Monetary Policy Normalization and Market Functioning in the Euro Area

Orderly market functioning is the cornerstone of monetary and financial stability. Recent years have seen several high-profile episodes of financial market dysfunction, eliciting responses of central banks across the world, and potential new challenges are on the horizon. Against the backdrop of greater volatility and rising rates, central banks have a role to play on several dimensions, including: how to preserve market functioning in a context of rapid withdrawal from a decade-long policy accommodation; how to address financial fragmentation and ensure a smooth transmission of monetary policy; how to identify the optimal level of excess liquidity in the financial system and define the most appropriate operational framework to steer short-term interest rates in the post-pandemic environment. The workshop will discuss these topics.