In the euro area that transmission mechanism has been impeded repeatedly in the past, initially by rising risk premia linked to unwarranted fears about the survival of the euro area, and later by widespread bank deleveraging. [3] That has diluted the effectiveness of our stimulus and lengthened the “long and variable” lags over which monetary policy works.
At the same time, we have said that the global economy could get a significant lift if trade peace were restored. The likelihood of trade peace breaking out seems to fluctuate almost daily. Even so, the global economy has been dealing with heightened uncertainty over trade policy for an extended period now.