The role of financial factors in the transmission of monetary policy - BIS Papers No 19, part 8, October 2003

The last two decades have been marked by far-reaching changes in financial markets. The combined effects of financial deregulation and innovation against the backdrop of globalisation and the development of new information and communication technologies may have contributed to strengthening the role of financial factors in the economic cycle and, hence, to an alteration of the channels used for transmitting monetary policy. In addition, the implementation of the single European monetary policy has accelerated the financial integration process in the euro area, in particular on the bond market. Finally, the privatisations, the increasing share of equities in households’ assets and the rise in asset prices in the late 1990s should have contributed to strengthening the role of the wealth effect in the transmission mechanism.