Research

We measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2023, we estimate that the EA economy was tighter than the European Commission and the International Monetary Fund estimate, suggesting that the slow EA growth is the result of a potential output issue, not a business cycle issue. Moreover, we find that credit indicators are crucial for pinning down the output gap, as excluding them leads to estimating a lower output gap in periods of debt build-up and a higher gap in periods of deleveraging.

We analyze economic growth vulnerability across the four largest Euro Area (EA) countries, focusing on the lower quantiles of GDP growth under stressed macroeconomic and financial conditions, both within and across countries. Vulnerability is found to behigher in countries either more exposed to EA-wide economic conditions, as Germany, or with large country-specific sectoral dynamics, as Spain. Stress tests highlight that (i) financial factors significantly amplify adverse macroeconomic conditions, and (ii) even severe sectoral shocks, whether common or country-specific, fail to fully explain the observed low vulnerability during systemic stress. Our results underscore the importance of monitoring both local and EA-wide macro-financial conditions to design effective policies for mitigating growth vulnerability.

We present and describe a new publicly available large dataset which encompasses quarterly and monthly macroeconomic time series for both the Euro Area (EA) as a whole and its ten primary member countries. The dataset, which is called EA-MD-QD, includes more than 800 time series and spans the period from January 2000 to the latest available month. Since January 2024 EA-MD-QD is updated on a monthly basis and constantly revised, making it an essential resource for conducting policy analysis related to economic outcomes in the EA. To illustrate the usefulness of EA-MD-QD, we study the country specific Impulse Responses of the EA wide monetary policy shock by means of the Common Component VAR plus either Instrumental Variables or Sign Restrictions identification schemes. The results reveal asymmetries in the transmission of the monetary policy shock across countries, particularly between core and peripheral countries. Additionally, we find comovements across Euro Area countries' business cycles to be driven mostly by real variables, compared to nominal ones.