communicate. the committee has two instruments through which it can withdraw the stimulus, raising bank rate and selling assets. unlike some other central banks which need to create new instruments to drain excess reserves or alter the terms of existing facilities, the structure of the bank ’ s operating framework means these two instruments can be used at any time, in any order. and the strategy guiding our policy decisions will be unchanged – monetary policy will continue to be determined by the outlook for inflation relative to target. the most difficult decision will be to decide the timing of the withdrawal, but that is always the case. the aftermath of the financial crisis posed many questions for the theory and practice of monetary policy. one year on from reaching the effective lower bound of interest rates and starting a policy of quantitative easing, there is still much for academics and policy makers to learn. i hope today ’ s conference will mark another step in that collaboration. references andres, j, lopez - salido, d j and nelson, e ( 2004 ), “ tobin ’ s imperfect substitution in optimising general equilibrium ”, journal of money, credit and banking, vol. 36, no. 5, pages 665 – 90. bernanke, b s, reinhart, v r and sack, b p ( 2004 ), “ monetary policy alternatives at the zero bound : an empirical assessment ”, brookings papers on economic activity, issue 2, pages 1 – 78. brunnermeier, m k and pedersen, l h ( 2009 ), “ market liquidity and funding liquidity ”, review of financial studies, vol. 22 ( 6 ), pages 2201 – 38. duffie, d, garleanu, n and pedersen, l h ( 2007 ), “ valuation in over - the - counter markets ”, the review of financial studies, vol. 20. del negro, m, eggertsson, g, ferrero, a and kiyotaki, n ( 2009 ), “ the great escape? a quantitative evaluation of the fed ’ s non - standard policies ”, manuscript, federal reserve bank of new york and princeton university. eggertsson, g and woodford, m ( 2003 ), “ the zero bound on interest rates and optimal monetary policy ”, brookings papers on economic activity 1, 212 – 219. fisher, p ( 2010 ), “ the corporate sector and the bank of england ’ s asset purchases ”, association of corporate treasurers winter paper. gert

would end in inflationary tears. many academics questioned whether it would have any impact at all. from the outside, you may imagine that this was a difficult decision for a committee of nine, conservative central bankers to reach. in fact, from my perspective the decision was relatively straightforward. the inflation target provides a clear, numerical objective for policy. the outlook for inflation suggested further monetary stimulus was necessary to achieve that target. with bank rate close to its lower bound, this stimulus had to be implemented via alternative means. and there are clear and convincing economic arguments why – in the real world – injecting money directly into the economy is likely to provide a means of achieving that stimulus. one year on, there is a range of evidence – some relatively hard, some more circumstantial – that quantitative easing is having its desired effect. asset prices have increased substantially, companies have made record recourse to debt and equity markets, confidence has recovered and inflation expectations remain firmly anchored. but there is still a long way to go. the bulk of our asset purchases have been made only over the last 9 months or so. much of their effect on nominal spending and inflation is still to come through. we are likely to learn a lot about the transmission of those purchases and about their ultimate impact over the course of the next year. as you know, at its meetings in february and march, the committee decided to maintain bank rate at 0. 5 % and to maintain the stock of asset purchases at £200 billion. it is worth emphasising two important considerations underlying these most recent decisions. first, the portfolio balance channel implies that the primary stimulus from qe stems from the stock of past purchases, not the flow of additional ones. as such, maintaining the stock of asset purchases, together with the low level of bank rate, should continue to impart a substantial stimulus to the economy for some time to come. second, the committee stands ready to make further asset purchases should the outlook warrant them. just as with movements in bank rate in more normal times, a pause in monetary loosening does not necessarily mean that loosening has come to an end. it will all depend on how the outlook for inflation evolves. looking further ahead, the committee at some point will need to reduce the current exceptional degree of monetary stimulus. some commentators have suggested that the mpc has been less forthcoming than other central banks in explaining its exit strategy. but to a large extent this reflects the fact that we have less to