Implementing a minimum exchange rate regime by buying foreign currency eases monetary conditions domestically and may thus have a direct impact on the inflation rate. However, such foreign currency purchases involve a risky expansion of the central bank’s balance sheet total. A new model can now predict what expansion of the balance sheet a central bank must expect if it wishes to implement a minimum exchange rate in the foreign exchange market.

Climate change is a global challenge that requires international policy coordination. This conclusion is also borne out in a recent study on the macroeconomics implications of carbon pricing. Several different scenarios are considered – different regions introduce carbon pricing schemes unilaterally or in cooperation, and in the presence or absence of border adjustment schemes.

As a response to the Covid-19 pandemic, parents in Germany received a series of transfer payments from the state in 2020 and 2021. This so-called child bonus (“Kinderbonus”) amounted to a total of €450 per child. A new study finds that the child bonus led to only a slight increase in household spending. Therefore, the child bonus should be seen less as a fiscal stimulus measure and more as an instrument of redistribution from the general population to families.

Are individuals concerned enough about climate change to change their behavior and bear additional costs as a consequence? How can they be motivated to fight climate change? A Bundesbank survey conducted between April 2020 and December 2021 shows that people are more concerned about climate change than about the state of the economy. During most of the ongoing pandemic, only the coronavirus was of a higher concern. While people who rate climate change as a serious issue are also more willing to take on additional costs to help fight climate change, providing information on ways to reduce carbon emissions further increases their willingness to do so.

The rate of inflation has a bearing on the relative price of individual products and therefore on demand for those products. Using new micro price data, we investigate how high the optimal inflation rate must be to prevent relative product demand from being distorted. Contradicting a common claim, we find that the optimal rate is not zero for a large part of the euro area, but is, in fact, clearly in positive territory.

In the mid-2010s, wages in Germany recorded comparatively weak growth while employment was surprisingly strong. A new study examines how immigration in the context of EU free movement of workers, in particular from the “new” Central and Eastern European Member States, contributed to these developments on the German labour market.

In the aftermath of the global financial crisis, a consensus rapidly emerged that systemic risk – a central concept in financial stability – needed to be contained going forward. However, to this day experts cannot agree on how to even measure systemic risk in the first place. In the past few years, researchers have proposed a plethora of indicators, making matters more difficult for policymakers. Our study proposes an analytical approach designed to lend structure to this universe of indicators for measuring systemic risk.

Is there a difference between the inflation expectations of private households in Germany formed under the ECB’s previous target definition of “below, but close to, 2%” and those under the new inflation target of “symmetrically 2%”? New survey results from the Bundesbank Online Panel Households (BOP-HH) show that the new inflation target is associated with moderately higher inflation expectations for the next two to three years. The differences become more accentuated when the respondents are also told that the new monetary policy strategy entails the possibility of inflation exceeding the target.

Banks grant long-term loans funded by short-term customer deposits. This maturity transformation earns banks money because long-term interest rates are generally higher than short-term interest rates. At the same time, this exposes banks to the risk that interest rates will rise, forcing them to pay more for deposits in the short term already, whereas they only receive the higher interest on new loans. In the low interest rate environment which has prevailed over the past few years, the premium on assuming interest rate risk has trended downward. At the same time, banks with poor profitability have stepped up their maturity transformation and thus also this risk. This is potentially a sign of a search for yield.

The outbreak of the COVID-19 pandemic had an unprecedented impact on the global economy, forcing governments to take rapid fiscal action. However, generous government support programmes depend on the government having a good credit rating. How do financial market players take fiscal constraints into account in their investment decisions? A new study looks into this question by analysing developments in short positions in the first few months of the COVID-19 pandemic in Europe.