The euro area economy enters the current cycle of higher interest rates with relatively moderate levels of financial imbalances. Policy-makers have applied the lessons learned during the global financial crisis and the ensuing policy measures.
In this blog, we use a quantitative approach to examine the likelihood and macroeconomic implications of a rapid unwinding of financial imbalances in the euro area, as captured by credit and asset price developments. We find that the euro area, while not immune, now stands more resilient to an episode of financial turmoil compared to the past and to other economies – such as the US.
Strengthening the euro area's financial regulatory framework and institutional architecture has contributed significantly to this resilience. However, the journey is not over, and further progress is needed to reduce vulnerabilities and prepare for the new challenges and risks ahead. (...)
In this blog, we use a quantitative approach to examine the likelihood and macroeconomic implications of a rapid unwinding of financial imbalances in the euro area, as captured by credit and asset price developments. We find that the euro area, while not immune, now stands more resilient to an episode of financial turmoil compared to the past and to other economies – such as the US.
Strengthening the euro area's financial regulatory framework and institutional architecture has contributed significantly to this resilience. However, the journey is not over, and further progress is needed to reduce vulnerabilities and prepare for the new challenges and risks ahead. (...)
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