changes and structural breaks on asset prices. from a policy perspective, enhancing our knowledge about the role of risk aversion and amplification mechanisms in explaining the build - up and unravelling of crises provides important insight on how to conduct monetary and financial stability policy. fiscal policy and the euro area sovereign debt crisis the last theme of the conference that i would like to mention is the effect of fiscal policies and the evolution of the sovereign debt crisis in the euro area. by using a suitable nonlinear model, born et al ( 2014 ) show that the effects of fiscal consolidations on the cost of servicing sovereign debt depend crucially on the degree of fiscal stress. 6 while expenditure - based fiscal consolidations carried out in normal fiscal circumstances have favourable effects on the cost of servicing debt, in situations of fiscal stress, sovereign spreads tend to rise. these findings suggest that fiscal policies in the euro area should be oriented towards a growth - friendly composition. as pointed out by the ecb president in his 2014 jackson hole speech, selective tax cuts should be matched by corresponding selective spending reductions, targeting taxes with high fiscal multipliers and unproductive expenditures. additional benefits could be reaped by implementing strong co - ordination among fiscal policies of the different euro area countries, with an active role for complementary actions at the eu level with public investment. another important concern for the ecb has been the possibility that self - fulfilling beliefs might lead to unsustainable sovereign debt dynamics and therefore precipitate a crisis. 7 as bacchetta et al ( 2014 ) show, a belief - driven crisis cannot be prevented by conventional monetary policy, unless the monetary authority is ready to generate very high inflation levels for a prolonged period. non - conventional policies – based on issuing monetary liabilities in the form of fiat money – could be used, but their effectiveness would be limited. either the central bank has a large amount of assets relative to the sovereign debt, or the zero lower bound has to bind for an unrealistically long time. hence, it seems legitimate to conclude that the effectiveness of policy actions in preventing self - fulfilling sovereign debt crises is subject to important qualifications. this is in line with the ecb announcement of the outright monetary transaction ( omt ) programme in august 2012, aimed at eliminating self - fulfilling beliefs of a euro area break - up. the omt programme announcement has been successful so far mainly because of its careful design. the programme is strictly conditional on adjustment programmes and structural reforms

the ecb has carried out several measures to address these problems and the financial situation in the euro area has improved dramatically. however, the economic situation remains difficult, with negative implications for investment. the prospect of a prolonged period of low inflation might have adverse effects, including a possible de - anchoring of inflation expectations. this is why, after setting our policy rates to their effective lower bound, the ecb has decided to engage in a mix of further unconventional monetary policy measures. we are convinced that these measures, working through several channels, will provide further monetary easing and underpin the anchoring of inflation expectations. see e. g. aruoba and schorfheide ( 2014 ), christiano et al ( 2014 ). bis central bankers ’ speeches from a policy point of view it is important to incorporate the zlb explicitly in models that inform the policy process. this results in nonlinearities that have far - reaching implications, including for the size of the fiscal multiplier and for the role of goods and labour markets to exit the zlb. housing another important theme treated in the conference is housing and its relationship with global macroeconomic conditions. the model used2 by justiniano et al ( 2014 ) explains the u. s. house price boom that preceded the great financial crisis as the consequence of looser lending conditions in the mortgage market. looser lending conditions were the direct consequence of a variety of factors, in particular of the process of securitisation and the diffusion of market - based financial intermediation. the lax macro - prudential regulatory framework was a pervasive factor in producing looser lending conditions. an important lesson to be drawn from this analysis is the significance of an active macro - prudential policy capable of containing the unwanted effects of the kind of credit standard loosening that seems to have been responsible for the inception of the housing boom. monetary union the future of the european monetary union is another particularly relevant theme. it is possible to relate the current problems faced by many euro area countries to the existence of relevant heterogeneity in financial frictions across single member countries. 3 in the model used by simon gilchrist et al ( 2014 ), these differences allow firms from strong countries to undercut prices and gain market share from firms in vulnerable countries. this generates real exchange rate misalignments and current account deficits in peripheral countries, which may be viewed as a cause of the current sovereign debt crisis in europe. under these circumstances