##ing the term premium. uncertainty, by and of itself, is undesirable. but to the extent that the increase in the term premium likely reflected a reassessment of global economic conditions after a long period of subdued macroeconomic expectations – as also reflected in the adjustment of inflation risk premia – it may not constitute an unwarranted tightening. the role of foreign factors in driving euro area yields becomes clearer when considering the indications from another class of models : researchers at the imf have developed a simple yet powerful methodology to identify yield curve drivers using cross - asset correlations involving stock, bond and exchange markets. 9 and these models confirm – as you can see from the chart in front of you – that the bulk of the increase in euro area long - term yields initially came from shocks originating from outside the euro area – the green part. you can also see, however, that after the first initial sharp upward movement in yields following the us presidential elections, it was increasingly an improvement in euro area domestic growth prospects that contributed to upward pressure on yields. you can see this reflected in the increasing contribution of the yellow component in the chart. but what is even more important is that during this period, and despite stronger global and domestic growth prospects, expectations regarding our monetary policy have, on balance, had a 4 / 6 bis central bankers'speeches stabilising effect on yields, according to our analysis. this is the blue part in the chart, which you can see shifted into negative territory after our decision in early december to extend the intended horizon of the app by another nine months. in other words, market participants understood our reaction function and agreed with our assessment in december last year that the absence of a sustained adjustment in the path of inflation warranted continued monetary accommodation. conclusion this implies, and with this i would like to conclude, that the recent measurable increase in longterm yields has not affected our monetary policy stance : current financial conditions remain highly supportive of the ongoing recovery. however, and this is what i wanted to convey in my short remarks this evening, identifying the drivers of yield curve movements in real time is a challenging task. for this reason, we look at a wide range of information and models to obtain a robust assessment. this also means that we don ’ t want to over - interpret any uptick or downtick that we observe, but rather accept as a fact that some volatility is natural and healthy for the market to function. at the same time

and a term premium. the expectations component reflects the average of current and future expected short - term rates over the maturity of the bond. if the pure expectations hypothesis of the term structure were to hold, this would be all that mattered in terms of explaining movements in long - term rates. but broad empirical evidence suggests that the pure expectations hypothesis fails to hold true in practice, and that there is indeed a time - varying premium that investors require in order to hold a 1 / 6 bis central bankers'speeches long - term bond instead of simply rolling over a series of short - term bonds. 4 monetary policy – and there we are increasingly certain – cannot only influence the expectations component, but also the term premium. three examples demonstrate this more clearly. first, by changing our key policy rates, we can directly impact the short end of the curve – the footing of the expectations component. in normal times, medium to long - term rates would adjust to the extent that market participants would see a change in policy rates as the beginning of an incremental series of changes. but with short - term policy rates approaching levels closer to zero during the early phases of the most recent easing cycle, this channel had become less effective. markets – in the belief that rates could not enter negative territory – stopped short of pricing in the degree of accommodation they would normally have expected in the face of downside risks to our price stability mandate. our decision in june 2014 to introduce negative deposit facility rates restored our ability to steer market expectations and thereby also medium to long - term rates. indeed, by signalling to the market that policy rates could go below zero, we ultimately succeeded in shifting downwards the entire distribution of future expected short - term rates, thereby providing important additional accommodation. 5 second, and related, by communicating about where we see the economy heading, and by clarifying our ‘ reaction function ’ – that is, by providing forward guidance – we can directly influence expectations regarding future short - term rates. forward guidance has served us well and has contributed to keeping the short to medium end of the yield curve well anchored at times when external shocks were threatening to unduly tighten financial conditions. i will come back to this in a minute. but to the extent that forward guidance reduced uncertainty about the future path of interest rates, it has not only affected the expectations component but also the term premium. yet, the main channel through which we – and other major central banks – have recently exerted measurable downward pressure on the term premium,