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MONETARY POLICY AND THE PRODUCTIVE ECONOMY IN THE EUROZONE
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This reasoning is also applicable to the man-
agement of interest rates by the European
Central Bank. There is no point in the ECB low-
ering or raising base rates if that does not affect
the banks’ activity as lenders and generate an
increase or reduction in bank credit as a result.
As we know, only this increase or reduction in
bank credit means, in turn, an equivalent in-
crease or reduction in the money supply.
As we can see, monetary policy is not only a
question of supplying or keeping financial re-
sources from the banking sector, or financing
the sector in more or less favourable conditions.
These actions are only intermediary instruments
devoted to a purpose. The true purpose of mon-
etary policy is, as we know, getting the banking
sector to increase or reduce the flow of credit to
the real economy in the right amount to effec-
tively influence money supply and, therefore,
price stability.
We are getting close, then, to the key ques-
tion we discuss in this report: the extent to
which monetary policy transmission mecha-
nisms are truly effective, from the decisions
taken by the Eurosystem to their impact on
bank credit.
Chart 3.
Eurozone money supply (M3) and private credit