November 17, 2021

The ECB’s Holistic Approach | The Corner

Laura Becerrra (CaixaBank Rsearch) | One of the lessons of the 2008 global financial crisis was that financial conditions can have a significant impact on the economy. We also learnt that changes in central banks’ official interest rates are not always sufficient to capture all the interactions between the financial system and the real economy. Variables such as credit growth, financial market volatility and spreads between various assets in different risk classes are also components of the prevailing financial conditions and affect the behaviour of consumption, savings and investment. It is this world of financial conditions as a whole that ultimately influences the performance of the real economy. Indeed, the ECB itself acknowledges this in describing financial conditions as the «compass that guides monetary policy». Therefore, if we want to get a better understanding of…

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