The key chart
Lesson # 6
The penultimate lesson(s) from the money sector is that periods of monetary expansion differ in terms of their drivers and implications and that there is no stable relationship between reserves, broad monetary conditions and inflation.
Broad money in the euro area (and the UK) may be growing at the same rates as 1Q2008 but current trends are not a repeat of 2008 dynamics.
Previous CMMP analysis compared the components and counterparts of both phases. The message in the pre-GFC period was one of (over-) confidence and excess credit demand. In contrast, the current message is one elevated uncertainty and subdued credit demand.
Today’s monetary expansion reflects fiscal and monetary easing in response to weak private sector demand and rising savings (with added uncertainty regarding the extent to which rising savings are forced or precautionary). The message from the money sector supports rather than contradicts the ECB’s modest inflation expectations out to 2023.