A low policy rate in  15  8  Churm, R., M. Joyce, G. Kapetianos and K. Theodoridis (2015): “Unconventional monetary policy and the macroeconomy: the impact of the United Kingdom’s QE2 and Funding for lending Scheme”. Staff Working Paper No. 542, Bank of England. BIS central bankers’ speeches  combination with low risk premiums has resulted in low residential mortgage financing costs for households. Household debt has grown far faster than income. Low interest rates may increase the risk that debt and asset prices rise to levels that are unsustainable over time. Such financial imbalances could trigger or amplify an economic downturn. More resilient banks reduce this risk. Requirements with regard to banks’ equity capital and funding structures have been strengthened and the countercyclical capital buffer has been implemented. In addition, the requirements for prudent residential mortgage lending practices have entered into force. Norges Bank’s policy rate setting takes account of the risk of a build-up of financial imbalances. The aim is to avoid an abrupt downturn in the economy and higher unemployment at a later stage. Over the past year, there has been a negative turnaround in the Norwegian economy. Oil prices have decreased by more than 50 percent in a year. The fall in oil prices has amplified an expected decline in activity in the oil sector, and the Norwegian economy is experiencing a period of restructuring. No more than in other countries can monetary policy in Norway assume primary responsibility for delivering structural changes in the economy.
On the asset side, central banks have increased their holdings of government bonds and bonds issued by private enterprises and institutions. These holdings are matched on the liabilities side by increased deposits from private banks in the form of central bank reserves. The stock of central bank reserves in the US and UK is now five times larger than it was before the financial crisis. In the euro area, reserves have doubled in size. These figures provide a good illustration of the extent of the measures implemented. Such large increases in central bank reserves may evoke associations with historical examples of extensive government money printing. But this comparison only goes so far. Historically, money has usually been printed to finance government budget deficits. The increased money supply then had a direct effect on the economy through purchases of goods and services. The result has often been high and uncontrolled inflation. Quantitative easing is different. In the same way as traditional monetary policy, the way quantitative easing is able to influence the wider economy is through lower interest rates and higher securities prices. The transmission mechanism of quantitative easing to the real economy operates through several channels. First, the central banks’ purchases have supported their communication concerning future policy rates. When central banks purchase long-term government bonds, this is in itself a signal that policy rates will be kept low for a long time. This also pushes down interest rates on other securities.