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.

It is often said that industry in oil-importing countries is especially hard hit when oil prices climb. However, a new study reveals that the manufacturing sector actually often does well during episodes of elevated oil prices. This is because, from a global perspective, that particular sector is a driving force behind oil price movements. The manufacturing sector’s healthy performance thus bolsters the economy of oil-importing countries in times of rising oil prices. Conversely, industry often exerts negative effects when oil prices fall.

The root causes of the Great Depression from 1929 to 1933 have been researched extensively. In this context, economic historians view central bank policy as having played a pivotal role, something which empirical modelling often fails to confirm. A new study likewise examines this influence empirically, but more explicitly takes into account the functioning of the international monetary system at the time – the international gold standard.

Institutional funds manage the majority of the assets under management of all German investment funds. This research brief documents that institutional funds act in a strongly procyclical manner: they actively invest in higher-yielding, longer-duration and lower-rated assets as yield spreads compress. We show that this intensifies asset price volatility and highlight reasons behind this procyclical investment behaviour.

At the beginning of 2015, the ECB Governing Council decided to implement an asset purchase programme to increase inflation by lowering longer-term interest rates. The Research Brief examines how the programme has affected prices and economic activity in Germany, France, Italy and Spain. The authors are particularly interested in whether the effects differ across countries.