In this context, perhaps the biggest advances of monetary policy of the last 20 years leading to the GFC had to do with the transparency and the overall macroeconomic coherency of interest rate decisions, which led, among other transformations, to the adoption of explicit inflationary objectives in a number of advanced and emerging market economies. In the aftermath of the global crisis, it soon became clear that traditional MP was simply not going to cut it, especially given the limitations of other policy options, such as fiscal expansion, to reactivate the global economy after the major blow it suffered. Central bankers were forced to be creative and think outside the box of traditional monetary tools in order to make a difference. A useful framework to understand how policy tools have evolved is to think about interest rates in the following way. The price of a given form of debt, issued at a particular maturity and by a specific counterparty, is the sum of three main components. The first is the expectations of short-term, risk-free debt over the maturity of the instrument. Let’s call this component the path of risk-neutral rates. The second is the compensation for risk that must be offered to an investor to account for the fact that longer maturity instruments are more volatile (have higher duration) than short-term rates, let’s call it the term premium channel. The third is simply default risk.
Bank of France reports industrial output generally stabilized in May 1997 BANK OF FRANCE, MONTHLY BUSINESS SURVEY, 17/06/97. According to business leaders surveyed by the Banque de France, industrial output generally stabilized in May, following a sharp upturn in April. The automobile sector was the only one to register a decline, which was accentuated by calendar effects. The capacity utilization rate fell back slightly from one month to the next. Overall demand changed little. On the domestic market, inter-industry demand was less buoyant than in April, whereas foreign demand, boosted by the strength of the dollar and the pound sterling, remained firm. Orders continued to stream in from English-speaking, Asian and East European markets. Order books were considered to be at normal levels across the different sectors, and they appeared on the full side in the business equipment sector. Inventories, which fell back, now seem to be at the desired level. Over the coming months, industrial output is likely to advance appreciably in all sectors. The best performances are expected from the food-processing industry and the capital and intermediate goods sectors. Commodity prices edged up, notably in the food-processing and capital goods sectors. These increases were only partially passed on to finished product prices, which rose only in the food processing industry, while remaining unchanged for consumer and intermediate goods and dipping in the capital goods and automobile sectors.