Interest rates Before explaining in detail the core elements of ECB policy since August 2007 and in particular since last September, I would like to talk briefly about interest rates – the conventional indicators of monetary policy. Some observers tend to reduce monetary policy to the level of the key policy rate.
Monetary policy is the more effective in response to a downturn, the argument goes, the lower the policy rate. This view is too simplistic. Comparing only the levels of policy rates without consideration of the resulting market rates and other economic variables is looking at just one part of a far broader canvas. Let me give you a concrete example.