The accuracy of short-term inflation projections made by Eurosystem and ECB staff deteriorated after Russia invaded Ukraine in February 2022.
#Money in the bank 2021 code#
JEL Code D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy 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 PoliciesĪbstract This box updates the analysis published in April 2022 that reviewed the Eurosystem and ECB staff inflation projections published since the start of the coronavirus (COVID-19) pandemic. In addition, there is some indication that as corporate bond financing gaps widen, bank lending conditions deteriorate for SMEs that do not use bond financing. This box finds evidence that bond-issuing firms substitute bond issuance with bank loans when bond market conditions deteriorate. As bond issuers are typically large firms that rely on multiple sources of finance, their substitution of bond issuance with bank loans could lead to a tightening of bank lending conditions for smaller firms. In the latest round of the SAFE, euro area firms reported a widening of their corporate bond financing gap (the difference between the change in the need for and the change in the availability of corporate bond financing). 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 E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, DeflationĪbstract Using firm-level data from the Survey on the Access to Finance of Enterprises (SAFE), this box investigates whether bond-issuing firms substitute bond issuance with bank loans as bond market conditions deteriorate, and whether this affects bank lending conditions for SMEs that do not rely on bond financing. Randomised information treatments reveal that providing additional explanations about monetary policy’s stabilising role has the strongest positive impact on credibility, boosting credibility also among the less financially literate and generating more persistent credibility gains, even after inflation increased. Although it is hard to reach out to this group, we find evidence that communicating key elements of the strategy can enhance the perceived credibility that price stability will be maintained in the medium-term. JEL Code C1 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General C12 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Hypothesis Testing: General C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: GeneralĪbstract We show that the announcement of the ECB’s Strategy Review and the revision of its inflation target in summer 2021 went largely unnoticed by the wider public. Robust Bayesian decisions are characterized by an ex ante confidence level strictly lower than one and are therefore uncertainty averse. The second conditioning reveals that Bayesian decision makers have an ex ante confidence level equal to one, which is equivalent to assuming an uncertainty neutral behavior. Bayesian decisions condition on sample realizations twice, with the tested hypothesis and with the choice of the confidence level. The resulting decisions condition on sample realizations, which are used to construct the confidence interval itself. Decisions with judgment test whether a judgmental decision is optimal and, in case of rejection, move to the closest boundary of the confidence interval, for a given confidence level. Abstract Bayesian decisions are observationally identical to decisions with judgment.
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