too. with bond prices falling and many investors caught off guard, there appears to have been little appetite for taking long positions in bonds. for what it ’ s worth, the current level of bond market volatility is not exceptionally high. indeed, it has been unusually low over the past year. so these market movements are a rather welcome development insofar as they help to foster risk awareness. what this episode illustrates most of all is that central banks currently have a significant impact on capital markets, as they have become the dominant market player. yet they are not fully in control of long - term interest rates, try as they might in striving to fulfil their monetary policy mandates. bis central bankers ’ speeches but this episode also shows that the financial system was able to cope with these market movements. the ultimate goal of qe is to accelerate inflation in the euro area and to bring the inflation rate into line with our definition of price stability. according to this definition, euro - area inflation should be below but close to 2 % over the medium term. you don ’ t need me to tell you that i was, and i still am, one of the sceptics regarding purchases of sovereign bonds in the euro area. having outlined my arguments on many occasions, for example at a city of london event in february, i will be brief today. in a nutshell, i had my doubts about the need for a large - volume qe programme and, against this backdrop, i see risks and unintended side - effects that might outweigh the benefits in terms of an accelerated normalisation of inflation. while the current inflation rate is significantly below our target, this was driven mainly by a positive supply - side shock caused by lower energy prices. as there were no signs of secondround effects, the risk of deflation was very low indeed. so, an acceleration of the inflation rate was already in the cards, with or without qe – with qe, certainly faster. this benefit had to be traded against the risks : central banks are set to become the euroarea member states ’ biggest creditors. when governments become accustomed to the favourable financing conditions, this could dampen their willingness to consolidate their budgets and implement structural reforms. and it could make governments more keen to try to prevent the ecb from terminating its ultra - easy monetary policy. at the end of the day, this could jeopardise central bank independence, undermining our ability to maintain

rates, at least for the euro area. it is monetary policy that, over the medium to long term, pins down trend inflation. globalisation through increased trade with labour - abundant economies will affect only relative prices. it is a well - known fact that, for the aggregate price level and its rate of change, relative price effects have no ultimate influence. of course, globalisation might have contributed to the observable decline in cross - country trend inflation as positive price shocks have created an environment in which some central banks could use “ the opportunistic approach to disinflation ”. but this does not seem a convincing explanation for the bulk of industrial countries. moreover, the increase in trade volumes relative to gdp is a process that was already under way in the 1970s and 1980s. at the same time inflation rates during this period were substantially higher than today. finally, even the immediate relative price effects of trade with emerging economies are not as benign for inflation in industrial countries as is commonly assumed. the rapid industrialisation of economies like china and india has led to sharply rising commodity demand from these countries. this demand has contributed markedly to the increases in oil, food and raw material prices over the past couple of years. it is difficult to estimate the net effect of these different terms - of - trade shocks on the overall price level in industrial countries. but, in my view, there are no reasons to assume that the overall outcome has been one of a more benign inflation outlook. while this more sceptical view was often disputed still some months ago, the current inflationary pressures in industrial countries arising from energy and food prices have certainly raised the awareness that the price effects of globalisation have been anything than a one - sided blessing. taken all together, there are growing reasons for exercising caution with regard to the popular globalisation story of inflation. in other words, in my view, the real effects of globalisation on the inflation process are an issue that should be of some interest for monetary policymakers. but, at the end of the day, the importance commonly attached to globalisation forces is less clear than popular views often assume. the decline in trend inflation worldwide is better explained by monetary policy in many countries being geared towards price stability, which is enhanced by the increasing independence of central banks in achieving their goals. this point – and the immediate implications for monetary policy – can also be illustrated with an eye on macroeconomic theory. here, in modern macroeconomic models inflation dynamics are captured by (