crisis, policymakers are interested in understanding how the fluctuations in assets prices will affect aggregate demand. during these times, knowledge provided by the surveys comes at a premium. in particular, the way household spending reacts to changes in interest rates is of continuing relevance for monetary policy, not only during crisis periods. important elements of this reaction are the demand for housing and the different homeownership ratios across euroarea countries. residential investment is an important channel through which interest rates changes are transmitted via households through the economy. as purchase of a house is often financed with a mortgage, understanding the access of households to mortgage credit increases our understanding of the transmission of interest rate changes to credit demand. central banks regularly monitor the evolution of credit aggregates. mortgages make up the bulk of household liabilities and are an important element of total credit. two interesting puzzles in this context are : ( 1 ) the origins of the enormous diversity of homeownership levels, and ( 2 ) the large differences in mortgage types that we see across the countries of the euro area. in some countries, with germany and france as examples, households tend to hold fixed rate mortgages, whereas in other countries, such as spain and portugal, households typically hold adjustable rate mortgages. despite big advances in the integration of financial markets in the euro area, differences in the fixation of mortgage rates seem to persist. micro household data can shed light on the origins of these differences, namely whether these are caused by household characteristics, institutions, government policies or just different tastes. understanding these differences is important because the way the assets and liabilities of households are structured has implications for their relative sensitivity to market interest rates and, ultimately, for the transmission of monetary policy. for instance, the transmission of interest rate shocks is likely to be stronger and more immediate in countries with adjustable - rate mortgages. importance of distributional information household survey data are not only useful to estimate more precisely the behaviour of households with respect to spending, saving and credit, it also provides unique information on the distribution of assets and liabilities. distribution of assets and liabilities across households and possible mismatches between assets and liabilities of individual households affect the transmission of monetary policy to macro aggregates : different distributions of wealth will generally lead to different aggregate fluctuations in the macro aggregates in reaction to shocks. this brings me to the second reason for the usefulness of micro data. the distribution of assets and liabilities has an effect on how risks are distributed across different

a policy instrument during normal times it is very dangerous precedent. third, rather than inflation rising to 2 or 3 percent, and demand rising in a systematic fashion, we have no idea at what level inflation might settle. it could remain where it is or inflation expectations could become unanchored and perhaps increase to 4 or 5 percent. not knowing what the outcome might be makes quantitative easing a very risky strategy. it amounts to attempting to fine - tune inflation expectations – a variable we cannot precisely or accurately measure – over the next decade. and why might inflation expectations become unanchored? the budget deficit for 2011 is expected to be about $ 1 trillion. even if the federal reserve were to purchase only $ 500 billion – and this amount in itself is a source of considerable uncertainty – that would appear to monetize one - half of the 2011 budget deficit. in addition, the size of the federal reserve ’ s balance sheet – now and over the next decade – will influence inflation expectations. expanding the balance sheet by another $ 500 billion to $ 1 trillion over the next year, and perhaps keeping the balance sheet at $ 3 trillion for the next several years, or increasing it even further, risks undermining the public ’ s confidence in the fed ’ s commitment to long run price stability, a key element of its mandate. while qe2 might work in clean theoretical models, i am less confident it will work in the real world. again, i will note that the fomc has never shown itself very good at fine - tuning exercises or in setting and managing inflation and inflation expectations to achieve the desired results. given the likely size of actions and the time horizon over which qe2 would be in place, inflation expectations might very well increase beyond targeted levels, soon followed by a rise in long - term treasury rates, thereby negating one of the textbook benefits of the policy. non - zero rates as an option at this point, with a modest recovery underway and inflation low and stable, i believe the economy would be better served by beginning to normalize monetary policy. if long run stability is the goal, then re - normalizing policy is an important step toward realizing that goal. how might we achieve this goal? first, rather than expand the federal reserve ’ s balance sheet by purchasing additional u. s. treasury securities, the fed should consider discontinuing the policy of reinvesting principal payments from agency debt and mortgage - backed securities into treasury securities. given where we are