation are linear.
    • Linear models assume that changes in, for example, wages, always have the same fixed, proportional effect on inflation.

    Deutsche Digital Assets (DDA) Partners With Compass Financial Technologies to Launch World's First Bitcoin Index Based on Macro Factors

    Retrieved on: 
    Tuesday, December 12, 2023

    This index dynamically adjusts exposure between Bitcoin and USD in response to key macroeconomic factors and notably, stands as the world's first index leveraging macroeconomic indicators to regulate Bitcoin exposure.

    Key Points: 
    • This index dynamically adjusts exposure between Bitcoin and USD in response to key macroeconomic factors and notably, stands as the world's first index leveraging macroeconomic indicators to regulate Bitcoin exposure.
    • Leveraging the findings of this research, DDA and Compass FT present an index solution designed to provide investors with comprehensive exposure to Bitcoin, based on macroeconomic factors as indicated by their explanatory power at a given time.
    • “We are thrilled to partner with Deutsche Digital Assets for the first time and accompany them on releasing this unprecedented, innovative solution,” says Guillaume le Fur, CEO of Compass Financial Technologies.
    • For more information on the DDA Bitcoin Macro Allocation Index, please visit the Compass FT website www.compassft.com or contact the DDA Quantitative Solutions team directly under [email protected].

    Europe's Top 5 Aerospace & Defense Companies Annual Strategy Dossier 2023 - Airbus, BAE Systems, Rolls Royce, Leonardo and Safran - ResearchAndMarkets.com

    Retrieved on: 
    Friday, November 24, 2023

    The "Europe's Top 5 Aerospace & Defense Companies - Annual Strategy Dossier - 2023 - Key Strategies, Plans, SWOT, Trends & Growth Avenues and Market Outlook - Airbus, BAE Systems, Rolls Royce, Leonardo, Safran" company profile has been added to ResearchAndMarkets.com's offering.

    Key Points: 
    • The "Europe's Top 5 Aerospace & Defense Companies - Annual Strategy Dossier - 2023 - Key Strategies, Plans, SWOT, Trends & Growth Avenues and Market Outlook - Airbus, BAE Systems, Rolls Royce, Leonardo, Safran" company profile has been added to ResearchAndMarkets.com's offering.
    • Leapfrogging of technological capabilities is also very much there in the European agenda following the initiation of a number of new, joint defense programs across the old continent, led by the Franco-German FCAS & MGCS programs, and the Anglo-Japanese 6th generation fighter jet aircraft program.
    • It is in addition to the outright procurement of in-production defense equipment from the other side of the Atlantic to ensure ready availability and Interoperability with NATO forces.
    • The global defense spending, thus, is projected to reach the record $2.5 trillion level by 2027 following a virtual defense renaissance globally with the industry gearing up to ramp up production rates to unprecedented rates & levels over near to medium term