and this is my third example, is through asset purchases. we now have a growing body of evidence that suggests that central banks can lower long - term rates by removing duration risk from the market. for example, according to ecb estimates, our monetary policy measures have contributed to reducing euro - area long - term risk - free rates by around 80 basis points since june 2014. 6 asset purchases have contributed significantly to this drop and have therefore been an indispensable tool to create the financial conditions necessary for inflation to move back towards levels consistent with price stability. an assessment of recent long - term yield dynamics so, you can now easily see that the increased use of non - standard measures also meant that there was a pressing need to upgrade our internal analytical toolkit. standard term structure models alone were no longer sufficient. we needed to broaden our set of models to also capture the effects that changes in the amount of bonds available for private investors would have on the term premium. and we needed to refine our event study methodologies and make use of other models and tools, with a view to developing our understanding of the extent to which our actions are reflected in yield 2 / 6 bis central bankers'speeches movements. 7 put differently, these efforts were necessary in order to map ( expected ) purchases in billions of euro into long - term yields in basis points that would help the governing council calibrate the pace and size of our purchases. the residual movement in rates – subject of course to the general large uncertainty one faces when relying on model - based analysis – would then be due to other forces largely outside our direct control. these include, for instance, spillovers from other major economies, flight - to - quality related movements into safe assets, or changes in investors ’ outlook for growth and inflation. and as central bankers we also need to carefully disentangle those residual driving forces to help us understand the possible implications for our policy stance. let me give you a simple example : an unexpected increase in long - term rates. this is neither good nor bad, per se, from a monetary policy perspective. the implications for monetary policy depend, crucially, on the sources of this movement. for example, if the increase reflects a re - pricing based on better current or prospective economic conditions, this would not be a source of concern for policy makers. however, if it were induced by markets overreacting to news or misunderstanding our policy intentions, this increase would be undesirable from a policy

favorable view of a phased - in, cap approach whereby reinvestments would be decreased gradually. participants favored this 2 / 4 bis central bankers'speeches strategy because a preannounced schedule would be gradual and predictable, limiting the magnitude of the runoff could help mitigate any adverse market effects, and the strategy would be relatively easy and straightforward to communicate. finally, as i noted earlier, we followed up in our last fomc meeting with the release of an addendum to our policy normalization principles and plans that outlined how our balance sheet normalization plan will work when it is implemented. we also said clearly in the fomc statement that if the economy evolves in line with our expectations, we expect to begin this process this year. in response, market participants have progressively increased the probability assigned to a change in reinvestment policy this year. yet, treasury and agency mbs markets have responded little at the time of these announcements — including those undertaken most recently. to me, this suggests that these communications have generally been effective in fostering an orderly adjustment in expectations about how we are likely to normalize our balance sheet. i also agree with helene about the important role of financial conditions in influencing economic activity. as i see it, financial conditions are a key transmission channel of monetary policy because they affect households ’ and firms ’ saving and investment plans and thus influence economic activity and the economic outlook. if the response of financial conditions to changes in short - term interest rates were rigid and predictable, then there would be no need to pay such close attention to financial conditions. but, as we all know, the linkage is in fact quite loose and variable. for example, during the mid - 2000s, financial conditions failed to tighten even as the federal reserve pushed its federal funds rate target up from 1 percent to 5¼ percent. conversely, at the height of the crisis, financial conditions tightened sharply even as the federal reserve aggressively pushed its federal funds rate target down toward zero. as a result, monetary policymakers need to take the evolution of financial conditions into consideration. for example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened. on the other hand, when financial conditions ease — as has been the case recently — this can provide additional impetus for the decision to continue to remove monetary policy accommodation. while i agree with helene in most respects, there are a few points where i am less convinced. while the global financial