Monetary policy has also its limitations when it comes to stabilisation purposes. One problem is that low interest rates, if protracted, may fuel new imbalances, in particular bubbles in asset markets, increasing uncertainty across the board, rather than decreasing it.
Some market analysts are of the opinion that Greece’s debt dynamics are unsustainable. They are wrong. They overlook the fact that a crucial element underlying the evolution of the debt-to-GDP ratio is the denominator of that ratio, which includes the growth of real output.