The financial crisis showed how such risks can interfere with the smooth operation of monetary policy through their effects on banks, which remain a key part of the monetary policy transmission mechanism in the euro area. We should therefore bear in mind that these risks may make it harder for us to implement our monetary policy. There are also longer-term risks to monetary policy.
Through low interest rates, monetary policy may indirectly permit inefficient firms to remain in business, and they may become so-called zombie firms. This blunts the productivity-enhancing function of downturns to bring about “creative destruction”, whereby inefficient firms are forced out of business, freeing up resources to move to more efficient firms and boosting aggregate productivity.