banking ”, frankfurt am main, 9 november ; and andersen, a. et al. ( 2020 ), “ monetary policy and inequality ” journal of finance, vol. 78, no 5, pp. 2945 - 2989. 49. at the same time, middle - wealth households often benefit from rising house prices as a result of qe. this can offset the impact of higher financial asset prices on the wealth distribution. see lenza, m. and slacalek, j. ( 2024 ), “ how does monetary policy affect income and wealth inequality? evidence from quantitative easing in the euro area ”, journal of applied econometrics, pp. 1 - 20. 50. lenza, m. and slacalek, j. ( 2024, ibid ). 51. ecb ( 2024 ), financial stability review, may. 52. deutsche bundesbank ( 2024 ), monthly report, february. in the united states, a recent report suggests that homes were overvalued by 11 % at the end of 2023. see fitchratings ( 2024 ), u. s. rmbs sustainable home price report — 2q24, 13 may. 53. karadi, p. and nakov, a. ( 2021 ), “ effectiveness and addictiveness of quantitative easing ”, journal of monetary economics, vol. 117, pp. 1096 - 1117. 54. acharya, v. v. et al. ( 2023 ), “ liquidity dependence and the waxing and waning of central bank balance sheets ”, nber working paper series, no 31050, national bureau of economic research, march. 55. du, w., forbes, k. and luzzetti, m. n. ( 2024 ), “ quantitative tightening around the globe : what have we learned? ”, nber working paper series, no 32321, national bureau of economic research, april. 56. gust, c. and skaperdas, a. ( 2024 ), “ government debt, limited foresight, and longer - term interest rates ”, finance and economics discussion series, no 2024 - 027, board of governors of the federal reserve system. copyright 2024, european central bank

its commitment to follow through on its promise, as raising interest rates would lead to losses on its bond holdings. [ 12 ] and, indeed, research shows that announcements of asset purchase programmes lowered policy rate expectations. the experience over the past two years, however, is likely to have significantly weakened the role of asset purchases as a commitment device. the determined response to the surge in inflation by central banks worldwide was a forceful reminder that policymakers cannot tie themselves to the mast of a ship as odysseus did in greek mythology. central banks can only credibly communicate about the likely future direction of monetary policy in a “ delphic ” way – that is conditional on how the economy evolves. so, while asset purchases may convey signals about how central banks see the economy evolving, they will not make central banks less determined in their pursuit of price stability if conditions change unexpectedly. asset purchases have broader effects on the economy, however, as the real world departs from the wallace neutrality in several ways. for example, for asset purchases to affect asset prices, it is enough to assume that investors are not perfectly indifferent about the assets they hold, an idea going back to james tobin. a large class of investors, for example, values the liquidity and safety of government bonds, which is reflected in these bonds ’ convenience yield. [ 16 ] financial intermediaries also generally face limits to arbitrage because of liquidity and risk constraints. these imperfections and inefficiencies considerably broaden the way asset purchases can affect financial and macroeconomic outcomes. the economics profession has generally focused on two main transmission channels : the liquidity channel and the portfolio rebalancing channel. asset purchases are powerful in periods of stress the experience from the past 15 years suggests that asset purchases have on several occasions been instrumental in stabilising financial markets and shielding households and firms from economic pain. after the outbreak of covid - 19, for example, when balance sheet constraints and information asymmetries led to a freezing of financial markets, asset purchases supported dealers ’ ability to intermediate the market. this reduced systemic stress, prevented broader fire sales and thus averted an excessive tightening of financing conditions that could have threatened the stability of the financial system at large ( slide 3 ). empirical evidence for the united states shows that, when there is a “ dash for cash ”, it is the actual purchases that matter : the federal reserve ’ s announcement in march 2020 that it would conduct asset purchases was not sufficient