The monetary policy stance appropriate to fulfil the ECB’s mandate depends exclusively on its assessment of the balance of risks to price stability, and nothing else. The ECB has shown remarkable flexibility in terms of liquidity provision. This flexibility was necessary in order to avoid the breakdown of the interbank market, which is a very important transmission channel for monetary policy.
The weak economic outcome despite sizable reductions in the federal funds rate has led some to question the effectiveness of monetary policy. But I believe that monetary policy substantially cushioned the negative forces weighing on the economy. Residential construction has been visibly buoyed by policy easing.