The question of whether they are relevant can be answered quickly. There is a broad consensus on several interconnections. Equity and real estate prices determine household wealth and therefore influence consumer demand. This aspect must certainly be taken into account. Another factor impacting monetary policy is the interdependence between equity prices, the cost of capital, and the demand for capital goods. Moreover, asset prices, especially real estate prices (as collateral in the credit business) can change financing conditions. This can undoubtedly have repercussions for the economy, at least if the prices fluctuate sharply. As indicators for the development of overall demand, these effects must feed into economic forecasts which unavoidably exert an influence on monetary policy. Above and beyond these aspects, there is a general consensus that, in the event of an asset price crash, central banks must react to the sharp increase in liquidity demand. Such willingness to react is the consequence of the central banks’ responsibility for the stability of the financial system. In addition to this accepted premise, however, the discussion - especially in the financial press focuses on two calls for action that go even further. Most central banks, however, are sceptical or opposed to such demands. First, some claim that central banks should not remain passive when confronted with a bubble in the making, but rather take a proactive stance so that an abrupt or even dramatic adjustment does not occur at all. There are convincing counter arguments to this opinion.

[15] Schrimpf, A. et al., op. cit. ; Duffie, D., op. cit. ; Liang, J.N. (2020), “  Corporate Bond Market Dysfunction During COVID-19 and Lessons from the Fed’s Response”, Hutchins Center Working Papers, No 69, October. [16] Cera, K. et al. (2020), “The role of bank and non-bank interconnections in amplifying recent financial contagion”, Financial Stability Review, ECB, May. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201119_1~4a1ff0daf9.en.html  6/7  20/11/2020  COVID-19 and the liquidity crisis of non-banks: lessons for the future  [17] Although LVNAV funds guarantee constant prices under normal market conditions, they are designed to lose this characteristic and convert into a variable net asset value (VNAV) fund if the price of the underlying assets changes by 20 basis points or more. The higher riskiness of the underlying assets was likely amplified by the risk of conversion into a VNAV fund, as a number of LVNAV funds were close to breaching the regulatory limits on net asset value during the recent period of volatility. Investors may therefore have redeemed early during the recent stress episode and contributed to additional outflows and liquidity shortages in these funds. [18] De Guindos, L. and Schnabel, I. (2020), “The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19”, The ECB Blog, 3 April. [19] Swing pricing rules can discourage investors from selling shares in funds and can provide fund managers with additional time to adjust their portfolios, mitigating the risk of fire sales. There are mixed results in studies that assess the effectiveness of swing pricing.