and monetary policy – surely one of the most widely - accepted principles in modern macroeconomic thinking – the only feasible objective for monetary see tinbergen ( 1952 ) and theil ( 1961 ). policy is to control the price level, since ultimately it is impotent with respect to the level of real income or employment. 2 second, the central bank must be credible in its commitment to deliver this objective. private longer - term inflation expectations must be securely anchored at levels consistent with price stability. 3 to achieve this, the central bank must always be ready – and be seen to be ready – to take whatever action is necessary to deliver price stability. making this commitment credible requires, in turn, that the central bank operates under the appropriate institutional set - up and that it develops, over time, a track record demonstrating its willingness and capacity to act so as to maintain price stability. third, the central bank must be independent of political influence. a large body of theoretical and empirical literature has established that central bank independence is conducive to maintaining price stability. 4 given the many short - term pressures they face to deviate from the objective of price stability, the involvement of politicians in monetary policy only serves to undermine its credibility and thereby its effectiveness. fourth, so as to maintain its legitimacy, an institution endowed with independence to pursue a specific public objective must act in a transparent manner. transparency and accountability also buttress the credibility of the central bank ’ s commitment to price stability, by ensuring that the public understand that the motivation behind monetary policy decisions is the achievement of the primary objective. fifth, monetary policy must maintain a medium - term orientation. the long and variable lags that characterise the monetary policy transmission process make it impossible for monetary policy to offset the inevitable unanticipated shocks that buffet the economy and the price level in the short - run. attempts to “ fine tune ” inflation developments on a month - to - month basis are doomed to fail and would only introduce additional unnecessary volatility into the economy. sixth, monetary policy must be underpinned by a comprehensive analytical framework, which ensures that all information needed to take monetary policy decisions is available to policy makers in a form that supports efficient and timely decision - making. given the importance to maintaining credibility and a medium - term orientation, such a framework must include a thorough analysis of monetary and credit developments, reflecting the necessarily monetary nature of inflation over the longer term. finally, a clear distinction must be maintained between : on the

to steer interest rates at maturities beyond that horizon, it has to do so by directly targeting the term premium through private or public asset purchases. as our short - term rates have fallen towards the lower bound, and hence the signalling power of rate movements has decreased, the ecb has progressively resorted to both these instruments. we have provided and then reinforced our forward guidance and, when rates reached the effective lower bound in september last year, we moved to asset purchases as the main tool of monetary policy, starting with two programmes of purchasing private assets and then expanding them to include public sector bonds last january. we buy public sector assets with remaining maturities of two to 30 years, and the weighted average maturity of our portfolio is eight years. this is an unprecedented lengthening of the horizon at which we influence interest rates. 4 both these instruments have been effective in overcoming the lower bound constraint. forward guidance has led to a decline in the uncertainty about future monetary policy, and the sensitivity of money market forward rates at various horizons to news and data surprises in the former case, see e. g. c. l., eichenbaum, m., and s. rebelo, 2011. “ when is the government spending multiplier large? ”, journal of political economy, vol. 119, no. 1, pp. 78 – 121. in the latter case, see a. ferrero g. eggetson and a. raffo, 2014, “ can structural reforms help europe? ”, journal of monetary economics, 61, january 2014, pp. 2 – 22. our three - month liquidity tenders are still called “ long - term refinancing operations ”. bis central bankers ’ speeches has diminished. it is also clear from the data we have so far that some of the expected transmission mechanisms of large - scale assets purchases are already at work. for example, following the announcement of the expanded asset purchase programme on 22 january, we saw a decline in the forward interest rates across all maturities on sovereign and, with a lag, on corporate bonds, showing that the portfolio rebalancing channel was in play. some investors appear to have been taking profit on corporate bonds and reallocating investments towards equity and foreign markets, as the upside potential in the euro area corporate bond market is judged to be relatively limited. this suggests that the portfolio rebalancing channel of our public sector purchase programme is playing out in a very different way than