these policy decisions involve what are presumably some of the largest and most rapid portfolio adjustments that have ever taken place by any single financial market participant. to put it in perspective, note that these recent policy decisions involve the federal reserve purchasing, over an eight - month period, more treasury securities than the amount currently held by the entire u. s. commercial banking system. it is therefore no small task to determine how to implement these purchases in an effective and responsible manner. that task falls to the open market trading desk ( the desk ) at the the phrase “ disappointingly slow ” was used in the november fomc statement. this point has been noted by chairman bernanke on several occasions. for example, see his remarks at the european central bank on november 19, 2010. bis central bankers ’ speeches federal reserve bank of new york. let me describe how the desk has conducted those purchases and some of the issues that we have taken into consideration during the process. implementing treasury purchase operations a good place to start is with the distinction between the roles of the fomc and the desk. the fomc is responsible for making monetary policy decisions, while the desk is responsible for implementing those policy actions on behalf of the fomc. thus, decisions about the broad parameters of any asset purchase program, including the amount of securities to be purchased and the duration of those securities, reside with the fomc, as those are the parameters that will govern the overall impact on financial conditions and, ultimately, on the economy. the role of the desk is to determine how best to carry out the purchase programs within those broad parameters. in doing so, the desk seeks to meet the policy intentions of the fomc, while taking into consideration two other objectives. the first objective is to obtain the securities at competitive and appropriate prices for the federal reserve, as doing so will ultimately benefit the u. s. taxpayer. the second objective is to minimize any negative effects that the purchases might have on the functioning of financial markets. as i noted in a speech in october 2010, the liquidity and efficiency of the treasury market provide tremendous benefits to our economy, and the desk was intent on designing a purchase program that would not diminish those benefits in any meaningful way. 3 to achieve these objectives, the desk relies on a system in which it purchases securities through reverse auctions with a set of established counterparties called the primary dealers. 4 the securities that are eligible for each operation and an indication of the total

handbook of monetary economics, vol. 3a, 2010. bis central bankers ’ speeches one of the areas in which there has been considerable progress since the 1990s in theoretical and empirical research on monetary policy is research on policy rules, of which the taylor rule is a prime example. 7 studies in this area highlight the importance of systematically setting policy rates in line with changes in the macroeconomy in order to maximize monetary policy effects. put differently, they indicate that in order to ensure the effectiveness of monetary policy, the important thing is not to cause unanticipated shocks, but to maintain consistent and predictable policy responses ( chart 6 ). these considerations regarding the conduct of monetary policy essentially also apply to the conduct of unconventional policies. this means that, in order to raise the effectiveness of monetary policy, it is important to show in advance the policy options the central bank can use to address an exogenous shock to the economy large enough for interest rates to hit the zero lower bound. however, looking back at japan ’ s experience since the late 1990s and the policy response in the united states and europe following the collapse of lehman brothers, central banks essentially stumbled along in devising new policy measures to respond to the situation and problems facing them at the time. since in practice the world is full of uncertainty, it is difficult to present policy options for all contingencies in advance. moreover, because policy responses to unanticipated events are formulated by taking not only financial and economic circumstances but also various structural and institutional constraints into account, they tend to consist of a complex package of policies. the issue of what kind of institutional framework should be built in order to achieve an efficient allocation of resources in circumstances where such uncertainty is great and it is necessary to deal with complex challenges falls into the arena of incomplete contract theory. 8 research in this field has made rapid progress in recent years and the findings are applied in practice in a growing range of areas, such as firm organization, financial contracts, and legal systems. i think that, by employing the new understanding gained and considering a possible policy framework for comprehensive policy rules – including in response to crises – as well as the application of such rules, it may be possible to expand the research frontier of monetary policy. vi. long - term equilibrium while it is premature to talk about the timing of an exit from “ qqe with a negative interest rate ” and how to go about it, i would finally like to take the valuable opportunity of speaking here today