As discussed earlier, no issue is more important than a credible commitment for getting our fiscal house in order, but at a pace that does not forestall a sustained economic recovery. What is needed here is fiscal consolidation that begins slowly, builds over time to substantial magnitude, and is difficult to dismantle – i.e., it requires the commitment of both political parties. The decision of how big the U.S. government should be and what functions it should perform is a political decision that I leave to the voters and our legislators. However, as a nation we need to acknowledge that we must be willing to pay for whatever government services and transfers we want to have. We should not assume that an excess of global savings will always be available to easily finance our public deficits. 5  To be more precise, as of the first quarter of 2011 with statistical discrepancy of 1.2 percentage points attributed to private balance, the figures are as follows: government balance –9.5 percent + 6.3 percent private sector balance equals current account balance of –3.3 percent. BIS central bankers’ speeches  5  The choice of fiscal sustainability is not a political one, it is an economic one and if we do not act voluntarily and preemptively, the market will inevitably force the outcome later – most likely in a much more difficult and messy fashion.
As regards our asset purchases, we have to reduce their intensity in a pragmatic manner, as we already decided successfully in December 2016. I insist on the word “pragmatic” because, while keeping the current rules, we should on the one hand exploit the margins of flexibility of the programme and on the other hand hold in reserve an additional purchasing capacity – if needed. That said, monetary policy is not limited to QE, and QE is not limited to net asset purchases: we can keep a substantial degree of monetary accommodation even if we reduce our monthly flow of net purchases. 1/ On QE, the academic literature provides consistent evidence that the impact of asset purchase programmes on the yield curve and asset prices is primarily driven by the total stock of assets held by the central bank (the so called “stock effect”), rather than by the flow of transactions conducted over a given period (“flow effect”). In-house studies of the effects of the PSPP find that holding a stock of bonds equivalent to 10% of GDP lowers the 10-year yield by about 45 bps in the euro-area.5 By contrast, flows of purchases have no significant additional impact. These results imply that our current programme lowers the 10-year euro-area government bond yield by about 100 bps.