that matter for the main economic decisions that the central bank wants to influence. how is it then that monetary policy can have an impact on the economy? well, one can think of long - term interest rates as comprising two elements : expectations regarding the future evolution of short - term rates ; and premia. premia relate to the compensation investors demand for holding on to an asset for a specific period of time ( the term premium ). moreover, they relate to the compensation for risks, such as the possibility of incurring capital losses due to difficulties they may encounter when selling the asset back to the market before maturity and at short notice ( the liquidity premium ). changes in the current policy rate are typically interpreted by markets to also signal changes for short - term rates in the future. that is, they affect market expectations for future short - term rates and therefore, long - term rates. in normal times, this signalling channel works well and market expectations tend to be in line with monetary policy makers ’ intended long - term rates. when, however, short - term nominal rates are at zero or close to zero, this signalling channel loses its potency. the risk is that long - term rates may drift away from the central bank ’ s intended path, in which case financing conditions in the economy will not properly reflect the stance of monetary policy. some academic economists have advocated that, particularly in such a situation, the central bank should engage in active communication regarding the future path of policy rates. 6 this communication would serve as a commitment device for the central bank to follow in the future the announced path of short - term rates, possibly conditional on actual developments in the economy. 7 if this commitment is sufficiently credible, it will be effective in steering expectations regarding future interest rates and so influence the first component of long - term interest rates to which i was referring before. this is turn, will allow the central bank to deliver accommodative financing conditions in the economy over a certain horizon. a number of central banks around the world – most recently including the us federal reserve – have adopted some version of this approach. but the decomposition of long - term rates i mentioned a few moments ago suggests that there is also another possible way for the central bank to deliver appropriate financing conditions in the economy. this second approach is to exert influence on the premia, to the extent that they are unwarranted and reflect dislocations in markets. i would argue that the the argument was originally

has said that time is of the essence for approaches at the european level to address aggregate demand, such as the juncker plan. we are still waiting for the results of a €315 billion plan that is leveraged 15 times. are you worried? it is not just about having a common european plan. it is also about asking countries to reprioritise their budgets in terms of public investment and taxes, which is admittedly not easy to do. should countries with fiscal space use it? you need to have fiscal space. when i look at aggregate values for the euro area, it is even better than those for the united states or united kingdom. it is not as if the euro area is in a danger zone. you cannot reason only on aggregate, because one also needs to assure fiscal sustainability in each country. moreover, the spillovers across the countries are relatively limited. so countries could use their fiscal space without compromising sustainability. there should be no illusion that a big demand shock will come from fiscal expansion. without that demand shock, either with public or private money, qe will not work, or will it? financial conditions are much easier and will support aggregate demand. also, structural reforms in a number of countries have started to produce positive effects. in addition, you have to consider the oil supply shock, which is positive for growth, provided that inflation expectations remain anchored. this is important. why? when inflation expectations are threatened by a shock, you may get negative impacts owing to possible delaying of consumption or investment. this is why qe comes at the right time. bis central bankers ’ speeches why doesn ’ t the central bank just print money and send a check to every household until september 2016. that would probably have an effect, wouldn ’ t it? this point is made in some academic circles, but how should this money then be distributed? it would be up to parliaments to decide how to distribute it, but then the ecb would be directly involved in the monetary financing of governments, which it is not allowed to do. wouldn ’ t it be possible to find a solution whereby the exact money that is printed finds its way to the private sector without affecting the budget directly? but what would you do? would you, for instance, give each person, rich or poor, a cheque for the same amount? this option, at least from what we have learned from others ’ experiences, also has a redistributive effect through a wealth effect :