Simplistic and dogmatic attitudes waned considerably in the 1990s, as more flexible inflation targeting strategies gradually took hold. At the turn of the century, although the ECB’s initial strategy continued to acknowledge the primacy of the monetary ‘pillar’ in a formal sense, at least for signalling purposes, the information content of the aggregates appeared to decrease over time and the focus on them diminished.
If policies to ensure financial stability are not pursued, then the growth that comes with credit cycle in the upturn will be more than dissipated when the bust phase comes, with grave consequences for the financial system and macroeconomy in the form of large output losses, lack of growth, rising unemployment, impaired financial markets, weakened banks and financial system, impaired monetary policy transmission and a sense of pessimism.