The specification includes bank and country time fixed effects and controls for bank assets. The size of the bubbles measures the outstanding amounts of loans to firms for banks belonging to each category. The latest observations are for November 2022. Implications for the ECB’s monetary policy So how should monetary policy operate in an environment characterised by high uncertainty, strong spillovers and financial vulnerabilities?
In my understanding, if the Bank continues with the current pace of JGB purchases, it inevitably will have difficulty in continuing to make such purchases. Moreover, there is a concern that the more difficult the JGB purchases become, the more easily interest rates will be volatile, as uncertainty over the future monetary policy increases and the liquidity in the JGB market declines excessively.