While central banking and the functioning of capital markets have changed since and new challenges and complexities have emerged, the lessons from the 1994 episode remain valid and might help in addressing these challenges. The first challenge is that monetary policy is currently in unchartered territory. Policy choices of central banks are not any more limited to the single interest rate instrument.
As a consequence, communicating exit strategies is more complex than in previous tightening cycles. At the ECB, the exit is made easier by the policy instruments used. Security holdings of the SMP will be held until maturity. Excess liquidity is sterilised with reverse operations. Banks can pay back long term loans before maturity as market conditions normalise.