Monetary policy, financial conditions and real activity: is this time different?

Fernando Avalos, Deniz Igan, Cristina Manea and Richhild Moessner in this BIS Bulletin analyse the impact of monetary tightening on financial and real activity:

• During the current monetary policy tightening episode, financial conditions co-moved closely with policy rates, especially in the initial stages but with some differentiation across countries.
• For advanced economies, the tightening of financial conditions was stronger this time than in the past, while its full impact on real activity appears to be taking longer than usual.
• Financial conditions may continue tightening long after central banks stop raising policy rates, with possible implications for financial stability.