Paving the path to recovery by preserving favourable financing conditions - Isabel Schnabel Member of the ECB Executive Board - European Central Bank
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Paving the path to recovery
by preserving favourable
financing conditions
New York University, Isabel Schnabel
25 March 2021 Member of the ECB Executive Board
www.ecb.europa.eu ©Highly favourable financing conditions at time of December meeting
Euro area GDP-weighted yield curve Euro area 10-year real OIS rate
(percentage per annum) (percentage per annum)
Pre-PEPP announcement (18 Mar 2020) 10-year real OIS Average since 2006
Pre-pandemic (18 Feb 2020)
3.0
December GovC meeting (10 Dec 2020) December
0.8 0.8 GovC
0.6 0.6 2.0 meeting
0.4 0.4
1.0
0.2 0.2
0.0 0 0.0
-0.2 -0.2
-0.4 -0.4 -1.0
-0.6 -0.6
-0.8 -0.8 -2.0
1 2 3 4 5 6 7 8 9 10 2006 2008 2010 2012 2014 2016 2018 2020
Maturity (years) Source: Refinitiv, ECB calculations.
Source: Refinitiv, ECB calculations. Notes: Real rates are calculated as the difference between the nominal OIS rates and
inflation-linked swap rates. Last observation: 22 March 2021
2 www.ecb.europa.eu ©Containment measures and high uncertainty weighing on aggregate demand
Consumer survey: major purchases Consumer survey: savings over next 12 months
over next 12 months (percent balance) (percent balance)
-5 10
5
-10
0
-15 -5
-10
-20
-15
-25 -20
1999 2003 2007 2011 2015 2019 Jan 20 Jul 20 Jan 21 1999 2003 2007 2011 2015 2019 Jan 20 Jul 20 Jan 21
Source: European Commission. Source: European Commission.
Latest observation: February 2021. Latest observation: February 2021.
3 www.ecb.europa.eu ©Lower bound and long period of low interest rates may reduce credit sensitivity
Weight of short-term loans in the cost of borrowing Distributions of household deposit rates across
indicator to households for house purchases individual MFIs in the euro area in January 2021
(percentage) (x-axis: deposit rates in percentages per annum, y-axis: frequencies
in percentages, weighted by volumes)
DE ES FR IT EA 100
100 100 90
80
80 80
70
60
60 60
50
40
40 40
30
20
20 20
10
0 0 0
2010 2012 2014 2016 2018 2020 -0.6 0.0 0.6 1.2 1.8 2.4 3.0
Sources: ECB and ECB calculations.
Source: ECB. Notes: Deposit rates on outstanding amounts as reported by individual banks for
Notes: The weight is a 24-month moving average of the fraction of new business volumes each of the available product categories, weighted by the respective outstanding
with initial fixation period up to 1 year over total new business volumes. amounts. Deposits of households include non-profit institutions serving households
Latest observation: January 2021. 4 (NPISH). www.ecb.europa.eu ©Risks of overvaluation in financial and real estate markets
House price growth and residential real estate
US excess PE yield by sector over-/undervaluation estimate in the euro area
(percentage) (annual percentage changes)
S&P Tech index Residential real estate over-/undervaluation estimate
10 8 Nominal residential real estate price growth
15
8 7
10
6
6
5 5
4
4 0
2
3
-5
0
2
-2 -10
1
-4 0 -15
1995 2000 2005 2010 2015 2020 2020 2021 1999 2002 2005 2008 2011 2014 2017 2020
Source: Bloomberg and ECB calculations.
Notes: Core inflation is used for 10y real yields. Earnings yield on equities refers to the Source: ECB calculations.
inverse of the price earnings (P/E) ratio. Note: The blue line corresponds to the average of two estimates of the
Latest observation: February 2021. over/undervaluation of residential property prices – house price-to-income ratio and
. 5 a model-based method (Bayesian static equation). www.ecb.europa.eu ©
Latest observation: 2020 Q3.Current real rates highly accommodative despite decline in equilibrium rate
Long-term real interest rate gap in the euro area Estimates of euro area short-term equilibrium rate
(percentage points) (percentages per annum)
range based on different r* estimates Range of all natural rate estimates Range of smoother estimates
range based on extrapolated r* estimates of 2019 6 6
median based on different r* estimates
1.0 1.0 4 4
0.5 0.5
0.0 0.0 2 2
-0.5 -0.5
-1.0 -1.0 0 0
-1.5 -1.5
-2.0 -2.0 -2 -2
-2.5 -2.5
-3.0 -3.0 -4 -4
2005 2008 2011 2014 2017 2020 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Source: ECB.
Notes: The euro area long-term natural real rate gap is calculated as the 10y real OIS rate minus a measure of Sources: WGEM Report “The natural rate of interest: estimates, drivers, and challenges to monetary policy”,
the natural long-term real rate. The real OIS rate is given by the difference of the nominal OIS and ILS rates. The OP, No 217; Ajevskis (2018); Brand, Goy, Lemke (2020); Brand, Mazelis (2019); Fiorentini, Galesi, Pérez-
long-term natural real rate measure is provided by the sum of an r* estimate and the long-term average of the real Quirós, Sentana (2018); Geiger and Schupp (2018); Holston, Laubach, Williams (2017); Jarocinski (2017);
term structure slope (10y-2y real OIS). The range and median result from different r* estimates based on a suite Johannsen and Mertens (2021). Notes: Ranges span point estimates across models to reflect model
of models (Brand, Goy, Lemke, 2020; Geiger, Schupp, 2018; Mertens, 2021). The white-blue shaded area marks uncertainty and no other source of r* uncertainty. The dark shaded area highlights smoother r* estimates that
a simple extrapolation of the latest available r* estimates from Q3 2019.
6 are statistically less affected by cyclical movements in the real rate www.ecb.europa.eu ©
Latest observation: 18 March 2021. of interest than the other estimates depicted in the chart.Rising real term premia could make financing conditions less favourable
Cumulative changes of 10-year real OIS rates
(percentage points, re-based to zero at the beginning of the period)
10-year real OIS
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
-0.5 -0.5
May-13 Jun-13 Mar-20 Apr-20 Jan-21 Mar-21
Sources: Refinitiv, Bloomberg and ECB calculations.
Notes: Left, centre and right panels are rebased at 1 May 2013, 2 March 2020 and 1 Jan 2021, respectively. Real
rates are calculated as the difference between the nominal OIS rates and the inflation-linked swap rates.
Latest observation: 28 June 2013 (lhs), 30 April 2020 (centre), 22 March 2021 (rhs).
www.ecb.europa.eu ©
7High public debt issuance putting pressure on the real term premium
Net issuance of EA government debt securities Estimated impact of the COVID-19-induced debt-to-
(billion euros) GDP revisions on EA sovereign yields (basis points)
Range of models Median of models
1200 100 100
1000 80 80
800
60 60
600
40 40
400
20 20
200
0 0 0
2019 2020 2021 2022 5y 6y 7y 8y 9y 10y
Source: ECB.
Source: Estimates based on Eurosystem, CSDB and AMECO data. Notes: It is assumed that COVID-19 causes an increase of 20pp in the 5-year-ahead euro area
debt/GDP ratio. Estimates based on 3 approaches: Laubach (2009), a VAR model and a term
structure model in the spirit of Dewachter et al. (2015). For the Laubach and VAR approaches, the
impacts on spot yields are indirectly derived from the impacts on forward yields by fitting a
8 polynomial through the forward impact curve and inferring the www.ecb.europa.eu ©
impact on spot yields from the polynomialChanges in euro area yields driven by inflation risk premia
Decomposition of the change in the 10-year Decomposition of the change in the 10-year
OIS rate into inflation and real rate OIS rate into expectations and term premia
(percentage points and basis points) (percentage points and basis points)
Inflation component Expectations Change Dec. to
Real rate component Change Dec. to
Term premia Mar. GovC
10-year nominal OIS rate Mar. GovC Fitted 10-year OIS yield
0.4 40 0.4 40
0.3 30 0.3 30
0.2 20 0.2 20
0.1 10 0.1 10
0.0 0 0.0 0
-0.1 -10 -0.1 -10
10-Dec-20 09-Jan-21 08-Feb-21 10-Mar-21 10-Dec-20 09-Jan-21 08-Feb-21 10-Mar-21
Sources: Refinitiv, Bloomberg, ECB calculations. Sources: Refinitiv, Fed, and ECB calculations.
Notes: The real rate is calculated by subtracting the ILS rate from the nominal OIS rate.. Notes: The euro area decomposition is based on an affine term structure model fitted to the OIS curve.
The change bar shows changes between the Dec. (10 Dec. 2020) and the Mar. (11 Mar 2021) GovC The change bar shows changes between the Dec. (10 Dec. 2020) and the Mar. (11 Mar 2021) GovC
meeting. Latest observation: 22 March 2021. meeting. Latest observation: 22 March 2021.
9 www.ecb.europa.eu ©Excess savings and pipeline pressures increasing inflation uncertainty
Excess accumulated savings in the euro area Pipeline price pressures
(stock of excess savings accumulated since 2019Q4 in EUR bn) (index, 2015 =100)
DE FR IT ES NL Other EA
Non-energy commodity prices
400 Producer prices (intermediate goods)
125
300 120
115
200
110
100 105
100
0
95
-100 90
2020Q1 2020Q2 2020Q3 2015 2016 2017 2018 2019 2020 2021
Source: Eurostat, national statistical sources and ECB internal estimates. Source: Eurostat and ECB calculations.
Note: Excess accumulated savings are defined as the cumulated difference between Latest observation: February 2021 for non-energy commodity prices and January
realised savings and estimated savings based on a pre-pandemic counterfactual path. 2021 for intermediate goods producer prices.
10 www.ecb.europa.eu ©Real short-term rates historically low but global spillovers at longer tenors
2-year real OIS rates Drivers of the nominal EA 10-year OIS rate
(percentage per annum) (cumulative changes since 10 December 2020, percentage points)
EA monetary policy EA macro Changes
2-year real OIS Average since 2008 US monetary policy US macro since Dec
0.5 Global risk 10-year nominal OIS GovC
0.4 0.4
0.0
0.3 0.3
-0.5
0.2 0.2
-1.0
0.1 0.1
-1.5
-2.0 0 0
-2.5 -0.1 -0.1
2014 2015 2016 2017 2018 2019 2020 2021 10-Dec 27-Dec 13-Jan 30-Jan 16-Feb 05-Mar
Source: ECB calculations.
Sources: Refinitiv, ECB calculations. Notes: The model is a 2-country BVAR including 10-yr EA OIS rate, EA stock price, USD/EUR,
Notes: Real rates are calculated as the difference between nominal OIS rates and 10-year EA OIS rate-US Treasury spread, and the US stock price. It is identified using sign
inflation-linked swap rates of the same maturity. restrictions at impact and is estimated using daily data over the period 2005-2020.
Latest observation: 22 March 2021. Latest observation 18/03/2021
11 www.ecb.europa.eu ©Thank you for your attention!
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