, point to larger deficits and debt than reported in these charts. conclusion let me conclude. globally, central banks have been confronted with large and persistent shocks stemming from the financial crisis and the long - term trend decline in the equilibrium real interest rate. these factors have constrained conventional monetary policy space and required a profound expansion of the policy toolbox in order to ensure the effectiveness of monetary policy. our forward guidance on interest rates, which makes the evolution of our policy rates contingent on the robust convergence of inflation to our aim, captures our monetary reaction function in the current environment of low inflation and low interest rates. our forward guidance links the various unconventional monetary policy instruments together within a coherent framework and is proving effective in guiding adjustment in the expected path for policy rates and longer - term bond yields in response to the changing outlook. as i have demonstrated, the ecb has been willing and able to calibrate the combination of its unconventional policy instruments in directions and on a scale that gives sizeable support to the economy and continues to support the convergence of inflation to our aim. at the same time, if fiscal policy were to play a more supportive role alongside monetary policy, it would lead to a faster return of inflation to our objective and contribute to raising the equilibrium real interest rate, thereby alleviating the constraints on monetary policy. finally, the long - term trends that are being discussed at this conference give all central bankers pause for thought in terms of their strategy and instruments. in this vein, we announced last month the launch of a comprehensive review of our monetary policy strategy, which we expect to be concluded by the end of the year. [ 1 ] i am grateful to john hutchinson and arthur saint - guilhem for their contributions to this speech. [ 2 ] for example, ben bernanke calculates that the combination of asset purchases and forward guidance can add about 3 percentage points of policy space for the united states, assuming a neutral nominal rate in the range of 2 to 3 percent, see bernanke, b. ( 2020 ), “ the new tools of monetary policy ”, presidential address at the american economic association annual meeting, january. [ 3 ] for a detailed discussion of the sources of complementarities across these instruments, see lane, p. r. ( 2019 ), “ monetary policy and below - target inflation ”, speech at the bank of finland conference on monetary policy and future of emu, 2 july. [ 4 ] for an assessment of the ecb strategy prior

accommodate the increased demand for liquidity may, however, be ineffective in preventing a destructive deleveraging process, unless two additional elements are addressed. first, there is a need to remove the stigma associated with accessing central bank liquidity. the ecb did so by providing liquidity at an attractive price via monetary policy operations in which a broad number of counterparties have access. second, deleveraging forces and fire sales have a direct impact on the value of collateral. to address this situation, the ecb broadened its collateral rules, thereby also enabling banks to take full advantage of central bank liquidity. at the same time, the ecb tightened its own risk - control measures to mitigate the risk it absorbed. monetary policy in the period of the sovereign debt crisis as we all know, the crisis did not remain restricted to the banking sector. in fact, from 2010 onwards, several euro area countries have experienced a severe sovereign debt crisis. the driving forces of this evolution varied across countries. some countries had already built up weak fiscal positions before the crisis, which emerged as a major vulnerability in the downturn. others were overburdened by the fiscal costs of domestic banking crises. but irrespective of its origins, in all cases an adverse feedback loop between bank and government balance sheets emerged, which then spilled over national borders. this adverse sovereign - bank nexus was nurtured by the large holdings of sovereign debt on bank balance sheets. when market scrutiny of public finances and investors ’ risk aversion suddenly increased, sovereign yields started rising. the implied, actual or potential, losses for overly exposed banks raised the spectre of additional public support. as a consequence, the credit standings of sovereigns and banks have moved in tandem and both have found it increasingly difficult to maintain market access. in several jurisdictions, the access of the banking sector to funding markets was heavily impaired. there was a real threat of a second wave of disruptive deleveraging. and as banks had already shed parts of their external and other non - core assets in the first wave, less room was left for banks to protect domestic credit. the propensity for banks to pass on the ecb ’ s monetary policy signals to the real economy fell markedly. in other words, there were renewed risks that the monetary policy transmission channel could become severely impaired. but this time the ecb faced a new challenge : the giannone, d., lenza, m., pill, h.