Therefore, there cannot be a single non-standard policy tool: different tools must be activated depending on the particular impediment to the transmission of changes in the standard policy rate to the economy.
Two months ago I argued that financial contagion – both between debt markets of different sovereigns and between sovereigns and banks – is one major force at work that impairs the functioning of the monetary policy transmission mechanism.10 This is still the case today; if anything contagion dynamics have worsened rather than eased.