, and a rise in medium - to long - term inflation expectations, thereby raising the rate of price changes. impact on long - term interest rates so far, i have explained the transmission mechanisms of monetary easing with regard to the impact on economic activity and prices. now, i would like to review the impact of qqe from the viewpoint of long - term interest rates. generally, it is widely known that long - term interest rates can be decomposed into two components : ( 1 ) the risk premia ( such as term premium, liquidity premium ) ; and ( 2 ) the expected path of short - term interest rates, as shown in chart 8. based on this understanding, the bank ’ s jgb purchases are expected to generate downward pressure mainly on the risk premia and then on the expected path of short - term interest rates ( this latter effect is called the ‘ ‘ signaling effect ’ ’ ). moreover, the bank ’ s commitment to continue with qqe as long as it is necessary for maintaining the 2 percent bis central bankers ’ speeches price stability target in a stable manner is also likely to enhance the downward pressure. meanwhile, an improvement in the economic outlook and a gradual rise in medium - to longterm inflation expectations may lead to an increase in the expected path of short - term interest rates. this path may also be influenced by a rise in overseas long - term interest rates, which reflects improvement in overseas economies. the downward pressure is also observed in other countries, including the united states, which have purchased financial assets under the nontraditional monetary policy. developments in long - term interest rates since the adoption of qqe reflect those downward and upward pressures. as for the outlook, even in the phase of intensified upward pressure, the continuation of the large - scale asset purchases is likely to maintain that downward pressure, and it may even reinforce that pressure with the cumulative growth of the amount purchased – in addition to the commitment to achieve the 2 percent target in a stable manner. these effects, together with a gradual rise in medium - to long - term inflation expectations, are likely to be reflected in long - term interest rates, which would eventually stabilize at levels consistent with the 2 percent price stability target. moreover, the bank continues to closely monitor market developments within a flexible operational framework and through discussions with market participants, and it expects that both short - and longterm interest rates will move largely on a stable path. e. why are inflation expectations so important?

is no sector though more closely involved in securitisation than the banking sector. in fact, asset securitisation was introduced in the 1970s in the us precisely for the purpose to allow depository institutions to sell their pools of mortgage loans before maturity, thereby acquiring an additional source of funding. banks subsequently extended the securitisation i am very grateful to pontus aberg, valia rentzou and isabel von koppen - mertes for their valuable inputs and contributions, and to david marques for useful comments. see ecb ( 2008 ), “ securitisation in the euro area ”, monthly bulletin, february. model to other forms of credit, such as consumer credit and student loans, that were historically regarded as highly illiquid. in europe, the market for structured finance products has grown rapidly during the last 5 - 10 years, often at double - digit rates ( see chart 1 ). this development was maybe even more pronounced in the euro area compared with other regions due to several factors, including the introduction of the single currency, further financial market integration through the use of credit derivatives and related financial instruments, and an innovative financial industry. growth in structured finance products has also been fuelled by high demand from investors stemming from the search for yield and diversification opportunities. securitisation has also been positively affected by the move towards a more market - based financial system. increasing securitisation of lending - related assets, together with relentless financial innovation in credit markets, have led to the diffusion of a new business organisation – the “ originate to distribute ” model – among banks, particularly those of large size. there is certainly no need to explain to this audience how, under this new business model, the loans originated by banks are transformed into marketable asset - backed securities. however, it may be worth recalling that this is not the way banks have historically done business. under the traditional – perhaps, i should say secular – “ originate to hold ” business model, banks extend loans to firms and households and hold them in their balance sheets until they mature or are paid off. banks finance the provision of loans mainly by collecting deposits or issuing debt that have typically shorter maturities. thus, banks intrinsically face a maturity mismatch in their balance sheets that exposes them to funding liquidity risks, i. e. possible difficulties in funding their business activities. by allowing banks to transform their illiquid assets into marketable securities and providing an additional source of