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Peter Praet on Monetary Policy

image-03/17/2017 - 11:34March 17, 2017 – In a speech at Febelfin Connect, Peter Praet, a member of the Executive Board of the European Central Bank provided an overview of the ECB’s past and present monetary policy and discussed the path forward. He argues that unconventional measures such as negative rates and asset purchases are working to ease financing conditions for firms and households, especially through the bank lending channel. They are also ensuring the euro area economy’s sustained recovery. Furthermore, they have positive side effects on the banking sector, which help with robust transmission of monetary policy. However, he underlines the fact that “central banks cannot remain the ‘only game in town’ indefinitely.” While monetary policy can bring output back to its potential level, and perhaps even affect that potential by unwinding hysteresis effects, it cannot “durably raise long-term growth – which was on a declining trend even before the crisis.” For this, structural and institutional reforms are needed.

- The full speech is available from the ECB