stance so the challenge we face is how to deliver the necessary policy stance. since the start of the pandemic, monetary policy in the euro area has gone through three phases. in the first phase – the phase of fragmentation – the flexibility of our pandemic emergency purchase programme ( pepp ) [ 10 ] averted an unjustified widening of spreads which would have disrupted monetary policy transmission. as a result, speculators stopped using short positions on particular euro area sovereigns as a way of expressing their negative views on the global economy. in the second phase, the pepp increasingly became a tool for steering the overall monetary policy stance. its size and duration became the key parameters for loosening financing conditions and pushing down the euro area yield curve to the low levels observed last december. in parallel, our targeted longer - term refinancing operations ( tltros ) successfully pinned down bank lending rates to some of the lowest levels on record. we have now entered a third phase, in which we need to preserve accommodative financing conditions to support the recovery and the convergence of inflation to our aim. this essentially means more focus on 10 / 19 anchoring key financial variables – above all, lending rates and the yield curve – as key indicators of the monetary policy stance. this approach should progressively add accommodation because, as actual and expected inflation pick up, anchoring nominal yields allows real yields to fall. and there should be no doubt that lower real yields would provide welcome additional stimulus, given how far we are from full capacity and the subdued level of current and expected inflation. implementing such a policy requires the central bank to broadly identify what level of nominal yields it is aiming to achieve ; to tailor its purchases to achieve that level ; and to be ready to intervene to the extent necessary. in december, when we recalibrated the pepp, the governing council determined that the financing conditions prevailing at that time were favourable. so, that constellation of financing conditions should be seen as the reference point for our policy moving forward. by that metric, the steepening in the nominal gdp - weighted yield curve we have been seeing is unwelcome and must be resisted. amid the increase in market yields ( chart 5 ) [ 12 ], president lagarde recently stated that “ the ecb is closely monitoring the evolution of longer - term nominal bond yields. ” [ 13 ] in the past week, euro area yields across the maturity spectrum, including risk - free rates,

no 1382, 2011. on credit, see for instance schwaab b, s koopman and a lucas ( 2011 ), “ systemic risk diagnostics : coincident indicators and early warning signals ” ecb working paper no 1327 ( april ) ; for commercial property prices, see box 6 in the december 2011 ecb financial stability review or for residential property prices, see box 3 in ecb, financial stability review, june 2011. see lo duca m and t peltonen ( 2011 ), “ macro - financial vulnerabilities and future financial stress : assessing systemic risks and predicting systemic events ”, ecb working paper no 1311 ( march ). bis central bankers ’ speeches scenarios that reflect key systemic risks. on this basis, we use our ( top - down ) stress test tools to rank the impact of prevalent macro - financial risks in order to gauge the resilience of the banking sector. the top - down, or macro - prudential, stress - testing framework developed by the ecb has proven particularly valuable during the financial crisis and the euro area sovereign debt crisis. systemic risks emerged, intensified and evolved rapidly, calling for a flexible and operational tool that could deliver quantified impact assessments in a timely fashion. the tool is comprehensive enough to cover individual banks and it incorporates real - financial interactions as well as network models to assess contagion risk. these features notwithstanding, and despite its increasing prominence in financial stability analysis and communication, stress testing has its limits. notably, even state - of - the - art stress testing frameworks are characterised by substantial methodological limitations. the major challenges facing stress testers today range from dealing with the inevitable subjectivity related to scenario building, how to model and integrate in a consistent way within the framework elements, such as endogenous bank responses, interbank spillover and macroeconomic feedback effects. many of the available models also have difficulties capturing well the often non - linear tail risk effects that the scenarios are typically meant to reflect. finally, stress test results are only as good as the data available, which in particular for central banks and other macro - prudential authorities without supervisory access is a key deficiency. finally, let me add that even though our top - down stress testing framework is far from perfect and suffer from many deficiencies, it has proved a useful tool to challenge the more granular bottom - up approaches, such as the eba eu - wide stress tests, and especially to detect out