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luis de guindos : international spillovers of monetary policy and financial stability concerns speech by mr luis de guindos, vice - president of the european central bank, at the conference “ the ecb and its watchers xx ”, frankfurt am main, 27 march 2019. * * * introduction it is a great pleasure for me to speak at this year ’ s ecb watchers conference. given the topic of this session, i will start by referring to our recent findings on international spillovers of monetary policy and the related financial stability concerns for the euro area. i will then focus on our financial stability assessment at the present juncture. in doing so, i will briefly refer to an analytical tool we have employed to monitor and assess the banking system ’ s resilience. globalisation has not only caused inflation and output to become increasingly synchronised across countries. equity prices and financing conditions have become more synchronised, too. most of this synchronisation stems from ( common ) global shocks, but the effects of international spillovers of monetary policy are less obvious. in my talk today, i will touch upon issues surrounding these international spillovers, and whether they are of concern for the financial stability of the euro area. in a globalised and financially integrated world, spillovers from the monetary policy of one country to other economies are unavoidable. we can identify at least three international transmission channels : 1. the “ aggregate demand ” channel, through which monetary policy affects domestic demand and, thus, the demand for foreign goods. 2. the “ exchange rate competitiveness ” channel, through which monetary policy affects the exchange rate, meaning it changes the price of domestic goods relative to foreign goods. 3. the “ financial channel ”, through which monetary policy affects domestic financial conditions. when there are strong financial connections between countries, these conditions may change abroad as well. from these transmission channels, let me focus on the “ financial channel ” for the remainder of my talk. financial spillovers from us monetary policy to the euro area measuring international spillovers is not easy, because global shocks lead to economies moving in a synchronised manner for reasons unrelated to monetary policy. 1 in line with previous evidence2, recent ecb research identifies large financial spillovers from us monetary policy to global financial conditions, including euro area financial conditions. 3 more specifically, over the course of one month, monetary policy tightening by the federal reserve system drives up euro area corporate bond spreads