iiinova — where your digital self keeps evolving

Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 23/05/2025

What a success! Congratulations to everybody involved, and especially to my colleagues at @econtribute.bsky.social! You are indeed excellent! @dfg.de

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

I don't think there is a contradiction. In 2022 we had to react strongly to avoid inflation expectations becoming entrenched. In such a situation, central banks have to respond even if this leads to a deep contraction (as the Phillips curve is flat).

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

In recent years, we have learned that we cannot “look through” supply-side shocks if they are persistent and threaten to de-anchor inflation expectations. When the inflation regime changes, we must be ready to respond swiftly. #MonetaryPolicyStrategy 7/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

The easing of the German debt brake and the infrastructure package can help overcome the structural crisis and strengthen defence capabilities. Funds need to be spent wisely to foster growth. This should be accompanied by comprehensive structural reforms. 6/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

#CapitalMarketsUnion should focus on risk capital, which is crucial for driving innovation. We need to address the entire value chain: from the start-up phase through the growth phase, all the way to the exit stage within European capital markets. 5/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

A new European growth narrative is emerging, and there is momentum to embark on reforms. One promising way to foster integration is the #28thRegime, which would allow firms, e.g. start-ups, to operate all over the EU under similar conditions. 4/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

After April 2, the euro area became a safe haven, leading to an appreciation of the euro, which signalled increased confidence. We are facing a historical opportunity to foster the international role of the euro. 3/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

Disinflation is on track, but new shocks are posing new challenges. Tariffs may be disinflationary in the short run but pose upside risks over the medium term. Therefore, we should keep a #SteadyHand, as I argued in a recent speech. #Hoover 2/8 www.ecb.europa.eu/press/key/da...

ecb.europa.eu

Keeping a steady hand in an unsteady world

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purch...

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 20/05/2025

It was a pleasure to join @mickbroecker.bsky.social & his colleagues in the #TableToday podcast. We covered a lot of ground: monetary policy and inflation, the impact of tariffs, the emergence of a new European growth narrative, and fiscal challenges, with the following key messages. 1/8

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

Please note that this blog is a follow-up to a previous blog published in February 2024 titled “The dynamics of PEPP reinvestments”, which explains in more detail how we implemented PEPP reinvestment: www.ecb.europa.eu/press/blog/d... 6/6

ecb.europa.eu

The dynamics of PEPP reinvestments

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

PEPP implementation proceeded smoothly over the entire period. Flexibility was used only rarely, and deviations from the Eurosystem capital key swiftly receded. Looking ahead, the PEPP portfolio will continue to decline at a measured and predictable pace. 5/6

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

As regards the use of flexibility, the vast majority of purchases were conducted in line with the capital key. Besides technical factors, deviations occurred at the start of the PEPP in 2020 and in the summer of 2022, responding to risks to the transmission of monetary policy (red circles). 4/6

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

The new data give more insights into the implementation during the reinvestment phase. It shows how the Eurosystem balanced its market presence, taking seasonal patterns of redemptions and issuance into account. 3/6

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

In January 2025, the Eurosystem further increased the programme’s transparency by offering additional backward and forward-looking data. This includes historical monthly data for purchases since the start of the programme and forward-looking redemption data: www.ecb.europa.eu/mopo/impleme... 2/6

ecb.europa.eu

Pandemic Emergency Purchase Programme

Introduction to the temporary pandemic emergency purchase programme (PEPP) to counter the serious risks posed by the coronavirus.

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 02/05/2025

In a recent #ECBblog post, jointly with our Heads of Market Operations, Imène Rahmouni-Rousseau, we take stock of the implementation of the pandemic emergency purchase programme (PEPP) after we ended reinvestment at the end of 2024. 1/6

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

P.S.: As always, the full speech and slides are on the ECB's website. A special thanks to @andrespicer.bsky.social, @vassoioannidou.bsky.social and Bayes Business School as whole for welcoming me so warmly!

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Summing up, financial literacy tends to strengthen the transmission of central bank policies to the real economy. This can support policy effectiveness, enhance public trust in central banks and help people make better financial decisions. 22/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Financial literacy is also a cornerstone of the #SavingsAndInvestmentUnion. Under its 1st pillar, it aims to encourage citizens to invest in capital markets, which can contribute to financing part of the investment needed for the green and digital transitions. 21/22 eur-lex.europa.eu/legal-conten...

eur-lex.europa.eu

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

On International Women’s Day, the Eurosystem committed to five joint actions, also aimed at closing the gender gap in financial literacy. Such efforts can only complement, not replace, much broader efforts needed from governments and the education system. 20/22 www.ecb.europa.eu/ecb-and-you/...

ecb.europa.eu

Financial literacy in Europe

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

At the ECB, we are taking active steps to foster financial literacy by expanding our communication efforts towards the general public. One example is our “Espresso Economics” channel on YouTube. 19/22 www.youtube.com/channel/UCRY...

youtube.com

Espresso Economics

Enjoy a wake-up shot of economics every week ☕ Dive with us into the world of choices 🤔 Big and small, they shape our everyday lives… Join us as we unravel how economics helps us understand the art...

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

In the most recent inflationary episode, the share of households with high financial literacy that trusted the ECB to maintain price stability rose notably as interest rates rose and inflation came down, while less financially literate households lost confidence. 18/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

When people better understand monetary policy, they trust central banks more, which helps anchor inflation expectations. Financially literate households are more knowledgeable about the ECB and more likely to know the correct definition of inflation, affecting the ECB’s credibility. 17/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

To reach audiences beyond experts, the statement has been complemented by highly accessible, visualised statements, available in all EU languages. 16/22 www.ecb.europa.eu/press/press_...

ecb.europa.eu

Monetary Policy

Information on everything related to the ECB's monetary policy: objective, strategy, instruments and much more.

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Since our 2021 monetary policy strategy review, we have put more emphasis on explaining our monetary policy decisions to the general public in an accessible way. Our new monetary policy statement is less complex, which increases its readability. 15/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Financial literacy also affects household perceptions of real income. While 50% of households experienced positive real income growth in 2024, only 11% perceived that their real income had increased. The degree of misperception depends negatively on income and financial literacy. 14/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

The observed differences in the formation of inflation expectations translate into lower subjective forecast errors for more financially literate people. Hence, households with higher levels of financial literacy tend to have more accurate inflation expectations. 13/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Similarly, inflation expectations of financially literate households have dropped more quickly. While the share of consumers with inflation expectations broadly anchored around 2% has been low overall, the financially literate are more responsive to actual inflation developments. 12/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Survey evidence indicates that households with higher financial literacy pay more attention to inflation. However, even for financially literate people, inflation perceptions of past inflation are often very persistent, adapting slowly to actual inflation dynamics. 11/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Third, financial literacy affects inflation expectations. Financially literate households may be more forward-looking and form their expectations based on a broader set of information. The less financially literate may base their expectations more on past inflation experience. 10/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Second, financially literate people are more willing to take on risk. They are much more likely to invest in stocks or mutual funds, and are slightly more likely to take out mortgages. This may strengthen monetary policy transmission. But there are also effects going in the opposite direction. 9/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Financial literacy of customers also affects how swiftly and strongly banks pass through changes in policy rates. Financially literate households are more likely to “shop around” for the best terms of debt products. Corporates received higher deposits rates than households. 8/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Moreover, financially literate households preferred fixed-rate loans when interest rates were low but less so when interest rates were high. Longer fixation periods slow down policy transmission. Again, financially less literate households reacted much less to the interest rate environment. 7/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

When the @ecb.europa.eu raised its policy rates in 2022 to fight inflation, financially literate individuals understood that this created more beneficial conditions for saving and less attractive conditions for borrowing. By contrast, less financially literate people reacted much less. 6/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

First, financially literate households are more responsive to changes in interest rates. One reason is that these households (shown in red) are more attentive to interest rate developments than the less financially literate (shown in blue). 5/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

This has important implications for individuals but also for the effectiveness of macroeconomic policies, including monetary policy transmission. I focus on three key channels: the interest rate channel, the risk-taking channel and the inflation expectations channel. 4/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

In the euro area, only 48% can answer the “Big Three” questions on financial literacy, asking about compound interest, inflation and risk diversification. Financial literacy is lower for younger people, women, the less educated and people with lower incomes. 3/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

Financial literacy is the ability to understand and apply basic financial concepts. It empowers individuals to make informed financial choices, such as how much to save, how to invest, how to finance big purchases and how to make provisions for old age or emergencies. 2/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 30/03/2025

It was a great honour and pleasure to deliver this year’s #MaisLecture at @bayesbschool.bsky.social @citystgeorges.bsky.social in which I argued that financial literacy matters for monetary policy transmission. This is why central banks have increased their efforts to foster financial literacy. 1/22

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

Tapping our standard refinancing operations is seen, also by supervisors, as a routine and integral component of banks’ day-to-day liquidity management as part of a diversified funding mix. My 2024 speech explaining the new operational framework is found here: www.ecb.europa.eu/press/key/da... 7/7

ecb.europa.eu

The Eurosystem’s operational framework

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

The fact that banks will make greater use of monetary policy operations over the coming years will not be a symptom of liquidity stress, but it will simply reflect banks’ day-to-day liquidity management in the context of our operational framework. 6/7

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

The amount of excess liquidity will be determined endogenously through banks’ decisions to use the lending operations. These will be at the centre of liquidity provision, supplying the marginal unit of reserves demanded by the banking system. Under such a framework reserves can never be scarce. 5/7

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

Our operational framework caters for this by making the standard refinancing operations – the one-week main refinancing operations and the three-month longer-term refinancing operations – available at a fixed rate with full allotment and against a broad set of collateral. 4/7

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

As excess liquidity declines, it will eventually no longer be sufficient to meet the banking system’s demand. Then a mere redistribution of the existing reserves within the system will no longer be enough and reserves will need to be added to the banking system. 3/7

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

The main message is that the ECB, both as a monetary policy authority and as a supervisor, expects that banks should consider these operations as an integral part of their day-to-day liquidity management. 2/7

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 18/03/2025

Last year we announced our new #OperationalFramework. In an @ecb.europa.eu blog post, the Chair of the Supervisory Board Claudia Buch and I discuss the role that central bank operations are to play in banks' liquidity management under the operational framework. 1/7 www.ecb.europa.eu/press/blog/d...

ecb.europa.eu

Managing liquidity in a changing environment

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Isabel Schnabel 🇪🇺🇺🇦 @isabelschnabel.bsky.social · 17/03/2025

Today I had another exchange with German-speaking economists on the challenges facing the German and euro area economy and what this implies for monetary policy @ecb.europa.eu. One focus was how to make sure that the German packages for defence and infrastructure will become a success. 1/3

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