Since many of those rates are unobservable by the MPC, money, credit and asset prices may contain valuable information about the likely outlook for spending.15 As chart 10 shows, there are times when monetary developments have represented shocks that have affected the supply of money and proved a warning sign of inflationary risks. At other times, its movements have been dominated by changes in the demand for money. In 1973, for example, broad money growth had picked up sharply but inflation was subdued. Yields on gilts provided no indication that a rise in inflation was expected by financial markets. But the rise in money growth, which looked at first to be another instance of a change in the demand for money, was in fact an increase in supply and led to faster expansion of spending in the economy and, by 1975, higher inflation. The 1980s illustrate shocks to both money demand and supply. The first part of the decade was a period of large structural change in financial markets. The demand for money rose sharply relative to spending in the economy so, for a time, broad money growth was rapid and inflation was falling. That structural change probably continued into the second half of the decade. But it now seems that there was also some unwarranted expansion of the supply of money. For a time, that shock was disguised as further structural change in the demand for money but, in 1988, inflation began to rise. It is easy to be wise after the event.
Also, developing stress-testing frameworks remains a collective challenge about which central banks and supervisors should strengthen their works. At our level, the next stage of our works is to organize work streams with banks in order to specify together the best practices of the sector in terms of governance and to reflect on scenarios and metrics to best assess the vulnerability of banks, liaising with the work carried out with the NGFS. At the end, the release of these surveys and their follow-up signal the willingness of the ACPR / Banque de France to gradually “mainstream” climate changerelated risks. This willingness is also growing among European Institutions as attested by the recent move from the SSM to launch its own internal network combined with an NCA Climate contact group. The ambition is to contribute to European and international fora as well as be in the position to adopt resulting guidelines or requirements (in the EBA case). Nevertheless, at a moment where networks or work streams are burgeoning, especially within European institutions, we should be very careful about the good coordination of these different initiatives to avoid redundancy and duplication. It is also important that the NFGS, which remains a club of the willing, ensure some minimal degree of cooperation and harmonization by issuing high-level recommendations.