bankers'speeches two things stand out. first, there is a clear positive relationship between the amount of duration risk private investors are expected to hold and the compensation they require for holding it. second, it is easy to see that the relationship is non - linear and that the term premium has become less responsive at lower free float levels. this is the stock effect at work. the amount of bonds available to private investors is currently so low that investors are willing to absorb new bonds without requiring much higher compensation. supply is effectively constraining demand. this becomes clear if we recall the statutory needs of many investors for safe and liquid assets. in these circumstances, only very large changes in the expected supply of bonds can cause yields to rise more meaningfully. this framework helps us explain why, in the course of the last year, bund yields traded in a tight corridor despite the measurable decline in our purchase pace from €80 billion per month in march 2017 to €30 billion as of january this year. of course, stock effects have not prevented bund prices from falling in line with the strong economic recovery : an improving outlook will naturally drive yields higher as expectations of the future rate path are revised. but what stock effects have achieved is to temper the impact of both domestic demand shocks and foreign spillovers on euro area term premia. in some ways, there are parallels with the discussion of nonlinearities in the phillips curve : here too we see evidence that price increases only start to accelerate more forcefully once the economy moves into the steeper part of the curve. unlike in the labour market, however, current and future reinvestments of principal repayments on our asset purchases should ensure that expected supply in the bund market remains below the threshold at which price effects may 10 / 15 bis central bankers'speeches increase in strength. squaring the stock effect in the united states and the euro area another way of demonstrating the non - linear nature of stock effects is to consider the very different market reaction we saw here in the united states as expectations of an end to asset purchases mounted, in particular the famous “ taper tantrum ” in mid - 2013. indeed, one argument put forward by those who are sceptical of the persistence of stock effects is that the announcement of tapering led to an immediate repricing of the market for us treasuries. as you can see on my next slide, this cannot systematically be explained by an upward revision in interest rate expectations. expected rates jumped

remember, central bankers were a triumphant lot in the years before the crisis. they thought they had discovered the holy grail of stable growth, low inflation and low unemployment and declared victory. the crisis then came as a serious blow to the credibility of central banks and the reputation of central bankers. the challenge for central banks, as indeed for all policy makers, is to learn the lessons of the crisis and reflect them in their policies. there cannot be a more learned person than stan fischer to draw the lessons of the crisis for central banks and set them off on meeting their most urgent challenge of regaining lost credibility. i have great pleasure in inviting governor stanley fischer to deliver the third brahamananda memorial lecture. bis central bankers ’ speeches