ready and willing to adjust its revenues and primary spending to stabilise its debt at any level of the interest rate that the central bank may choose. in academic parlance, for monetary policy to remain active, fiscal policy needs to be passive, or “ ricardian ” 8. by creating the right environment, and providing appropriate incentives, for governments to take action to ensure fiscal solvency, omts create the conditions to affirm the monetary dominance regime which is at the heart of the treaty. conclusion let me just conclude, by repeating : omts are necessary from a monetary policy perspective ; they were effective in counteracting the destructive market turmoil in the summer of last year ; and they are designed in a way that overcomes the key concerns associated with government bond purchases by the central bank. omts are not just words : the ecb is fully prepared to use them. but even if euro area member states comply with the conditions, there is no automatism to activate omts. for the governing council of the ecb, there is only one single deciding criterion and that is the maintenance of price stability in the euro area. this overarching criterion has shaped the design of omts, and it will decide over its potential activation. thank you very much for your attention. see b. cœure ( 2012 ), “ challenges to the single monetary policy and the ecb response ”, speech at the institut d ’ etudes politiques. paris, 20 september. see e. leeper ( 1991 ), “ equilibria under ‘ active ’ and ‘ passive ’ monetary and fiscal policies ”, journal of monetary economics, 27, pp. 129 – 147 ; and m. woodford ( 2001 ), “ fiscal requirements for price stability ”, nber working paper, no. 8072. bis central bankers ’ speeches

benoit cœure : how binding is the zero lower bound? speech by mr benoit cœure, member of the executive board of the european central bank, at the conference “ removing the zero lower bound on interest rates ”, organised by imperial college business school / brevan howard centre for financial analysis, cepr and the swiss national bank, london, 18 may 2015. * * * i would like to thank anton nakov and oreste tristani for their contribution to the speech. i remain solely responsible for the opinions expressed herein. summary the notion of an effective lower bound on policy interest rates, that is lower than zero, has become a concrete concern for monetary policy. while the effective lower bound for shortterm rates exists, it does not impose a binding constraint on the effectiveness of monetary policy. there are tools for dealing with the lower bound constraint, which at the ecb go under the name of “ non - standard monetary policy measures ”. we saw that the short - term interest rate going below zero does not pose the difficulties for monetary policy. while removing the effective lower bound by abolishing cash can be envisaged, it should be based on changing technologies and social perceptions, not of policy prescriptions. also political capital could be better spent on structural reforms of euro area economies, which would raise the natural real rate of interest and thereby make the lower bound less binding. * * * ladies and gentlemen, it ’ s a great pleasure for me to speak to you tonight. the existence of an arbitrage relationship between the return on short - term nominal bonds and the return on cash has long been known in the academic literature. to quote john hicks, “ so long as rates of interest are positive, the decision to hold money rather than lend it, or use it to pay off old debts, is apparently an unprofitable one ”. 1 from a portfolio choice perspective, cash is, under normal circumstances, a strictly dominated asset, because it is subject to the same inflation risk as bonds but, in contrast to bonds, it yields zero return. it has also long been known that this relationship would be reversed if the return on bonds were negative. in that case, an investor would be certain of earning a profit by borrowing at negative rates and investing the proceedings in cash. ignoring storage and transportation costs, there is therefore a zero lower bound ( zlb ) on nominal interest rates. in the years of relatively high inflation rates, the zero lower bound