How to measure the broader monetary policy stance in the euro area? In our latest @bundesbank.de report, we present the proxy monetary policy rate, which combines information from the risk-free yield curve and risk assets. 1\ #EconSky @plieberk.bsky.social

At @bundesbank.de, we have developed 𝗠𝗜𝗟𝗔 (𝗠𝗼𝗻𝗲𝘁𝗮𝗿𝘆-𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝘁 𝗟𝗮𝗻𝗴𝘂𝗮𝗴𝗲 𝗔𝗴𝗲𝗻𝘁) - an AI tool designed to evaluate ECB communication, assessing individual sentences from monetary policy statements and speeches given in-document as well as the macro context. \1 #EconSky

This is an important observation by @isabelschnabel.bsky.social: Typically, tight monetary policy transmits also by increasing risk premia on financial markets. Without it, transmission is notably weaker. During the recent hiking cycle, we did not observe this feature. bsky.app/profile/flxg...

Many #ECB watchers have waited for this article. Chart A shows the huge model uncertainty surrounding the estimates. Adding parameter and filter uncertainty, data revisions and considering all models (not just those available for Q4 2024), you can see what we know about r* ... very little.

🧵As 𝘁𝗲𝗿𝗺 𝗽𝗿𝗲𝗺𝗶𝘂𝗺𝘀 took center stage these days - Chart depicts dynamics for US and EA 1/n ➡️99-12: strong co-movement ➡️12-20: EA term premium collapses relative to US ➡️22-24: de-compression more pronounced in EA ➡️since mid-24: degree of US term premium rise is only partly matched by EA #EconSky

Important observation by @isabelschnabel.bsky.social As bond holdings can be unwound only gradually, asset prices remain distorted for a long time. During the most recent tightening cycle, term and risk premia remained compressed, potentially distorting risk-taking behaviour. 1/3