Study by: Austrian Institute of Economic Research – Hertie School gGmbH – Queen Mary University of London – German Institute for Economic Research
Restrictive monetary policy dampens inflation effectively, but it also raises stress in financial markets. This happens through
revaluations of financial assets on banks' balance sheets and through dampened economic activity. Moreover, apart from the
positive effect of exiting negative interest rates, banks' net interest margin is generally negatively affected by interest
rate hikes. With most of the disinflationary impact of higher interest rates yet to materialise, monetary policy should allow
the financial sector to digest the rapid rate hikes of last year by reducing the pace of tightening.
Keywords:Disinflation in the EMS and in the Non-EMS Countries. What Have We Learned?, Monetary Policy
