( with inverted sign ). for the us it is based on g. rudebusch ( 2009 ), “ the fed ’ s monetary policy response to the current crisis ”, san francisco fed economic letter. for the euro area it is based on an update of the reaction function estimated in l. christiano, r. motto and m. rostagno ( 2010 ), “ financial factors in economic fluctuations ”, ecb wp no. 1192. the price of risk of equity is derived from the vix - index following bekaert et al. ( 2010 ), “ risk, uncertainty and monetary policy ”, nber working paper series no. 16397. the charts are based on the historical decomposition derived from their multivariate model, extended also to the euro area. subject to data availability, the sample is 1997 – 2007. source : ecb staff calculations. bis central bankers ’ speeches chart 12 : monetary policy accommodation and leverage note : monetary policy accommodation is proxied by the residual of an estimated monetary policy reaction function ( with inverted sign ). for the us it is based on g. rudebusch ( 2009 ), “ the fed ’ s monetary policy response to the current crisis ”, san francisco fed economic letter. for the euro area it is based on an update of the reaction function estimated in l. christiano, r. motto and m. rostagno ( 2010 ), “ financial factors in economic fluctuations ”, ecb wp no. 1192. for the us leverage is computed as the year - on - year change in the leverage ratio of brokers and dealers. for the euro area it is computed as the year - on - year change in the leverage ratio of ofis computed on the basis of asset transactions to make sure that movements in leverage are not dominated by revaluation of assets. subject to data availability, the sample is 1997 – 2007. source : ecb staff calculations. bis central bankers ’ speeches

is no surprise that most of the countries with the largest deficits and the largest increase in debt after the crisis have been those in which the financial sector played an increasing role, also as a source of fiscal revenue. as the financial industry becomes less profitable, and provides less tax revenue, the gap has to be filled by other sources of taxation, or lower public expenditures, which may be politically difficult to accept. these aspects may not have been fully incorporated in the projections for the adjustment of public finances in many advanced economies, unless it is expected that the financial sector will return to its pre - crisis peak, which is a risky assumption. more generally, this crisis has shown the vulnerability of public finances to volatile structures in the economy. in good times, volatile sources of income, such as those from the financial sector or the housing market, may overestimate the soundness of public finances, while the adjustment costs in the downturn may be enormous. a case in point is that of ireland, which during the pre - crisis years was able to reduce taxes and increase expenditures for an amount of about 12 % of gdp ( in the period 2003 – 2008 ), thanks to the rise in revenues from the financial sector and from housing. the comparatively large size of these two sectors made irish public finances vulnerable to the bust of the cycle, leaving personal income tax as the shock absorber until the economy recovers. interestingly, the fiscal package that is included in the irish adjustment programme with the imf is of a comparable magnitude to the pre - crisis fiscal expansion. surveillance has clearly failed to understand this phenomenon. more attention needs to be paid to the overall size and interconnectedness of the financial sector as a whole in the various countries, and to the ability of these countries to absorb shocks affecting not only a single financial institution but the whole financial system. it is now fashionable to stress - test the banks. it would probably be appropriate to stress - test countries as well. bis central bankers ’ speeches conclusions let me conclude by suggesting that surveillance of the world economy, in particular some of its systemically relevant members, has to focus more on the sustainability of their policies, in particular their fiscal and monetary policies. some policies may appear to be sustainable on the basis of assumptions which may turn out to be simplistic, especially those relating to long - term trends of growth and inflation. in particular they may not take sufficiently into consideration the impact of broader developments under way in the global economy. as keynes said