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Increased investment in clean electricity generation or the introduction of a carbon tax will most likely lead to higher electricity prices. We examine the effect from changing electricity prices on manufacturing employment. Analyzing firm-level data, we find that rising electricity prices lead to a negative impact on labor demand and investment in sectors most reliant on electricity as an input factor. Since these sectors are unevenly spread across countries and regions, the labor impact will also be unevenly spread with the highest impact in Southern Germany and Northern Italy. We also identify an additional channel that leads to heterogeneous responses. When electricity prices rise, financially constrained firms reduce employment more than less constrained firms. This implies a potentially mitigating role for monetary policy.

This paper provides new empirical evidence that bears on the efficacy of unconventional monetary policies when the main policy rate is negative. When a negative interest rate policy (NIRP) is deployed in concert with rate forward guidance (FG) and quantitative easing (QE), the identification of the impacts of these unconventional instruments of monetary policy is challenging. We propose a novel identification approach that seeks to overcome this challenge by combining a dense, controlled event study with forward curve counterfactuals that we construct using predictive rate densities derived from rate options. We find that NIRP has exerted a sizeable influence on the term structure of interest rates throughout maturities while, on net, the impact of rate FG has been more muted. QE explains the lion's share of yield effects, particularly over the back end of the yield curve. We then feed these rate counterfactuals into a large-scale Bayesian VAR and generate alternative histories for the euro area macro-economy that one would likely have observed between 2013 and 2020 in no-NIRP (with or without FG) and in no-QE regimes. According to this conditional forecasting exercise, in 2019 GDP growth and annual inflation would have been 1.1 p.p. and 0.75 p.p. lower, respectively, and the unemployment rate 1.1 p.p. higher than they actually were, had the ECB abstained from using NIRP, FG and QE over the previous six years or so.

Financial asset prices contain a rich set of real-time information on the economy. To extract this information, it is crucial to understand the driving factors behind financial market developments. In this paper, we exploit daily cross-asset price movements in a sign-restricted BVAR model to analyse the extent to which euro area and US yields, equity prices, and the euro-US dollar exchange rate are jointly driven by monetary policy, macro and global risk factors. A novelty is that we allow for cross-Atlantic spillovers while also accounting for the unique role of the US in the global financial system. Our results underline the importance of US spillovers and shifts in global risk sentiment for understanding the dynamics of euro area financial variables. Euro area shocks transmit much less to US financial markets in comparison, with global risk shocks being more important instead. Using the daily shocks as instruments in a Proxy-SVAR, we demonstrate that the transmission of financial market movements to the macroeconomy depends on the underlying driver, thereby illustrating why it matters to look into the driving factors in the first place.

The 20th anniversary of Economic and Monetary Union (EMU) offers an opportunity to look back on the ECB's record and learn lessons that can improve the conduct of policy in the future. This paper charts the way the ECB has defined, interpreted and applied its monetary policy framework - its strategy - over the years from its inception, in search of evidence and lessons that can inform those reflections. Our "Tale of Two Decades" is largely a tale of "two regimes": one - stretching slightly beyond the ECB's mid-point - marked by decent growth in real incomes and a distribution of shocks to inflation almost universally to the upside; and the second - starting well into the post-Lehman period - characterised by endemic instability and crisis, with the distribution of shocks eventually switching from inflationary to continuously disinflationary. We show how the most defining element of the ECB's monetary policy framework, its characteristic definition of price stability with a hard 2% ceiling, functioned as a key shock-absorber in the relatively high-inflation years prior to the crisis, but offered a softer defence in the face of the disinflationary forces that hit the euro area in its aftermath. The imperative to halt persistent disinflation in the post-crisis era therefore called for a radical, unprecedented policy response, comprising negative policy rates, enhanced forms of forward guidance, a large asset purchase programme and targeted long-term loans to banks. We study the multidimensional interactions among these four instruments and quantify their impact on inflation and economic activity.

This paper aims at assessing the role of the United States in the global economy and its evolution over time. The emergence of large economic players, like China, is likely to have weakened the role of the U.S. economy as a driver of global growth. Based on a Global VAR modelling approach, this paper shows first that the transmission of U.S. cyclical developments to the rest of the world tends to fluctuate over time but remains large overall. Second, although the size of the spill-overs might have decreased in the most recent periods, the effects of changes in U.S. economic activity seem to have become more persistent. Actually, the increasing economic integration at the world level is likely to have fostered second-round and third-market effects, making U.S. cyclical developments more global. Finally, the slightly decreasing role of the U.S. has been accompanied by an increasing importance of third players. Regional integration might have played a significant role by giving more weights to non-U.S. trade partners in the sensitivity of the various economies to their international environment.

In this paper, we present international comparisons of potential output growth among several economies -Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States- for the period 1991-2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb-Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential GDP growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period., Nous présentons dans cet article une comparaison internationale de croissance potentielle entre plusieurs économies - Canada, zone euro, France, Allemagne, Italie, Royaume-Uni et Etats-Unis- sur la période 1991-2004, pour lesquelles nous construisons des séries cohérentes et homogènes de stock de capital. Les principaux résultats des estimations reposent sur une approche structurelle dans laquelle la production d'une économie est décrite par une fonction de production Cobb-Douglas et une productivité globale des facteurs (PGF) estimée autour d'une tendance déterministe susceptible de présenter des ruptures. Les résultats confirment que sur la période d'investigation, la croissance potentielle a été plus rapide aux Etats-Unis que dans les autres économies considérées, combinant une plus forte contribution de l'emploi et une croissance de la PGF plus rapide. De plus, ce papier permet de mettre en lumière des différences internationales de performance économique sur la période récente.

In this paper, we present international comparisons of potential output growth among several economies —Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States— for the period 1991-2004. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb-Douglas function. This framework enables us to take temporal considerations into account, depending on the assumed volatility of potential output. Moreover, this study presents two original features, in other words, the construction of consistent and homogenous capital stock series, and long-run estimates including capital-deepening effects based on a stable capital/output ratio in value terms, whereas standard estimations assume a stable ratio in volume terms. Lastly, we use univariate methods as a benchmark. Even though the final estimates are obviously sensitive to each method and the assumptions made for each of them, this paper might help to understand why some economies remained below their potential growth rate during the recent period by identifying the sources of long-run potential growth.