[23] In the other direction, the recovery in incomes attenuates some of the transmission mechanisms via the banking sector, which should also be taken into account in the calibration of monetary policy. We can turn to asking which factors can affect the effectiveness of our monetary policy, through these various channels.
In general, all else equal, there has been a substantial reduction in financial tail risks on account of the improvements in the balance sheets of firms and households that were generated by pandemic-related fiscal transfers and the excess savings accumulated during pandemic shutdowns.