those under which other central banks did so. it is claimed that this reduces the impact on bond yields. but, in fact if one standardises the size of the various programmes and takes into account cf. michael a s joyce, zhuoshi liu, ian tonks ( 2014 ) : institutional investor portfolio allocation, quantitative easing and the global financial crisis, bank of england working paper no. 510, http : / / www. bankofengland. co. uk / research / documents / workingpapers / 2014 / wp510. pdf. bis central bankers ’ speeches anticipation effects, the overall impact of our programme on bond yields was comparable in size to that observed in other jurisdictions such as the us and the uk. conditions also differ because financial structures differ. in the euro area, corporate debt financing mainly takes place via banks, as opposed to capital markets in the united states. there is, however, no reason, once the transmission channel is not impaired by banks ’ poor balance sheets, why this difference should impede the effectiveness of a broad - based asset purchase programme that works through a multitude of channels. the programmes of both the bank of england and the bank of japan were effective and the respective economies are almost as bank - based as the euro area. one criticism is that we should have implemented our asset purchase programme much earlier. but it is not that we have not been acting last year. in a speech in amsterdam in april last year i laid out three contingencies that would warrant a monetary policy reaction. these were, first, an unwarranted tightening of monetary policy stance ( e. g. from developments in short - term money markets ) that could be tackled through more conventional measures. second, a further impairment in the transmission of our stance, in particular via the bank lending channel, for which a targeted ltro or an abs purchase programme might be the right response. and third, a worsening of the medium - term outlook for inflation, which would warrant a more broad - based asset purchase programme. as these contingencies materialised we acted, first in june with the announcement of the tltro and abs purchase programme. then, as medium to long - term inflation expectations started to drift downward in the summer and the risks of a too prolonged period of low inflation were rising, we broadened our asset purchase programme with covered bonds in september and public sector securities last january. summing up, market reactions both before and after our announcement, as well as

the global financial markets and, in particular, exchange rate pressures. a good example is the experience with monetary policy during the last housing boom from 2003 – 2007. during that time, monetary policy lost a degree of traction as relatively high policy rates and market returns attracted strong capital inflows, resulting in a high exchange rate and downward pressure on long - term interest rates. borrowers responded by locking in longer term financing at relatively low rates, thereby reducing the impact of official cash rate ( ocr ) increases. this meant that larger increases in the ocr were required to control inflation, putting additional upward pressure on the new zealand dollar exchange rate. there were loud calls at the time for the use of alternative policy instruments to assist monetary policy. possible candidates included macro - prudential policy and tax measures, such as a capital gains tax or a mortgage interest levy ( treasury and rbnz ( 2006 ) ). with hindsight, the use of another policy instrument would have been helpful during this period, to assist in slowing domestic demand and inflation pressure, with less of the work having to be done by the ocr and the exchange rate. lvr restrictions may have been able to assist, given the rapid rates of credit and house price growth at the time which presented risks for financial stability as well as price stability. macro - prudential tools may also have been a useful complement to monetary policy in the economic downturn from 2008. if banks had entered the recession with more stable sources of funding and larger capital buffers, then the tightening in credit conditions that ensued after the gfc may have been ameliorated, potentially reducing the need to ease monetary policy as significantly. in this way, the use of macro - prudential adjustments in downturn situations can lower the risk of running up against the zero lower bound on interest rates. but there can also be significant costs if macro - prudential policy instruments are used too aggressively in support of monetary policy. all macro - prudential instruments create incentives for financial disintermediation – credit flows that avoid the regulation by moving outside of the regulatory perimeter. over - use of macro - prudential tools in an attempt to these other macro - prudential tools work by forcing banks to temporarily increase capital or funding buffers during periods of rising asset prices and leverage. because the cost of capital and / or core funding is likely to be compressed during such periods, any cycle - dampening effects from these instruments are likely to be