in bank rate will continue to provide a building boost to demand through this year and beyond – we don ’ t have to keep on cutting rates in order to provide a stimulus. second, in november, the government announced a temporary cut in vat and an acceleration of spending on public investment projects, which should help support demand in the near term. third, and most importantly, to supplement the measures taken last october, the government has launched a five - point plan to ensure an adequate supply of credit to households and business. this comprises measures : to reduce uncertainty about the adequacy of bank capital by capping the losses on their holdings of risky assets ; to facilitate bank funding through the attachment of state guarantees ; to boost the availability of funds to business through direct purchases of company debt ; to raise the availability of mortgage finance to households by halting the running down of northern rock ’ s mortgage book ; and, finally, to establish a concordat with the banks under which they will maintain an adequate flow of credit to the real economy. the asset purchase facility, operated by the bank for the government, will purchase up to £50 billion worth of commercial paper, corporate bonds and similar securities, with the aim of increasing the liquidity of these instruments, reducing the cost of capital to businesses and stimulating increased debt issuance. as we estimate that illiquidity presently accounts for getting on for half of the 5½ percentage points interest rate spread of investment - grade corporate bonds over government debt, these actions, if successful, could have a powerful impact on the cost and availability of funds to corporate borrowers. the first purchase under this facility was made last friday. in the first instance, purchases are to be financed by government borrowing. but, subject to the agreement of the chancellor, this facility can also be used by the monetary policy committee to undertake further easing of monetary policy in pursuit of the inflation target. that is likely to prove useful now that bank rate is nearing its floor. in that case, purchases would be financed by the creation of so - called central bank money – effectively ious drawn on the bank of england. at such point, we might also want to expand the range of assets purchased under the scheme to include government debt. the purpose of these actions would be twofold : to push down the yields on a wider range of assets than usual ; and to increase the supply of broad money ( bank deposits plus banks'own reserves ) in the economy. both should help to boost nominal

alan greenspan : impact of energy on the economy remarks by mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the economic club of chicago, chicago, illinois, 28 june 2001. * * * of the number of factors that have contributed to the slowing of economic growth in the united states over the past few quarters, the one that has received less attention than it clearly merits is the rise in energy prices. in what may or may not be coincidence, at least the last three recession periods in the united states – those of 1990 - 91, 1980 - 82, and 1974 - 75 – were preceded by spikes in the price of oil. as a consequence, we at the federal reserve are especially attentive to developments in energy markets and their effects on the behavior of households and businesses. obviously, caution is required in drawing generalizations from only three observations, and indeed many analysts do not place much credence in the link between oil prices and the business cycle. in part, this skepticism arises because the largely linear models that typically economists rely upon to track the ties between energy prices and gross domestic product do not signal a worrisome linkage. when simulated over periods with observed oil price spikes, the models do not show oil prices consistently having been a decisive factor in the subsequent economic downturns. our heightened wariness about recent developments, however, reflects the possibility that the responsiveness of u. s. gross domestic product to energy prices may be different when households and businesses are confronted with abnormal price hikes. because economic models typically are fit over both those periods with price spikes and the more predominant periods of moderate price fluctuation, their estimated statistical relationships would not fully capture the effect of sudden and sizable shifts in oil prices on the economy. pending the development of far better insights into the actual impact of oil price spikes than currently can be gleaned from macroeconomic models, it is prudent to follow energy markets far more closely than our models would suggest is necessary. one important channel through which changes in the prices of oil and of other forms of energy unequivocally influence the economy is through their effects on the profitability of non - energy corporations. this effect is particularly important because a stabilization of profit margins and cash flow will be critical to an eventual firming of capital investment. as best we can infer, a substantial part of the rise in the total costs of corporations between the second quarter of last year and the