ECB’s Lane: Monetary Analysis Key to the ECB’s Reaction Function

26 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Wednesday said that monetary analysis was core to the ECB’s monetary policy assessment.

Speaking at the 3rd International Monetary Policy Conference of the Bank of Finland, Lane, whose speech text was posted to the website of the ECB, said, ‘[M]onetary analysis plays a central role at the ECB, with a data-dependent approach to assessing the effectiveness of monetary policy transmission a key element in our reaction function’

Since 2003, the focus of monetary analysis on monetary policy transmission had been increasing, and in the 2021 strategic review, economic analysis and monetary analysis became ‘explicitly integrated into the overall assessment of inflation risks and the formulation of monetary policy’, he said.

The availability of granular information on the euro area financial institutions offered important insights into bank-based transmission, he said.

‘We now have evidence that firm and bank balance sheet constraints can amplify the contraction in credit availability brought about by policy tightening’, he said.

A wider comprehension of central bank balance sheets, on the other hand, was still necessary, he said.

‘Looking ahead, a prominent challenge for monetary analysis is to understand how the normalisation of the balance sheets of central banks may affect transmission in the years to come’, he said.