rates. some people nevertheless point out that central bank government bond purchases can seem “ quasi - fiscal ”. 8 central bank purchases of government bonds in the secondary market can give government authorities an incentive to issue more government debt. the central bank could thus, indirectly, be in the position of contributing to funding government spending. this could blur the distinction between monetary and fiscal policy. a provision that clearly prohibits norges bank from extending credit directly to the government is included in norway ’ s central bank act with the express purpose of safeguarding this distinction. however, this provision does not prohibit norges bank from purchasing government bonds in the secondary market. nevertheless, there is much to suggest that the purchase of government bonds is not an option as a policy instrument for norges bank. there a number of reasons for this. as i mentioned previously, floating - rate loans dominate the norwegian credit market. unlike other countries, the level of long - term interest rates in itself has little effect on credit demand in norway. if government bond purchases do not affect future short - term interest rate expectations either, the effect on norway ’ s wider economy will be limited. studies in other countries do not provide an unequivocal answer as to whether the bond purchases have had the strongest impact through a fall in the expected policy rate or through lower term premiums on long - term 4 / 9 bis central bankers'speeches government bonds. we have seen in earlier periods that fluctuations in norwegian government bond yields do not necessarily influence other interest rates. there were signs of strong demand for norwegian government bonds during the euro crisis between 2011 and 2012. government bond yields fell fairly sharply in this period, primarily as a result of lower term premiums, but did not feed through to any great extent to the interest rates that are important for banks ’ funding costs. chart : yields on government bonds, swaps and covered bonds other countries ’ government bond yields play an important role as a reference for other interest rates, which is not the case for norway. relative to gdp, the government bond market is much smaller and less liquid than in many other countries, with a large proportion of foreign owners. if norges bank had conducted an asset purchase programme in norway, it is unlikely that foreign investors would have considered other norwegian securities. many investors would probably have moved the money from the sale out of norway. this could have stimulated the economy through a weaker krone exchange rate, but what the extent of the exchange rate reaction would be is highly uncertain. the introduction

, t. wieladek and c. young ( 2016 ) “ qe : the story so far ”. boe staff working paper 624 hesse, h., b. hofmann and j. weber ( 2017 ) “ the macroeconomic effects of asset purchases revisited ”. bis working papers 680 kuttner, k. ( 2018 ) “ outside the box : unconventional monetary policy in the great recession and beyond ”. journal of economic perspectives, 32 1 assuming that inflation holds steady and expectations remain consistent with the target. 2 how low three - month nibor will be with a policy rate of zero depends on the size of the spread between nibor and the expected policy rate, the risk premium. this premium has varied over time. in monetary policy report 3 / 19, it was projected at 0. 4 percentage point for the coming years. 8 / 9 bis central bankers'speeches 3 the illustration is based on figures used in nemo, norges bank ’ s macroeconomic model. 4 see for example the analysis based on swedish data in eggertsson et al. ( 2019 ). 5 there is now an extensive body of both theoretical and empirical literature, discussing alternative instruments. for example, borio and zabai ( 2016 ), dell ’ ariccia et al. ( 2018 ) and kuttner ( 2018 ) provide an overview of alternative instruments introduced by the central banks in the us, the uk, japan and the euro area. they also refer to different estimates of the effect of alternative instruments on financial prices and interest rates, the real economy and inflation expectations. see also filardo and nakajima ( 2018 ), hesse et al. ( 2017 ) and haldane et al. ( 2016 ). 6 borio and zabai ( 2016 ). 7 cf. borio and zabai ( 2016 ), filardo and nakajima ( 2018 ) and hesse et al. ( 2017 ). 8 borio and zabai ( 2016 ). 9 the arrangement allowed banks in norway to enter into agreements whereby covered bonds could be temporarily swapped for short - term government securities. 9 / 9 bis central bankers'speeches