4 Higher bank holdings of liquidand-low-return assets and higher funding costs due to the lengthening of the maturity structure of banks’ liabilities are regarded as additional operating costs that banks will try to pass on to their retail business along all margins: higher lending rates, tighter lending standards, and active shedding of loans in order to leave room for liquid assets in banks’ balance sheets – something akin to a credit crunch.
The central bank’s choice of monetary policy framework should depend on the objectives it aims to achieve, on the challenges that the economy faces, and on the structure of the financial markets and the economy in which it operates. And it is likely that the monetary policy framework will change over time as the domestic economy and the international financial system develop.