For a given inflation outlook, the appropriate level and duration of a restrictive monetary policy stance depends on how powerfully and how quickly the economy responds to the tightening of monetary policy.
In view of the predominant role of the banking system in credit provision in the euro area, how banks respond to monetary policy is a central issue in assessing the strength of the transmission mechanism. Accordingly, in our data-dependent approach to calibrating monetary policy, assessing the strength of the banking channel of monetary policy tightening is a first-order task for the ECB.