Other things equal, higher gearing would suggest a higher company-specific discount factor.23 The final element in the firm-level discount factor calculation is the risk-free rate. The yield on government securities was used, based on data from the Federal Reserve and Bank of England. Having estimated (10) using pooled US and UK regressions over 20 years, a firm-specific risk premium can be calculated. The average premium across the sample is 5.9%. As Chart 3 shows, both gearing and beta contribute to the company risk premium estimates. 23  The gearing variable is of poorer quality than others in the data, leading to negative gearing observations for some firms. Any firm-year observations with negative gearing are excluded from the analysis (a total of 37 observations). 8  BIS central bankers’ speeches  Chart 3 Estimates of company risk premium  Sources: Thomson Reuters Datastream and Bank calculations. Notes: Uses the estimated coefficients from the pooled UK and US regression together with the mean annual values of beta and gearing for firms in the US and UK. (b)  Expected dividends and prices  The right-hand-side of equation (9) defines the stream of future dividends and terminal prices.
They will enhance the transmission of monetary policy, support the provision of credit to the euro area economy and, as a result, provide further monetary policy accommodation. We see early indications that our credit easing package is delivering tangible benefits. Since the beginning of June, forward money market rates have shown steep declines across the maturity spectrum. Now, the forward curve consistently lies below zero over a two-year horizon. EONIA is not expected to exceed 25bps before well into 2018. The 3-month EURIBOR rate, which is an important conduit of monetary policy impulses to lending rates, dropped to all-time lows and now stands close to zero. And the policy decisions, in particular those announced in September, triggered a compression of spreads across other asset classes, including ABS, covered bonds and sovereign bonds. But more time is needed for the full materialisation of the positive effects of the most recent set of measures. In this context, let me emphasise that we are committed to scale the total magnitude of our measures – lending operations as well as outright purchases – up to a size that can deliver the intended support to inflation and the recovery of the euro area economy. All these measures will have a sizeable impact on our balance sheet, which we expect to move towards its early 2012 dimension.