these balance sheets to work ”. and, as a result, in the formulation of monetary policy, “ quantities ” – the amounts of assets and liabilities – have come to play an increasing role as compared to “ prices ” – the level of interest rates. this, of course, is a component and a consequence of unconventional monetary policies. traditional channels, – through interest rates - have become ineffective : first of all because economies have hit the zero lower bound ; and in some case, like in the euro area, because transmission – through credit – has been clogged. the expansion of balance sheets results from attempts to overcome those limits and allow monetary policies to fulfill their mandates via large scale of assets purchases. 2. is it the size of the balance sheet or the means of its increase that matter? the causes and consequences of changes in balance sheets size are rather diverse. broadly speaking, both liabilities and assets of central banks matter. an expansion of liabilities occurs when, as the eurosystem did in many instances, the central bank increases liquidity provision to the banking sector, with the explicit objective of easing pressures on funding, reducing its costs, and ultimately, influence lending behavior. expansion of liabilities may be bis central bankers ’ speeches more passive though when setting an exchange rate floor such as in the case of the snb. looking, now, at the asset side, asset purchases bring down risk premia, they trigger portfolio rebalancing, flatten the yield curve, increase risk taking in the private sector and shift expectations in a more positive territory. as you all know, the eurosytem has now embarked into a major purchase program, the pspp, that follows other programs of smaller sizes for asset - backed securities ( abspp ) and covered bonds ( cbpp3 ). there are many technical discussions. some people would argue that the stocks of assets held by central banks matter more than the flows of purchases. others would contend that the composition and size of purchases are the real levers. the issue boils down to whether an expansion in the monetary basis is enough to trigger credit expansion or whether the latter is correlated to banks willingness to expand credit and more importantly to the appetite of economic agents to borrow. based on how monetary policies have been conducted for the past several decades, banks have always had the ability to expand credit at a given level of interest rate irrespective of the size of the central bank ’ s balance sheet. being at the zlb

does not change that simple reality. hence i would tend to argue that, given the transmission channels of an asset purchase program, its composition and length may matter as much as its size. in any event, increasing the size of the central bank ’ s balance sheet, via large scale asset purchases, sends very important signals. this “ signaling ” operates at several levels. it may contribute to strengthening forward guidance on the policy rate. more importantly, it may have a direct impact on inflation expectations, therefore contributing to lowering real interest rates. when the balance sheet size is explicitly linked to the achievement of an inflation objective as in japan, it may prove an effective tool to communicate the monetary authority ’ s determination – what economists would call a “ commitment device ”. signals on the eurosystem ’ s balance sheet have played a great role in the recent past. in november 2014, the governing council stated that the balance sheet was expected to move toward the dimensions it had at the beginning of 2012. markets started to anticipate an asset purchase program. more recently, the asset purchase program which will last until endseptember 2016 has been an important and clear signal of the expansionary monetary policy stance over an extended horizon. those signaling effects have been very effective and following the announcement of the expanded asset purchase program on 22 january, significant movements took place on financial markets with, inter alia a decline in the forward interest rates across all maturities, a decline in government and corporate debt yields, and a rise in equity prices. 3. are there drawbacks to be feared from the increase in cb balance sheets? the active use of their balance sheets by major central banks has raised a number of concerns. i shall focus on three questions. first, when unconventional monetary policies started to be implemented, many analysts were worried that the expansion of the monetary base would trigger inflationary pressures and central banks would lose control over price stability. as we all know, the reverse happened. broad money aggregates have been basically flat – in the euro area - over the last eighteen months, the money multiplier collapsed and inflation has decreased well below our definition of price stability. second, other, stronger, questions are raised as to the “ quasi fiscal ” implications of central banks ’ balance sheets. there is a perception that expanded balance sheets create a new environment where the relationship between central banks and governments gets more complicated. basically, the expansion would expose central banks to new risks, increase their vulnerability and compromise their independence. third,