Remarks by Philip R. Lane, Member of the Executive Board of the ECB, at the Panel Discussion on Banking Solvency and Monetary Policy, NBER Summer Institute 2023 Macro, Money and Financial Frictions Workshop

Cambridge, Massachusetts, 12 July 2023

Introduction

I will focus in this speech on the banking channel of monetary policy.^[1] Starting in December 2021 with the announcement that net purchases under the pandemic emergency purchase programme (PEPP) would end in March 2022, the ECB has been tightening its monetary policy stance in response to the extraordinary surge in inflation amid the pandemic shutdowns, supply bottlenecks and, most importantly, the energy crisis triggered by Russia’s unjustified war against Ukraine.

For a given inflation outlook, the appropriate level and duration of a restrictive monetary policy stance depends on how powerfully and how quickly the economy responds to the tightening of monetary policy. In view of the predominant role of the banking system in…