##ed there is no incentive for the originator to monitor the debtor. this is what we call moral hazard and what has ultimately resulted in an erosion of credit standards not only in us subprime but also in other credit market segments. in general, the ultimate risk - taker does not have the necessary information to monitor the debtor and the transfer process unnecessarily complicates the default risk assessment of the securitised assets. market discipline – market discipline describes a mechanism in which market participants have an incentive to monitor the risk behaviour of counterparties with the aim of readjusting their investment decisions accordingly. in the aforementioned case of securitisation, the risktaker might be penalised by its share holders and other counterparties if a lack of monitoring impairs his ability to assess credit risk properly. hence, market discipline has the potential to correct inefficiencies arising from credit risk transfer. however, there is a very important prerequisite for market discipline : transparency. only if the market participants recognise that a moral hazard problem is arising will they have the option of adjusting their investment decisions accordingly. while transparency is a necessary condition for market discipline, it is by no means sufficient on its own. in addition, market participants must have the ability and incentive to use the information. especially in times of economic expansion, the incentive to acquire and use the information might be low as the general default risk remains relatively muted as long as the upward trend continues. a restraining effect via market discipline is rather unlikely in this case. therefore, transparency and market discipline can sustain financial stability but they should not replace market regulation. in addition, market regulation itself is necessary for enhancing transparency. self - regulation – in general, there are two possible paths that can be followed with regard to market regulation. regulation can either be imposed on the relevant institutions in the financial sector by regulator agencies or the institutions themselves can willingly agree on regulation. in the second case, we are talking about self - regulation. self - regulation has the advantage that market participants tend to identify with the self - imposed rules, which should result in a higher acceptance of the regulation. moreover, market participants might have better knowledge of the market, leading to more flexible and less costly solutions. however, as the current financial crisis underscores, self - regulation bears the risk that regulation will remain too lax or that the market participants will not comply with the self - imposed rules. this is an example of the

august characterised by notably lower market liquidity. the eurosystem is taking this into account in the implementation of its expanded asset purchase programme by moderately frontloading its purchase activity in may and june, which will allow us to maintain our monthly average of €60 billion, while having to buy less in the holiday period. if need be, the frontloading may be complemented by some backloading in september when market liquidity is expected to improve again. the slightly for a discussion of the financial stability consequences of lower market liquidity, see a. bailey, 2015. “ financial markets : identifying risks and appropriate responses ”, speech given at hughes hall, cambridge university, 15 may. bis central bankers ’ speeches higher purchase volume that market analysts may observe in the coming weeks is therefore unrelated to the recent episode of market volatility. other options for dealing with the lower bound the fact that non - standard measures can help to overcome the lower bound constraint does not mean that there might not be other, even more effective ways to deal with it. in this context two types of policy have been put forward : those that take the existence of the effective lower bound as a given and seek to improve the traction of monetary policy in that environment ; and those which aim to remove the lower bound constraint altogether. as regards the first type, several options have been proposed in the literature, but most are unfortunately not very appealing to policy - makers. for instance, blanchard and ball, among others, suggest increasing the inflation objective, for example from 2 % to 4 %. 6 this option, however, would impose permanent costs on the economy in terms of the inefficient allocation of resources associated with a higher inflation rate. another important casualty would be the credibility of the ecb, given that economic agents would entertain the possibility of further changes in the objective in response to future shocks. all in all, raising the inflation target is “ too blunt an instrument ” for achieving the desired objective of stabilising the economy in a low interest rate environment. additional proposals are even more far - reaching. they involve the use of “ active ” fiscal policy to create inflation, or to increase policy interest rates to coordinate expectations on the desired equilibrium of inflation of below but close to 2 %. 7 but neither proposal is practical given our context in the euro area. our forward guidance is based on the notion that we do not intend to raise rates for an extended period of time. and explicit monetary - fiscal policy coordination is neither possible