Euro area: the credit channel is working!

Time and again, doubts are raised as to whether monetary policy transmission in the euro area can work at all in the current environment of increasing banking regulation. The expansive stance of the European Central Bank (ECB) is regularly criticised against this background. However, our conclusion is that the credit channel as the ‘classic’ mechanism of monetary transmission into the real economy is currently quite intact. The ECB’s medicine is thus already working. It is therefore also understandable that in its December decision the ECB adopted rather moderate additional measures to reach its inflation target of close to but just below 2 % in the future.

Euro area: the credit channel is working!(PDF, 77 KB, non-accessible)