its refinancing operations back in 2008, and with short incursions into this unknown territory already in 2007. moreover, this practice was later expanded to longer horizons, when policy rates still stood at firmly positive levels. this approach was naturally developed in view of the predominantly bank - based nature of the euro area financial system. it led to a rather passive mode of liquidity injection, very much in the tradition of the lender - of - last - resort function of a central bank. this very important tradition owes much to henry thornton and walter bagehot. but you can read bagehot without knowing what the zlb is and how it affects the ability of a central bank to provide stimulus under conditions of insufficient aggregate demand. the ecb adopted a more active control of balance sheet developments only at a much later stage, in the course of last year, ultimately leading to the adoption of the expanded asset purchase programme ( app ). through the app, via its reliance on outright purchases, the ecb regained a more direct control over the size of the balance sheet. and it bis central bankers ’ speeches was in this context that short - term rates effectively had to reach a lower bound configuration. i think there is little disagreement that, in terms of stimulating demand, this is a precondition for realising the maximum impact of large - scale purchases of securities of various types and maturities via rebalancing and signalling effects. let me briefly elaborate on why i said that short - term rates “ effectively ” had to reach a lower bound configuration. the pre - crisis view, with its focus on the “ zero ” lower bound created a misleading label. given that the interest rate on sight deposits held with the swiss national bank ( snb ) is currently standing at minus 75 basis points, we can rule out that the constraint binds strictly at zero. in the euro area, the interest rate on the deposit facility stands at minus 20 basis points. we have got used to the fact that money market rates ( as well as a good range of other interest rates ) can be negative. so, one thing we have surely learned is that “ zero is rather something minus ”. in this particular sense, the “ zero ” lower bound has turned out to be less binding than previously thought. in the euro area, negative rates have been powerful in propagating the policy stimulus for two reasons. 6 first, in terms of available policy instruments, negative rates can, to a certain extent, be seen

see these questions studied and debated in eminent academic institutions like this. turning to actual developments, as i mentioned already, we saw perhaps the most appalling manifestation of such a threat in the autumn of 2008. in the early phase of the present financial crisis, precautionary hoarding of liquidity brought to a complete seizure of many segments of the market for credit. at the same time, panic sales of assets made market liquidity disappear. market liquidity is high when traders can easily find a price, and that price see also vinals, j. ( 2009 ), “ on monetary and financial stability – past, present and future ”, keynote speech delivered at the at the 28th suerf colloquium on “ the quest for stability ” at the utrecht university school of economics. i have discussed the two - way interactions between steady macroeconomic conditions and trends in financial prices elsewhere. see trichet, j. - c. ( 2008 ), “ risk and the macro - economy, ” keynote address at the conference “ the ecb and its watchers x, ” frankfurt, 5 september 2008. i am referring in particular to control theory as applied to economics by the engineer a. w. philips in the 1950s. see philips, a. w. ( 1957 ), “ stabilisation policy and the time form of lagged responses, ” economic journal, 67, 265 – 277. but i do not forget that a very early attempt to import the phase transition notion into social science resulted in friederick engels ’ famous “ law of the transformation of quantity into quality ”, described in his ( circa 1883 ) work dialectics of nature, which provides some insight into early attempts to grapple with concepts now considered reasonably well understood. is very close to what every other trader pays for the same asset at the same time. in early october 2008 the market could simply not find a value for many of those securities that had been so highly priced only few weeks before. to avoid a cascade of counterparty defaults, governments offered generous financial guarantees and injected fresh capital into the system. central banks increased their lending to replace the withdrawal of private lending – in interbank transactions and, sometimes, in the broader market for capital. this concerted intervention very much attenuated the downward part of the cycle and blocked channels of financial contagion. in short, it provided catastrophe insurance. there is no doubt that macroeconomic policy - makers ’ interventions have had a stabilising