In an environment characterised by the smooth functioning of financial markets, such analysis merely serves to identify those short-term distortions of the monetary data that are not related to medium-term inflation dynamics; the “noise” identified as a by-product of the process is of little interest in its own right.
However, in the context of financial tensions, those elements that have typically been regarded as short-term noise have been found to offer important insights into the behaviour of the banking sector and, more broadly, how tensions in the money market and shocks to bank capital have influenced the financial system and the economy.