The point that I have been making so far – that is, in order to overcome deflation, it is necessary not only to achieve accommodative financial conditions but also to have the ability to make use of them – can also be understood from the perspective of the actual money-price relationship.
“The financial system should neither cause nor amplify a downturn in overall economic activity, and should perform its functions even in periods of stress.” Our definition of “financial stability” may have sounded abstract up until now – but the pandemic has shown in very tangible terms how important a functioning financial system is for the economy.