luis de guindos : communication, expectations and monetary policy intervention by mr luis de guindos, vice - president of the european central bank, at the ecb policy panel of the annual congress of the european economic association, manchester, 27 august 2019. * * * introduction ladies and gentlemen, every year, the ecb organises a policy panel at the annual congress of the european economic association. 1 the intention of these panels is to combine the results of research and the views of policy makers to advance our thinking on a topic of great policy relevance. this year, it has been straightforward to decide on such a topic. communication and expectations are central to the conduct of monetary policy, and there is a substantial body of research that allows us to have an informed discussion on the topic. it is therefore a great pleasure for me to speak at this year ’ s policy panel. central banks communicate with many different groups of economic actors. let me focus my remarks on two such groups, both of which are essential to the conduct of monetary policy, namely participants in financial markets on the one hand, and the general public on the other hand. the central role of financial market expectations in the conduct of monetary policy there is a tight two - way relationship between central banks and financial markets. extensive research has dealt with the flow of information from central banks to financial markets, and has shown that central bank communication exerts strong effects on financial markets. 2 for instance, as central banks have become transparent about their objectives and their reaction functions, the inflation expectations that are priced into financial assets have become better anchored. they have become less volatile and broadly aligned with the central banks ’ inflation aims. beyond this, markets also react strongly to the communication of the central bank ’ s assessment of the current conjunctural situation and the economic outlook. 3 at the same time, the influence also goes in the other direction : financial markets send signals to the central bank, which constitute a central input to decision - making. it is important for us to get the market view about where the economy stands, and where it is heading. this helps us crosschecking our own views, and it provides us with a benchmark against which we can communicate our own assessment. for instance, our projections are based on market expectations about the future path of short - term interest rates, oil and non - oil commodity prices and stock market prices – effectively, we are therefore telling the markets where, in our view, the economy is heading

the ecb should not raise the issue limit of 33 % when buying bonds? could this raise legal questions in the future? the ecb has made it clear that, within its mandate, it will do everything needed in order to safeguard the full transmission of its monetary policy in all euro area countries. the pepp allows purchases to be conducted flexibly over time and across asset classes and jurisdictions. the governing council has explicitly communicated that, if necessary and proportionate to the extraordinary risks that we are facing due to the coronavirus crisis, it will consider revising any self - imposed limits, including the issue share and issuer limits, in line with our legal framework. this flexibility makes the pepp a highly effective instrument to ensure the smooth transmission of our monetary policy and to avoid fragmentation across euro area countries. the ecb granted a waiver which allows it to purchase greek bonds under the pepp. what does this move signal to the markets? how important is this development, and could it later open the door to greece participating in the normal asset purchase programme? 1 / 3 bis central bankers'speeches greece has made impressive progress in recent years, after many years of economic and social hardship. the economy was on an encouraging trajectory before the pandemic, and the greek authorities have responded decisively to the health crisis. by including greek bonds in the pepp, the ecb is sending a clear signal to markets that this crisis affects the entire euro area, and that it will not tolerate any risks to the smooth transmission of its monetary policy in any euro area country. the ecb will do everything that is necessary to fulfil its mandate and support the euro area and its citizens through this historic crisis. if greece is included in an enhanced conditions credit line ( eccl ) programme, along the lines described in eurogroup president mario centeno ’ s recent letter to the european council, would it then be eligible for the public sector purchase programme ( pspp )? greece does not yet satisfy the minimum rating requirement for eligibility for outright purchases under the pspp. under certain conditions, a waiver to these requirements can be granted. it also depends on political decisions and on the specific features of any potential credit line instrument that is being considered by the relevant european institutions, including the european stability mechanism ( esm ). the pepp also allows for the purchase of corporate bonds. what is the situation for greek corporate bonds? are they included in the pepp? can they be included in the