will raise interest rates at the detriment of growth. ” this answer is wrong, and i would like to explain why the optimal policy reaction to a shock as the one we are currently experiencing does not depend on the mandate that the central bank has. the argument is wrong because it does not take into account expectations and, more generally, uncertainty and the functioning of markets. before doing that, let me recall something that should be clear to everybody : a permanent rise in the price of oil leads to a reduction in the terms of trade ( the ratio of export to import prices ) and therefore ciccarelli and mojon ( 2005 ) compute an index of “ global inflation ” comprising a large selection of oecd countries from 1961. the global inflation rate in the most recent years has been the lowest or very close to the lowest of the whole sample period. 1 / 6 to a permanent reduction in the equilibrium level of income ( at least for oil importing countries ). this is a fact. some may not accept this conclusion and may try to do something about it. for instance, if a central bank tries to counteract the effect of the higher oil price by stimulating aggregate demand, as most central banks did in the mid - 1970s, the only result will be to increase inflation. inflation will rise as long as monetary policy will remain expansionary in trying to avoid the adjustment of income to its new level. the closer is the economy to full employment, the quicker the oil shock will spread to other prices into an inflation spiral. if economic agents, consumers and firms, know that the central bank will react in this way to an oil shock, trying to stimulate income and employment, inflationary expectations will increase very rapidly, reducing expected real income and thereby nullifying the effects of the monetary expansion. if the central bank persists in this policy, the only result will be a price - inflation spiral, with no positive impact on growth. if the economy embarks in such a path, bringing back inflation will require a substantial tightening of monetary policy that will produce a substantial output loss. this is the experience of the monetary reactions to the oil shocks of the 1970s, in particular in the us, with the volcker disinflation of the early 1980s, but also in many european countries. the first conclusion that i would draw to your attention is that if monetary policy aims primarily at stabilizing income in the face of a permanent supply shock, it will produce the opposite result, i. e

vulnerable member states loans are still contracting compared to a year ago. but the pace of contraction has slowed considerably in these economies. this reflects both improved funding conditions for banks thanks to the tltros and app, and strengthening demand for loans amid an improving economic outlook and lower lending rates. loan supply can be expected to benefit further from the staggered impact of tltros. the app should also continue to support credit growth going forward. banks gain additional liquidity from the app either through selling marketable assets or through rising customer deposits, which they can in turn use for refinancing, purchasing assets or granting loans. in their responses to the october 2015 bank lending survey, most euro area banks indicated that they had used the additional liquidity from the app for the latter – granting loans ( about 30 % ) – and over the coming six months, this pattern can be expected to continue. banks also indicated a net easing impact from the app on their credit standards over the past six months ( loans to enterprises : – 4 %, housing loans : – 2 %, consumer credit and other lending to households : – 1 % ). and over the next six months, banks expect a continued easing impact on credit standards for loans to enterprises ( – 2 % ), while the effect on credit standards on housing loans and consumer credit is expected to remain broadly unchanged. altavilla c., g. carboni, r. motto ( 2015 ) asset purchase programmes and financial markets : lessons from the euro area, ecb working paper no. 1864. bis central bankers ’ speeches chart 1 use of additional liquidity and impact of the app on bank lending notes : the net percentages are defined as the difference between the sum of the percentages for “ tightened considerably ” and “ tightened somewhat ” and the sum of the percentages for “ eased somewhat ” and “ eased considerably ”. the results shown are calculated as a percentage of the number of banks which did not reply “ not applicable ”. bis central bankers ’ speeches the effects of app appear to be stronger still when looking at the impact on credit terms and conditions ( loans to enterprises : – 29 %, housing loans : – 13 %, consumer credit and other lending to households : – 22 % ; see chart 24b ), and the reported easing in terms and conditions for enterprises is generally larger than reported in the previous survey round. this favourable impact is also expected to continue over the next six months. one should keep in mind, however, that these