INTERVIEW
23 April 2024
The road to disinflation
The battle against inflation isn’t over, but we’ve achieved important victories along the road to disinflation, Vice-President Luis de Guindos tells Le Monde. If there are no surprises and things keep moving in the right direction, we’ll loosen our monetary policy stance in June.
Read the interview
ECONOMIC BULLETIN
23 April 2024
Public trust in the ECB
Trust in the ECB held up well during the pandemic and in the subsequent period of high inflation, our Consumer Expectations Survey shows. This article looks at the multifaceted approach to measuring people’s trust in the ECB and how it is linked to trust in other institutions.
Read the Economic Bulletin
THE ECB BLOG
18 April 2024
Data Update: banks and climate change
We updated our data on the impact of climate change on the financial system. How strongly could banks be affected by natural hazards? How green are their loan portfolios? The ECB Blog discusses these and other insights from the improved data.
Read the ECB Blog- 23 April 2024
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 23 April 2024
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 23 April 2024
- PRESS RELEASE
- 18 April 2024
- BALANCE OF PAYMENTS (MONTHLY)
- 17 April 2024
- PRESS RELEASE
- 16 April 2024
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 16 April 2024
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 22 April 2024
- Speech by Christine Lagarde, President of the ECB, at Yale University in New Haven, USA
- 19 April 2024
- Statement by Christine Lagarde, President of the ECB, at the forty-ninth meeting of the International Monetary and Financial Committee
- 18 April 2024
- Slides presented by Isabel Schnabel, Member of the Executive Board of the ECB, at the 2024 EU-US Symposium in Washington, DC
- 18 April 2024
- Introductory remarks by Luis de Guindos, Vice-President of the ECB, at the ECON Committee of the European ParliamentRelated
- 18 April 2024
- EnglishOTHER LANGUAGES (22) +
- 17 April 2024
- Keynote speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the thirteenth conference organised by the International Research Forum on Monetary Policy, “Monetary Policy Challenges during Uncertain Times”, at the Federal Reserve Board, Washington, D.C.Annexes
- 17 April 2024
- 23 April 2024
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Éric Albert on 16 April 2024 and published on 23 April 2024
- 19 March 2024
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Michalis Psilos
- 7 February 2024
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Martin Arnold on 2 February 2024
- 3 February 2024
- Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Jonathan Witteman on 29 January 2024
- 31 January 2024
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Kolja Rudzio
- 18 April 2024
- We updated our data on the impact of climate change on the financial system. How green are green bonds and banks’ loan portfolios? How strongly could they be affected by natural hazards? The ECB Blog discusses these and other new insights from the data.Details
- JEL Code
- Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q56 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Environment and Development, Environment and Trade, Sustainability, Environmental Accounts and Accounting, Environmental Equity, Population Growth
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G29 : Financial Economics→Financial Institutions and Services→Other
- 3 April 2024
- Governments and central banks can shield the economy from shocks with their decisions. The ECB Blog looks at a recent high-level conference that analysed the interaction of fiscal and monetary policy and questioned some long-held beliefs.Details
- JEL Code
- E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
- 22 March 2024
- The Eurosystem is shrinking its balance sheet, which makes more government bonds available for purchase. The ECB Blog looks at how markets are adjusting to this new situation with regard to bond price volatility, liquidity and the impact on repo markets.Details
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 14 March 2024
- Central banks have been collecting art for a long time. While the works were previously only accessible at their physical locations, more and more central banks now make their collections available online. The ECB Blog showcases four collections you can enjoy from wherever you are.
- 11 March 2024
- In 2021-22 inflation surged due to the direct and indirect effects of the energy shock, together with a set of pandemic-related factors and the Russian invasion of Ukraine. In this post on The ECB Blog, Chief Economist Philip R. Lane looks at the monetary policy actions taken by the ECB in response to these extraordinary inflation shocks.Details
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
D81 : Microeconomics→Information, Knowledge, and Uncertainty→Criteria for Decision-Making under Risk and Uncertainty
- 23 April 2024
- WORKING PAPER SERIES - No. 2932Details
- Abstract
- We analyze, for the first time, how firms choose the currency in which they price transactions in international trade of services and investigate, using direct evidence, whether the US dollar (USD) plays a dominant role in services trade. Drawing on a new granular dataset on extra-European Union exports of Portuguese firms broken down by currency, we show that currency choices in services trade are active firm-level decisions. Firms that are larger and rely more on inputs priced in foreign currencies are less likely to use the domestic currency to export services. Importantly, we show that the USD has a dominant role as a vehicle currency in trade of services – but to a lesser extent than in trade of goods – and that this is not just due to differences in the geography of trade. An external validity test based on macro data available for Portugal and six other European countries confirms this finding. In line with predictions from recent theoretical models, our results are consistent with the lower prevalence of USD in services trade arising from a lower openness of services markets and a stronger reliance of services on domestic inputs.
- JEL Code
- F14 : International Economics→Trade→Empirical Studies of Trade
F31 : International Economics→International Finance→Foreign Exchange
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 23 April 2024
- WORKING PAPER SERIES - No. 2931Details
- Abstract
- This paper investigates the sensitivity of the demand for safe government debt to currency unhedged and hedged excess returns in a sample of US mutual funds. We find evidence of active rebalancing towards government bonds that offer relatively higher returns on an unhedged basis, in particular euro denominated securities. The size of the effect is large, leading to a change in portfolio share by around one percentage point on average in response to a change by one percentage point in the currency-specific excess return. Interestingly, mutual funds rebalance their portfolio towards currencies, such as the Japanese yen, that display large deviations in the covered interest parity and offer higher returns than US Treasuries on an hedged basis. Finally, when global financial risk is on the rise, US mutual fund managers repatriate their investments towards US government debt securities, mainly at the expenses of euro-denominated ones. Our results imply that deviations in pricing conditions like uncovered and covered interest parity for sovereign bonds affect capital flows from the United States towards other major currency areas.
- JEL Code
- F3 : International Economics→International Finance
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 23 April 2024
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2024Details
- Abstract
- This article shows that trust in the ECB needs to be analysed and understood as a multifaceted concept. Analysis of data from the Consumer Expectations Survey shows that trust is not a matter of “yes” or “no”, rather, it exists on a spectrum. On aggregate, the distribution of individuals’ expressions of trust shows that trust in the ECB held up well during the pandemic and in the period of heightened inflation thereafter. On a scale of 0 to 10, a majority of respondents have a trust level between 5 and 8. The survey shows that the distribution of expressions of trust has been relatively stable since 2020, reflecting the stability of opinions at the individual level. Once individuals have a view on the ECB, it appears that they are unlikely to change their opinion quickly. At the same time, trust in the ECB co-moves strongly with trust in other institutions included in the survey. This suggests that, for many respondents, trust in the ECB may reflect their assessment of institutions in general, rather than an ECB-specific assessment.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F15 : International Economics→Trade→Economic Integration
H11 : Public Economics→Structure and Scope of Government→Structure, Scope, and Performance of Government
- 22 April 2024
- WORKING PAPER SERIES - No. 2930Details
- Abstract
- We study how millions of granular and weekly household scanner data combined with machine learning can help to improve the real-time nowcast of German inflation. Our nowcasting exercise targets three hierarchy levels of inflation: individual products, product groups, and headline inflation. At the individual product level, we construct a large set of weekly scanner-based price indices that closely match their official counterparts, such as butter and coffee beans. Within a mixed-frequency setup, these indices significantly improve inflation nowcasts already after the first seven days of a month. For nowcasting product groups such as processed and unprocessed food, we apply shrinkage estimators to exploit the large set of scanner-based price indices, resulting in substantial predictive gains over autoregressive time series models. Finally, by adding high-frequency information on energy and travel services, we construct competitive nowcasting models for headline inflation that are on par with, or even outperform, survey-based inflation expectations.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods - Network
- Price-setting Microdata Analysis Network (PRISMA)
- 22 April 2024
- WORKING PAPER SERIES - No. 2929Details
- Abstract
- We evaluate the effects of contagion and common exposure on banks’ capital through a regression design inspired by the structural VAR literature and derived from the balance sheet identity. Contagion can occur through direct exposures, fire sales, and market-based sentiment, while common exposures result from portfolio overlaps. We estimate the structural regression on granular balance sheet and interbank exposure data of the Canadian banking market. First, we document that contagion varies in time, with the highest levels around the Great Financial Crisis and lowest levels during the pandemic. Second, we find that after the introduction of Basel III the relative importance of risks has changed, hinting that sources of systemic risk have changed structurally. Our new framework complements traditional stress-tests focused on single institutions by providing a holistic view of systemic risk.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks
- 22 April 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2024Details
- Abstract
- This box examines the current level of housing investment in the euro area as a whole, and in the four largest euro area economies, in relation to the evolution of the user cost of housing. To this end, the box proposes a novel quarterly measure of the user cost of housing by combining quarterly data on mortgage rates, long-term risk-free interest rates and expected house price growth with information on tax rates and structural characteristics of residential construction and housing finance. Furthermore, we use an empirical model to relate the level of housing investment to the user cost of housing. The model estimates suggest that euro area housing investment at the end of 2023 was still above the level implied by the user cost of housing despite a significant decline and with marked differences across countries. This highlights the possibility of further weakness in euro area housing investment, which could persist for some time if there is no significant decline in the user cost of housing.
- JEL Code
- E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
- 22 April 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2024Details
- Abstract
- In recent quarters, euro area households have faced higher housing costs, and in particular rising rent or mortgage payments. The ECB Consumer Expectations Survey shows that housing cost dynamics vary across households depending on the type of ownership, with the highest cost increases being borne by those who do not own their home outright (mortgage and renter households). Since 2022 rising housing costs have, on average, largely been offset by growth in household income, leading to stable housing cost to household income ratios. The housing cost burden has, however, increased slightly for both renter and mortgage households at the upper end of the income distribution. Furthermore, at the lower end of the income distribution, a substantial proportion of households have been overburdened by their housing costs. Finally, there is a positive correlation between higher housing costs for households and late payment of rent or mortgages and of utilities. While the figures for late payment have, to date, remained relatively stable, an increasing number of households, especially those in lower income brackets, have indicated in recent months that they expect to fall behind with payments.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 19 April 2024
- OTHER PUBLICATION
- 19 April 2024
- OTHER PUBLICATION
- 19 April 2024
- WORKING PAPER SERIES - No. 2928Details
- Abstract
- The evidence suggests that monetary policy transmission is asymmetric over the business cycle. Interacting financing frictions with a preference for liquidity provides an explanation for this fact. Our mechanism generates monetary asymmetries in a model that jointly reproduces a set of asset market and business cycle facts. Accounting for the joint dynamics of asset prices and business cycle fluctuations is key; in a variant of the model that is unable to produce realistic macro-finance implications, monetary asymmetries disappear. Our results suggest that asymmetries in the transmission mechanism critically depend on the macro-finance implications of monetary policy models, and that resorting to nonlinear techniques is not sufficient to detect monetary asymmetries.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 19 April 2024
- WORKING PAPER SERIES - No. 2927Details
- Abstract
- This study provides new evidence on the relationship between unconventional monetary policy and auction cycles in the euro area. Using proprietary data on purchases of public sector securities implemented by the Eurosystem, the paper examines the flow effects of asset purchase programmes on 10-year government bond yields in secondary markets around dates of public debt auctions. The findings indicate that Eurosystem’s asset purchase flows mitigate yield cycles during auction periods and counteract the amplification impact of market volatility. The dampening effect of central bank asset purchases on auction cycles is more sizeable and precisely estimated for purchases of securities with medium-term maturities and in jurisdictions with relatively lower credit ratings. The analysis has broader implications for monetary policy and market functioning in the euro area.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
- 19 April 2024
- RESEARCH BULLETIN - No. 118Details
- Abstract
- Some firms have the capacity to contribute significantly to economic productivity but cannot obtain the necessary capital for investment, which instead flows to less productive firms. While “misallocation of capital” and its detrimental impact on productivity is traditionally beyond the scope of central banks, monetary policy can influence it through firms’ investment decisions. Using a New Keynesian model and granular data on Spanish firms, our results show that expansionary monetary policy reduces capital misallocation. However, in committing to an optimal policy course, central banks are better off sticking to price stability rather than exploiting this channel to influence productivity.
- JEL Code
- E12 : Macroeconomics and Monetary Economics→General Aggregative Models→Keynes, Keynesian, Post-Keynesian
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
- 18 April 2024
- STATISTICS PAPER SERIES - No. 48Details
- Abstract
- Climate change entails risks to the global economy and impacts financial stability. Beyond managing related risks, the financial sector can also contribute to the transition toward a net-zero economy. Guided by the ECB’s climate and nature plan, this paper discusses the methodology and key findings of statistical indicators developed in three areas: sustainable finance, carbon emissions, and physical risk. Our work aims to enhance data transparency in climate change analysis, while informing monetary policy, financial stability and banking supervision. The indicators we have developed focus on the euro area financial sector and are built from harmonised granular datasets. They also utilise climate information from public sources to the extent possible.The sustainable finance metrics are built on well-established securities statistics and are at a more mature stage of development when compared with the other two climate risk indicators. While there are several data gaps that need to be addressed, the proposed statistical methodology offers a valuable framework for assessing climate risks in the European context, ensuring comparability across countries, time frames and under various climate scenarios. This paper discusses the methodology, underlying data, and findings for each set of indicators, while also flagging possible constraints and opportunities for future development.
- JEL Code
- Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q59 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Other
- 18 April 2024
- OTHER PUBLICATIONEnglishOTHER LANGUAGES (20) +Related
- 18 April 2024
- ANNUAL REPORTEnglishOTHER LANGUAGES (22) +
- 18 April 2024
- ANNUAL REPORTEnglishOTHER LANGUAGES (22) +Related
- 18 April 2024
- OCCASIONAL PAPER SERIES - No. 346Details
- Abstract
- A digital euro would provide the general public with an additional means of payment in the form of risk-free central bank money in digital form that is universally accepted for digital payments across the euro area. A digital euro would offer a wide range of financial stability benefits, including safeguarding the role of public money and strengthening the strategic autonomy and monetary sovereignty of the euro area in the digital era. It would be designed to have no material impact on financial stability or the transmission of monetary policy. This paper shows the usefulness of digital euro safeguards, such as holding limits, that would limit the impact of the introduction of a digital euro on banks’ liquidity and on their reliance on central bank funding. To this end, it assesses how banks might respond to the introduction of a digital euro while seeking to maximise profitability and manage their risks for a range of holding limit scenarios. The results of the simulated impact on key liquidity metrics show that, with safeguards in place and on aggregate, the liquidity metrics of euro area banks would decline but remain well above regulatory minimums. In addition, the central bank funding ratios of euro area banks would not increase materially on aggregate and would remain contained overall.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 16 April 2024
- WORKING PAPER SERIES - No. 2926Details
- Abstract
- We shed light on the demand for a central bank digital currency (CBDC) as a means of payment, based on survey payment data. We provide a quantitative framework to assess transactional demand for CBDC at the point of sale, accommodating a wide range of design choices. We develop a structural model of payment means adoption and usage and estimate CBDC demand based on individuals’ preferences for payment method attributes. We disentangle the friction potentially associated to CBDC adoption, assessing two of its potential drivers: information frictions and gradual diffusion of digital payment methods. We find that modelling adoption is key to understanding CBDC demand. Finally, we show that optimal CBDC design, information campaigns, and network effects can substantially boost demand.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
- 15 April 2024
- SURVEY OF MONETARY ANALYSTS - AGGREGATE RESULTS
- 15 April 2024
- OCCASIONAL PAPER SERIES - No. 345Details
- Abstract
- This paper discusses the impact that a retail central bank digital currency (CBDC) could have on the implementation of monetary policy. Monetary policy implementation could be affected if the introduction of the retail CBDC changes the volume of commercial bank deposits held by customers, which would, in turn, affect central bank reserves. While it is often assumed that customer deposits would decrease if a CBDC was introduced, we provide arguments why this is by no means clear cut and deposits could even increase. If bank deposits do decrease, banks would need to draw on, and therefore reduce, their central bank reserve holdings. Moreover, uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation, depending, for example, on whether they use a floor or a corridor system for monetary policy implementation. In the specific case of the digital euro, the features already envisaged for its design would make it possible to minimise the risk of negative consequences for monetary policy implementation.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 12 April 2024
- WORKING PAPER SERIES - No. 2925Details
- Abstract
- This paper extends Boone (2008) by introducing a competition measure at the individual firm level rather than for an entire market segment. It is based on the elasticity between profits and efficiency and called marginal relative profitability (MRP). Its intuition is that when a small change in efficiency derived from marginal costs can cause a large change in profits, a firm exercises pressure on its peers and gains profits. The MRP is embedded in the theoretical framework of Boone and measures competition vis-à-vis other market participants. We apply this extended Boone indicator to individual bank-level competition in the loan market in the four largest euro area countries and Austria. The MRP distribution is skewed to the left and many banks have a MRP below one, indicating that those banks have little incentive to enhance their efficiency to increase their profits. The MRP approach is shown to be a powerful tool to test the efficient-structure, structure-conduct performance, and ‘quiet life’ hypotheses and to detect comparatively weak non-competitive banks. Our new measure of firm-level competition enriches and complements other competition measures and provides a promising starting point for future market power analyses.
- JEL Code
- D4 : Microeconomics→Market Structure and Pricing
L16 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Industrial Organization and Macroeconomics: Industrial Structure and Structural Change, Industrial Price Indices
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Interest rates
| Marginal lending facility | 4.75 % |
| Main refinancing operations (fixed rate) | 4.50 % |
| Deposit facility | 4.00 % |
Inflation rate
Inflation dashboardExchange rates
| USD | US dollar | 1.0632 | |
| JPY | Japanese yen | 164.51 | |
| GBP | Pound sterling | 0.86328 | |
| CHF | Swiss franc | 0.9693 |
Financial stability
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