central bankers ’ speeches it is important that the positive effects of our measures have also reached small firms because this means that they have been felt by a large audience and not just by specific economic and social groups, as is sometimes claimed. we must not forget that small and medium - sized enterprises make up 99 % of the total number of firms in europe and, more importantly, provide jobs for two - thirds of all those in employment. why were our monetary policy measures effective? one of the reasons that lending rates to firms were high in the past is that, given the weakness of economic conditions, banks particularly feared the risk of enterprises becoming insolvent, and for this reason raised their risk premia. however, these higher rates also caused the demand for credit from healthy firms to fall, thus worsening the conditions of the economy and justifying, ex post, the higher risk premia. and so a vicious circle was created. by reducing borrowing costs for new loans, our measures, especially the targeted longerterm refinancing operations, have encouraged banks to resume lending. the increased competition in credit markets has in turn compressed rates, driving lending and improving the macroeconomic picture. we have thus succeeded in breaking the vicious circle. the public and private sector purchase programme has also fuelled competition in credit markets by driving down the yields on sovereign bonds and thus reducing their appeal with respect to loans, ensuring that a growing volume of banking activity is directed towards the real economy. in addition to the direct impact of targeted longer - term refinancing operations, analyses conducted by the ecb show that the asset purchase programme has had an indirect effect on credit supply conditions, by also improving the macroeconomic outlook and further reducing risk premia. and these measures have not damaged the banks. far from it. although they may sometimes have led to a contraction in interest income, our measures have also led to capital gains in banks ’ assets, and higher volumes and quality of credit. considering all of these effects, the staff of the ecb estimate that the impact of our measures on the profitability of the banking sector has been essentially nil for the euro area as a whole. the role of other policies the effectiveness of our monetary policy shows that the ecb has all the appropriate tools to achieve our price stability objective and thus to support demand. and within our mandate we are unconstrained in our choice of instruments and the way we deploy them. we can always bring inflation to our objective ; we

rate pressures and to safeguard financial stability. however, capital controls also come with a cost, like impairments of financial markets and possible reductions of economic growth due to their distortions. evidence on the effectiveness of capital flow measures is mixed, or in the words of olivier blanchard : " still surprisingly inconclusive ". work on macroprudential measures has only begun in earnest after 2009, thus, the knowledge about these policies is still limited. significant results have been found on the composition of capital flows. there is evidence that they can lower banking inflows and portfolio inflows. but there is no significant evidence for a 1 / 2 bis central bankers'speeches clear impact on net or gross flows. while there is solid evidence that capital flow measures help countries to conduct an independent monetary policy, there seems to be little or no effect of capital flow measures on the exchange rate. although the literature on the impact on financial stability is relatively young, capital flow measures have been found to lower credit growth and to curb bank leverage. where does that leave policy makers? there is still a lot we do not know. it seems capital flow measures can help a country to deal with volatile capital flows and reduce the likelihood of a financial crisis. but of course one has to consider the costs and distortions. i think the institutional view of the imf has got it mostly right. to safeguard financial stability countries should be able to use all tools at their disposal, depending on which are best suited to the task, but as non - distortionary as possible and not as an excuse to shirk difficult decisions on macroeconomic policy. given that capital movements are not comparable to trade in real goods and given the diversity of its membership, i see no value in extending the imf ’ s mandate beyond the existing arrangements regarding capital flows. this would necessitate also a change of the imf ’ s articles of agreement, which could be opening a can of worms. 2 / 2 bis central bankers'speeches