peter praet : maintaining price stability with unconventional monetary policy measures speech by mr peter praet, member of the executive board of the european central bank, at the suerf - the european money and finance forum conference " globalisation dynamics - eu and us perspectives ", new york city, 11 october 2017. * * * * the text of this speech is broadly the same as my remarks at the mmf monetary and financial policy conference, in london, on 2 october 2017 * the euro area continues to experience a solid, broad - based and resilient recovery. deflationary risks have disappeared and some measures of underlying inflation have ticked up over recent months. but overall inflation developments, despite the solid growth, have remained subdued. accordingly, while we remain confident that inflation developments will eventually return to levels below, but close to, 2 %, our medium - term objective, the evidence still shows insufficient progress towards a sustained adjustment in the path of inflation towards those levels. such “ sustained adjustment ” is the principal contingency that has guided and will be guiding the introduction and withdrawal of our asset purchase programme ( app ) and, indirectly, of all the main components of our present policy. in my remarks today, i would like to outline the central role monetary policy plays in underpinning this recovery and to discuss the main mechanisms by which our measures have impacted on the economy. i will start from a brief overview of the monetary policy toolkit that the governing council has adopted over the last years, and i will sketch out the elements that are most relevant for the governing council ’ s deliberations about the calibration of our policy measures. i will then highlight the key channels by which this toolkit transmits to financial conditions. finally, i will focus on the impact channels of the app, which plays a central role among the policy instruments. the ecb ’ s monetary policy toolkit over the last three years, the governing council has had to take bold measures to maintain price stability. the context in which we launched this package of measures, in june 2014, was one in which a sustained period of disinflation could have morphed into one of outright deflation. the governing council had to move beyond its conventional policy instruments and instead deploy a set of unconventional tools that were tailored to the specific challenges of that time. the first challenge related to the effective lower bound on interest rates. the leeway to cut policycontrolled short - term interest rates was insufficient

stability of the financial system. the elements i just outlined need to be accompanied by a clearer structure of responsibility and authority over the payments system. payment and settlement systems and central counterparties play a critical role in financial stability. our current system is overseen by a patchwork of authorities, with responsibilities diffused across several agencies in a manner that leaves significant gaps. we need a more formal and integrated framework of oversight, one that establishes and enforces standards and continuously monitors the conditions in these markets. and finally, as we adapt the u. s. framework, we have to work to bring about a consensus among the major economies on a complementary global framework. given the level of financial integration globally, we cannot achieve a reasonable balance at home between efficiency and stability, without a complementary framework of supervision and regulation across the other major financial centers. to make it operational, the framework i just laid out will require a complicated set of choices. • what level of conservatism should be built into future prudential regulations over capital and liquidity? • which types of institutions should be subject to these requirements? • can direct regulation over a limited set of institutions effectively protect the system from distress among the unregulated? • how should responsibility for different dimensions of financial regulation be allocated, and how centralized or decentralized? • what institutions should have access to central bank liquidity under what conditions? the role of the federal reserve the congress gave the federal reserve broad authority to address risks to financial stability. because the financial landscape has changed so substantially, many observers have pointed out the need to revisit the scope and nature of federal reserve ’ s authority. secretary paulson has outlined a number of important proposals for reform, many of which would broaden the responsibility and the authority of the federal reserve. i want to identify some issues that are critical to our current responsibilities and will be important in defining an appropriate role in the future, with the most effective mix of responsibility and authority. there is more continuity than change in these suggestions, and they assume, as is the case today, that we will have to work closely with other functional supervisors to make the system work. first, the fed has a very important role today, working in cooperation with bank supervisors and the sec, in establishing the capital and other prudential safeguards that are applied on a consolidated basis to the institutions that are critical to the proper functioning of financial markets. second, the fed, as the financial system ’ s lender of