This article examines how addressing climate-related risks and supporting mitigation and adaptation policies fit into central bank mandates. We conduct an analysis of mandates and objectives using ...the IMF's Central Bank Legislation Database and compare these to sustainability-related policies central banks have adopted in practice. Out of 135 central banks, only 12% have explicit sustainability mandates, while 40% are mandated to support the government's policy priorities, which mostly include sustainability goals. However, given that climate risks can directly affect central banks' traditional core responsibilities, all institutions ought to incorporate climate-related physical and transition risks into their policy frameworks to safeguard macro-financial stability.
•First systematic study of central bank mandates regarding sustainability objectives•Review of IMF Central Bank Legislation Database and sustainability-related policies•70 out of 135 central banks have a ‘direct’ or ‘indirect’ sustainability mandate•Climate risks can directly affect central banks' traditional core responsibilities•All institutions ought to incorporate climate risks into their policy frameworks
We investigate the link between ideology and the sentiments of parliamentarians when they speak to the central bank they hold accountable. To this end, we collect textual data on the quarterly ...hearings of the ECB President before the European Parliament from 1999 to 2019. We apply sentiment analysis to more than 1900 speeches of individual Members of the European Parliament (MEPs) from 128 parties. We find robust evidence that MEPs' sentiments towards the ECB are correlated with the ideological stance predominantly on a pro-/anti-European dimension rather than on a left–right dimension.
Monetary policy operations in corporate security markets confront central banks with choices that are traditionally perceived to be the prerogative of governments. This article investigates how ...central bankers legitimise corporate security purchases through a comparative study of the European Central Bank (ECB) and the Swiss National Bank (SNB). As we show, central bankers downplay the novelty of corporate security purchases by relying on familiar pre-crisis justifications of Central Bank Independence. Citing an ideal of 'market neutrality', central banks present corporate security purchases as pursuing a narrow objective of price stability and obfuscate their distributive consequences. In this way, central bankers depoliticise corporate security purchases: they reduce the potential for choice, collective agency, and deliberation concerning both the pursuit of corporate security purchases and the choices made in implementing these policies. We also describe the undesirable democratic, social and environmental dimensions of these practices, which we propose to address through enhanced democratic accountability.
We analyze the role of loan maturity and collateral eligibility in the transmission of central bank liquidity provisions to banks following a wholesale funding dry-up. We analyze the transmission of ...the three-year LTRO, which substantially extended the ECB liquidity maturity, in Italy, where banks benefited from a government guarantee program that effectively relaxed the ECB collateral requirements. Combining the national credit register with banks securities holdings, we find that (i) the maturity extension supported banks’ credit supply and (ii) banks used most liquidity to buy domestic government bonds and substitute missing wholesale funding, two possibly unstated goals of the intervention.
Using evidence from four major central banks, we decompose news conveyed by central-bank communication into news about monetary policy (monetary news), as well as non-monetary news, i.e., news about ...economic growth and news affecting financial risk premia. Our approach exploits high-frequency comovement of stocks and interest rates combined with monotonicity restrictions across maturities in the yield curve. We find significant differences in the news composition depending on the communication channel used by central banks. Monetary news prevails in policy decision announcements. However, the non-monetary component accounts for more than half of communications that provide context to policy decisions such as press conferences and minutes. We show that non-monetary news drives a significant part of financial markets' reaction during the financial crisis and in the early recovery, while monetary news gains importance since 2013.
We quantify the tone from the speeches of the European Central Bank (ECB) as well as that from the national central banks of six leading European nations and analyze its role in explaining the ...returns of their respective stock market indices. Using recent innovations in financial text analysis, we find evidence that except for France, all nations' stock indices are significantly associated with the tone of speeches delivered by either the national banks or the ECB (or both). For France, the national stock index volatility is found to be associated with its national central bank speech tone.
This paper updates and extends existing surveys on the economics of monetary policy decision-making by committee. The paper bridges the relevant literature on monetary policy decision-making and ...central bank communication, and it combines theoretical contributions with an empirically oriented practitioner’s view. Drawing on studies from the last two decades, the paper recaps the arguments for monetary policy-making by committee, highlights its trade-offs and considers remedies for the downsides of this form of decision-making, with a focus on transparency and communication. The paper applies these insights to a case study of the European Central Bank’s present decision-making environment. It puts a spotlight on recent phenomena such as dissent and non-consensual decision-taking which are less well captured by the literature on the euro area so far. The paper closes by identifying key priorities for a research agenda on the design and process of monetary policy-making in the euro area.
•Updates/extends earlier surveys on monetary policy decision-making by committee.•Concentrates on trade-offs and risks of monetary policy decision-making by committee.•Considers remedies for trade-offs and risks, focusing on transparency/communication.•Provides case study of European Central Bank’s present decision-making environment.•Identifies priorities for research on monetary policy decision-making in euro area.
Previous scholarship on central bank accountability has generally focused on monetary authorities' deeds and words while largely ignoring the other side of the accountability relationship, namely ...politicians' voice on monetary policy. This raises a fundamental question: what are central banks held accountable for by elected officials? To answer this question, we employ structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament (MEPs) and the President of the European Central Bank (ECB) from 1999 to 2019. Our findings are twofold. First, we uncover differences in how MEPs keep the ECB accountable for its primary, price stability objective. We show that European politicians also attempt to keep the central bank accountable for a broader set of issues that are connected with, but distinct from, the central bank's primary goal. Second, we show that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. In particular, higher rates of domestic unemployment lead MEPs to devote less voice on issues related to the ECB's primary mission. These findings reveal the existence of a "political" Phillips curve reaction function, which enriches our understanding of the principal–agent accountability relationship between politicians and central bankers.
•Survey experiment: Graph showing the ECB's inflation target and euro area inflation.•Non-entrenched views: Measured by absence of a clear party preference.•Treatment impact 1: No significant average ...effect on respondents’ trust in ECB.•Treatment impact 2: Trust increases among respondents with non-entrenched views.•Mechanism: Effect driven by information on actual inflation rate, not the inflation target.
Using a survey experiment, we study whether showing German respondents a graph representing the European Central Bank’s inflation target alongside euro area inflation from 1999 to 2017 affects respondents’ trust in the ECB. On average, the treatment has no significant effect. However, it does increase trust in the ECB among respondents with no entrenched views, proxied by those who report no preference for any political party. Within this group, information about the actual path of the inflation rate, rather than information about the inflation target itself, appears to be the main driver of the treatment’s effect.
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