for restarting normal market conditions. 3. main characteristics of unconventional measures when conventional tools can no longer achieve the central bank ’ s objective, policy - makers are confronted with a number of issues. • first, the unconventional tools include a broad range of measures aimed at easing financing conditions. having this menu of possible measures at their disposal – which are not mutually exclusive ones – monetary policy - makers have to clearly define the intermediate objectives of their unconventional policies. these may range from providing additional central bank liquidity to banks to directly targeting liquidity shortages and credit spreads in certain market segments. the policy - makers then have to select measures that best suit those objectives. • second, they should be wary of the possible side - effects of unconventional measures and, in particular, of any impact on the financial soundness of the central bank ’ s balance sheet and of preventing a return to a normal market functioning. in general, unconventional measures can be defined as those policies that directly target the cost and availability of external finance to banks, households and non - financial companies. these sources of finance can be in the form of central bank liquidity, loans, fixed - income securities or equity. since the cost of external finance is generally at a premium over the short - term interbank rate on which monetary policy normally leverages, unconventional measures may be seen as an attempt to reduce the spreads between various forms of external finance, thereby affecting asset prices and the flow of funds in the economy. moreover, since these measures aim to affect financing conditions, their design has to take into account the financial structure of the economy, in particular the structure of the flow of funds. let me elaborate on the possible measures. one way to affect the cost of credit would be to influence real long - term interest rates by impacting on market expectations. expectations may work through several channels. for instance, the central bank can lower the real interest rate if it can induce the public to expect a higher price level in the future. 3 if expected inflation increases, the real interest rate falls, even if the nominal interest rate remains unchanged at the lower bound. alternatively, policymakers can directly influence expectations about future interest rates by resorting to a conditional commitment to maintain policy rates at the lower bound for a significant period of time. 4 since long - term rates are prima facie averages of expected short - term rates, the expectation channel would tend to flatten the entire yield curve when policy - makers commit to stay at the lower bound. moreover, a

. 5. exit strategy let me now turn to the last of the four questions that i posed earlier on : how and when do central banks need to unwind the extra monetary stimulus? the simple answer to this question would be – of course – when the economy rebounds and inflationary prospects are back in line with the central bank ’ s price stability objective. unfortunately, for a number of reasons, formulating an adequate exit strategy is not such an easy task. why? let me mention two choices that need to be made : first, devising the right sequence for the phasing out of the conventional and unconventional monetary policy accommodation ; second, deciding on the speed at which the unconventional accommodation is removed. let me first clarify what it means, in practice, to unwind unconventional monetary policy operations. in the case of quantitative easing and credit easing policies, it normally implies selling assets outright, and in significant amounts. in the case of the endogenous easing measures, the unwinding happens automatically, since banks should naturally reduce their demand for central bank money and increase interbank lending as their situation normalises. starting with the problem of the right sequence, it should be reminded that an environment of extremely low interest rates and ample liquidity aims at favouring borrowers and penalising lenders, over the medium term, when the policy is reversed. on the other hand, most of the unconventional measures put in place are designed to stimulate lending, to convince savers to hold risky longer - term assets. the effectiveness of these measures therefore mainly depends on the readiness of banks to go back to their main business of lending to households and firms rather than parking excess reserves with the central bank. clearly, an increase in policy rates – and in particular in the deposit rate – risks undermining banks ’ incentive to re - engage in funding the private sector. in a similar vein, prospects of rising interest rates may discourage private savers from purchasing longer - term assets, as a tightening of monetary policy inevitably implies a capital loss for those who bought these assets. raising policy rates, or the expectation of such increases, when confidence is not fully restored could therefore be counterproductive. what, then, are the implications for the sequencing of unwinding conventional and unconventional policy measures? in simple terms, it means that non - standard measures that aim mainly at restoring the orderly functioning of money markets, such as supplementary longer - term refinancing operations or an extended menu of eligible collaterals, might have