Latest articles and blogs
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Why are euro area households saving more than usual?
Since the COVID-19 pandemic, the household savings rate in the euro area has been exceptionally high.The savings rate has been driven up in particular by the decline in households’ real wealth, higher interest rates and increased public deficits. Increased uncertainty due to the Middle East war and higher energy prices are slowing the recovery of private consumption.
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Will higher defence spending boost euro area growth?
Defence spending is expected to increase significantly in the euro area in the coming years. Until now, euro area defence spending has mainly consisted of consumption expenditure, such as personnel costs. Growth effects would likely remain temporary and would support a number of specific manufacturing industries.
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How will the trade war hit the economy?
Import tariffs imposed by the United States would weaken growth everywhere and it seems there would be no economic winners. A trade war could even lead to businesses postponing investments and growth in the economy slowing down significantly.
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Will the euro area’s robust employment growth continue?
Employment has grown strongly in the euro area since 2020. This has been attributable to both demand and supply factors. In the near future, population ageing will reduce the supply of labour in the euro area. The impact of population ageing will nevertheless be softened by a rise in the labour force participation rate, work-based immigration and a reduction in structural unemployment.
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Recent insights into r*: An analysis using a modified Holston-Laubach-Williams model
It is well known that the real natural rate of interest, r*, is an inherently unobservable variable, and therefore reasonable estimates of its level are hard to determine. In our search for such estimates, we first apply a semi-structural model by Holston, Laubach and Williams (2023) and the Federal Reserve Bank of New York’s recent estimate of the euro area natural rate.
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What factors have influenced the dynamics of euro area prices and wages?
The anchoring of expectations and the moderation of energy and food inflation are contributing to reducing the rate of inflation. The tight labour market and the rise in wages to compensate for higher prices are nevertheless still keeping inflation above the 2% target.
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Monetary policy measures have strengthened the anchoring of inflation expectations
Inflation expectations are of key significance for price trends. Expectations regarding the future rate of inflation will affect price setting by businesses and the wage demands of employees.
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What is monetary policy normalisation?
The surge in inflation has prompted central banks to normalise their monetary policy. This means they are tightening financing conditions by raising key interest rates.
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Inflation expectations help in analysing the euro area inflation outlook
Inflation expectations play a key role in inflation projections. Different measures of inflation expectations point towards inflation remaining below the ECB's 2% target in the coming years.
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Corona crisis has increased the risk of stagnation in the euro area
Is the euro area drifting into a liquidity trap (a combination of low interest rates and low inflation) as a consequence of the corona crisis? There is a heightened risk of this, but the policy measures taken are preventing negative trends.
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The trade war has significantly weakened the global economy
According to the Bank of Finland’s model simulations, the tariff rises already introduced will serve to slow global growth by 0.7 of a percentage point.
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Alternative scenarios linked to the global impact of US fiscal and trade policies
The Bank of Finland has calculated alternative scenarios on the effects of risks to the global economy. In these scenarios, global growth weakens more abruptly than currently forecast.