Similarly, the more recent reduction in the size of the balance sheet was interpreted by some as a cause of recent deflationary pressures.7 These views are wrong and based on traditional technical monetarism, are ultimately rooted in the existence of a long-run link between money and prices and on a predictable relation between the monetary base (or simply, the size of their balance sheet) and the broader monetary aggregates.
These private sector risk-sharing channels play an important role in smoothing shocks in the United States but are of a much smaller magnitude in the euro area. There are still some significant obstacles preventing us from reaping the full benefits of crossborder consolidation.