Between October 2008 and May 2009, the Eurosystem’s key policy rate – the interest rate on the main refinancing operations – was lowered by a cumulative 325 basis points. The speed and extent of the monetary loosening experienced over this period are without precedent since the Eurosystem took responsibility for the conduct of monetary policy in the euro area.
Toward that objective, we have drawn on the work of analysts who over the past half century have devoted much effort to improving our understanding of the economy and its monetary transmission mechanism. A critical result has been the identification of a relatively small set of key relationships that, taken together, provide a useful approximation of our economy’s dynamics.