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Begin New Search Topic Banking Author Francesco Papadia

1. The European Central Bank’s operational framework and what it is missing

Author:
Giulia Gotti and Francesco Papadia
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In March 2024, the European Central Bank published the results of a review of its operational framework. After discussing how the ECB operational framework has changed since the Great Financial Crisis, we provide an assessment of the review, which we deem as premature and highlight some gaps it has not resolved. First, the choice of a hybrid system is attractive, but needs a precise specification. Second, the review did not specify the timing of the introduction of structural long-term refinancing operations and a structural portfolio of securities. We find that these measures should be implemented when the level of excess liquidity reaches between €1.3 trillion and €2 trillion, projected between mid-2026 and late 2027. Finally, as the introduction of a digital euro could impact bank liquidity, it is crucial to design a framework that can flexibly increase the supply of central bank liquidity.
Topic:
Monetary Policy, Governance, European Union, Macroeconomics, Fiscal Policy, European Central Bank, and Banking
Political Geography:
Europe

2. Don’t look only to Brussels to increase the supply of safe assets in the European Union

Author:
Francesco Papadia and Heliodoro Temprano Arroyo
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
A sufficient supply of safe assets denominated in euros is critical if the European Union is to achieve full banking and capital markets union while fostering the euro’s international role. The European debate on developing the supply of safe assets has so far focused on the possible creation of a common safe asset. This has tended to underplay the potential contribution of sovereign assets. Expanding the supply of national safe assets, notably through the gradual implementation of fiscal and growth-oriented structural policies in euro-area countries, leading to upgrading of their sovereign ratings, provides a promising, and perhaps more feasible, option. An upgrade to triple A of those euro-area countries that are currently rated double A could produce substantially more safe assets than most common safe asset proposals, including those based on the development of ‘synthetic’ safe assets. There has been a remarkable increase in the share of supranational assets in the stock of euro-based safe assets since 2008, reflecting downgrades in sovereign ratings and the EU’s financial responses to the euro-area crisis and the pandemic. However, safe assets in euro remain dominated by those issued by euro-area governments. Although common safe assets have certain advantages over national safe assets, reflecting their built-in risk diversification properties, there is currently not much political appetite for such proposals. Meanwhile, sovereign safe assets already offer many of the advantages of common safe assets. Sound fiscal policies and growth-stimulating reforms, which are in any case desirable, should be implemented to improve the credit ratings of euro-area sovereigns. This might not be politically feasible in the short-term, given the difficult economic environment currently faced by the EU, but it should be a key component of the EU’s medium-term safe asset strategy. Should the political consensus be found to create a common safe asset, such an asset could be incorporated into the euro area’s existing safe asset system, reinforcing its positive effects.
Topic:
Debt, Markets, Monetary Policy, European Union, Regional Integration, European Monetary Union, and Banking
Political Geography:
Europe

3. Does money growth tell us anything about inflation?

Author:
Francesco Papadia and Leonardo Cadamuro
Publication Date:
11-2021
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Economists and central bankers no longer consider monetary aggregates relevant for inflation forecasts. We explain this neglect by advancing and testing the hypothesis that monetary aggregates are only relevant for inflation in unsettled monetary and inflationary conditions. When inflation is basically stable around the central bank target (1.9 percent), as it has been in most of the last two decades, there is no apparent relationship between monetary aggregates and inflation. This is not surprising: there is not much to be explained about a constant.
Topic:
Economy, Economic Growth, Inflation, and Banking
Political Geography:
Global Focus