the implications of our approach for the current cyclical phase. the main message that i would like to convey is the following : even if the traditional instruments of monetary policy, short - term interest rates, are constrained below zero, central banks have other tools, including large scale asset purchases, to ensure price stability over the medium - term. the ecb has never hesitated to use these tools, in accordance with its mandate. the monetary policy measures announced between june 2014 and last week are a testimony of our resolve and our independence. the ecb ’ s goal and strategy let me start by recalling the exact contours of the ecb mandate. monetary policy in the euro area has a strictly lexicographic mandate. price stability is its primary objective according to art. 127 of the treaty. it is only without prejudice to the objective of price stability that the ecb should support the general economic policies in the union, including the stabilisation of output and unemployment, as well as financial stability. the review of the ecb strategy in may 2003 clarified that price stability in the euro area is to be understood as a year - on - year increase in the harmonised index of consumer prices ( hicp ) below but close to 2 %. another fundamental aspect of the ecb ’ s monetary policy is that it aims to pursue price stability over the medium - term and not every quarter or every year. this emphasis on the medium - run recognises the fact that monetary policy cannot stabilise prices at short - horizons and that short - term fluctuations are inevitable, especially if they result from supply shocks. hence, the ecb is not an “ inflation nutter ”, to use the expression of mervyn king, ready to implement extreme changes in its policy instrument to try to prevent any blip in inflation. as long as they are temporary, short - term fluctuations in inflation do not pose a threat to price stability, because they do not affect inflation expectations in the medium - term, and, therefore, key economic decisions such as wage formation or real interest rates. see constancio, v. ( 2013 ), “ the european crisis and the role of the financial system ” speech at the bank of greece conference on “ the crisis in the euro area ” athens, 23 may 2013, http : / / www. ecb. europa. eu / press / key / date / 2013 / html / sp130523 _ 1. en. html. bis central bankers ’ speeches this medium

in the euro area is the broad portfolio balance channel. if different assets are imperfect substitutes, interventions by the central bank that affect the supply of various assets available to private investors could influence the prices of many other assets, including investment grade bonds, equities, real estate or foreign assets with consequences for the exchange rate. 13 higher valuation would also facilitate the process of balance sheet repair that is ongoing in the euro area, and more generally contribute to support credit growth. we see that the various effects also impact the credit channel. finally, asset purchases would operate through a signalling effect, i. e. by affecting expectations of future inflation and the future likely path of the key ecb rates. in the united states, there is for instance evidence suggesting that quantitative easing contributed to increase inflation expectations, and therefore that asset purchases by the fed reduced real interest rates. 14 lower real rates would stimulate aggregate consumption and investment, and ultimately contribute to a faster return of the euro area inflation rate to levels consistent with our definition of price stability. the adoption of a large scale asset purchase ( lsap ) programme the ecb is responsible for price stability which is always effectively controlled by monetary policy on a medium - term basis. having reached the zero lower bound of our policy rates, we had the duty to try all legal instruments to fulfil our mandate. in the present case, it implied exploring new channels of transmission of monetary policy that have worked in other countries like the u. k. and the u. s. we were, of course, aware of several objections and concerns that have been used against adopting a lsap programme. one concern at this point in time relates to the already very low level of government bond yields. there is certainly limited scope for further yield reductions through a government bonds ’ purchase programme. nevertheless, the transmission channels of the programme go well beyond the direct effect on the price and yield of the purchased assets as i just explained. besides the points already mentioned, government bond purchases at this point in time would firm markets ’ expectations that the monetary policy stance of the ecb will remain expansionary for an extended period, even if for a detailed review of the literature, see for instance bernanke, b., ( 2012 ), “ monetary policy since the onset of the crisis ”, reserve bank of kansas city economic symposium, jackson hole, 31 august. see for instance krishnamurthy, a. and a. vissing - jorgensen, ( 2011 ), “ the