The course of monetary policy in the euro area reflects these arguments. Between 2001 and 2003, strong M3 growth was accounted for largely by portfolio shifts. Underlying trend monetary expansion was deemed more modest than reflected in headline M3 dynamics. Thus the monetary analysis did not constitute an impediment to interest rate cuts in that period.
By contrast, the strengthening of M3 growth in 2004 and 2005 was seen as more fundamental in nature. As evidence in support of the view that the underlying pace of monetary expansion was increasing accumulated over time, the monetary analysis signalled increasing risks to price stability over medium to longer horizons.