Monetary policy is ‘mirror image’ of financial shocks, says ECB paper


Monetary policy is well placed to fight financial shocks, according to a working paper, published by the European Central Bank yesterday, as its effects are "the mirror image of these shocks".

The paper, What does a Financial Shock do? First International Evidence, by Fabio Fornari and Livio Stracca, finds financial shocks "exert a significant influence" on GDP and investment.

For example, the paper funds that a contractionary monetary policy shock reduces GDP, investment and credit; and is

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