frameworks, even if technical modalities remain, and will remain, country - specific. there has been a general move towards a lengthening of maturities, a broader range of collateral and a wider list of counterparties. a clear and strong distinction has been preserved everywhere between liquidity provision, on the one hand, and monetary policy, on the other. in the euro area, the policy rate has been maintained unchanged, even if, at the same time, liquidity has been provided to the interbank market. indeed, the bulk of liquidity injections since last august has been aimed at aligning the timing and maturity of the liquidity supply with a changing demand within the reserve maintenance periods, in order to stabilise the very short - term interest rate. as i have already pointed out, a standard result in economic theory ( william poole ’ s paper from 1970 ) states that, when demand for central bank money is uncertain, then it is optimal to stabilise the short - term interest rate, letting money supply adjust endogenously. we are, by no means, in totally safe territory. the conjunction of inflationary pressures and residual financial instability will prove, in times to come, very challenging for policy - makers. but we can rely on our experience and the lessons learned during the last few months to try and steer the world economy through its current troubles.

weakens the bank - lending channel. securitisation gives firms broader access to capital markets and, as such, makes them less dependent on bank funding. similarly, banks may be more able to issue debt securities and less dependent on the constraint of funding themselves with secured deposits. at the same time, however, securitisation strengthens the “ direct ” transmission channel through which interest rates operate, since a great number of financial intermediaries are more dependent on liquidity and on its price. second, financial innovation – to the extent that it makes it easier to take risks and encourages the “ search for yield ” – may have increased the impact of monetary policy because, in such an environment, risk premia are highly procyclical and move in tandem with interest rates. third, this same procyclicality of “ risk taking ” can lead to booms and busts, when investors ’ appetite for risk changes. another effect of financial innovation is thus to create asymmetries in the reaction of the economy to monetary policy : for example, the slow build - up of bubbles during periods of monetary easing followed by an abrupt retrenchment when monetary policy tightens. note that there is currently a debate as to whether this inherent procyclicality of financial systems is amplified by our accounting and prudential regimes. fourth, it may be that modern financial innovation creates new discontinuities in the financial system and dynamics. when conditions are less benign than usual, the transmission process along the interest rate curve becomes non - linear : a striking feature of this summer ’ s events was the surge in the short - term money market. wider and variable spreads between term funding rates ( of which many bank loans are priced off ) and policy rates may reduce the efficiency of interest rate adjustments when needed. innovation also reinforces the mechanism of the " financial accelerator ", through which the level of asset prices influences credit distribution ( through collateral values and, now, its impact on banks tier one ratio ), then the real economy ; and, in return, the real economy impacts asset prices and values. this spiral can go upwards, or, as we see now, downwards. overall, i believe that central banks have coped well with these challenges over the past ten months. the monetary policy response has differed across industrialised countries, as warranted by the differences in economic situations and outlooks. a striking development, however, has been the progressive convergence of liquidity provision