here measured as the time - varying sensitivity of expected rates to expected inflation at the same horizon – has always been strong ( higher than one ) at long horizons. it suggests that markets anticipate an active reaction function in the medium - to long - run, and this sensitivity increased during the liftoff period from mid - 2022 to mid - 2023 at all horizons, suggesting that actions reinforced our credibility to fight inflation. 1. 2. from the vicious circle of inflation to the virtuous circle of credibility what we learned from the volcker period is that disinflation is costly and long to achieve for an imperfectly credible central bank. firms anticipating increasing costs are likely to increase their prices and workers anticipating increasing prices fight for higher wages leading to a vicious inflation circle and creating a strong correlation between current and expected inflation. imperfectly credible central banks must hence react more forcefully and swiftly. the induced much higher real rates may however quickly cause unemployment but without any immediate gains from price stability, such as lower long - term inflation risk premia. by contrast, a ( more ) credible central bank faces a virtuous circle of credibility. past credibility anchors inflation expectations at the target, reducing the risk of an inflation spiral. this reduces the size of the interest rate hikes necessary to bring inflation down, and the associated costs on economic activity. quantifying the impact of credibility is by no means easy, and surrounded with much page 6 sur 13 uncertainty. but banque de france research suggests that, had inflation expectations been as poorly anchored as they were in the 1970s in the us, our policy rates would have had to peak around 8 % instead of 4 % x. credibility also buys time. when a central bank is imperfectly credible, it must act immediately to calm any latent inflationary pressure and continually demonstrate that it aims at stabilizing inflation. but a credible central bank can react with a delay and still achieve nominal anchoring. indeed, davig and leeper argue that what really matters is the average reaction to inflation in the medium run and not the immediate response, a sort of “ long - run taylor principle ” xi. still, the delay should not be too long as it may be wrongly interpreted as a signal for future inaction. central bank credibility like inflation is also global xii. most central banks in advanced economies have credible and convergent inflation numerical targets ( 2 % ), a distinctive difference to the 1980s. this global credibility translates into less, and

u. s. dollar. with regard to corporate finance, private banks continue to be more active in extending loans, mainly to blue - chip companies, while carefully evaluating the credit risks involved. however, the lending attitudes of financial institutions perceived by small firms are becoming slightly more cautious. meanwhile, the fund - raising conditions of firms in the markets for such instruments as corporate bonds and cp continue to be favorable owing to a decline in market interest rates and the more active stance of investors to take credit risks. on the other hand, credit demand in the private sector is declining faster mainly due to a decrease in business fixed investment while firms continue to reduce their debts. in view of this, the year - on - year rate of decline in private banks ’ lending is expanding slightly. the growth rate of amount outstanding of corporate bonds issued is about 2 percent on a year - on - year basis. meanwhile, the amount outstanding of cp issued continues to be at a high level, significantly exceeding that of the previous year due to the favorable environment for issuing cp. the growth rate of money stock ( m2 + cds ) in august was slightly higher than that of the previous month due mainly to the inflow from postal savings. funding costs for firms continue to be at extremely low levels. with respect to the recent financial environment, the effects of monetary easing are permeating through the economy. this can be observed such as in the additional easing in the money market conditions, further decline in short - term interest rates, higher growth in monetary indicators, and the improvement in the fund - raising conditions of firms through the markets. however, against the background of deteriorating corporate earnings and the more cautious lending attitudes of financial institutions, fund - raising conditions of small firms seem to be becoming more severe. hence, the developments in the behavior of financial institutions and corporate financing need careful monitoring. in addition, it is necessary to carefully monitor the effects of the terrorist attacks in the u. s. on global financial markets and economic activity.