Most of the time, the best projection of asset prices at that horizon is for them to be broadly flat. Consequently, I suspect that our policy choices would not have been radically different had we been tasked with targeting an inflation measure that included a measure of owneroccupied housing costs. Finally, there is something of a logical error in moving from the indubitably correct observation that successful inflation targeting is insufficient to guarantee either macroeconomic stability or financial stability to the conclusion that monetary policy should in addition, or instead, be focussed on some other objective. There is a real danger in overburdening monetary policy if it is expected to achieve both price stability and financial stability simultaneously. With two objectives, one needs two independent means of achieving them. The assignment of instruments to targets then revolves around which instrument is most effective at achieving which objective. Though loose monetary policy, particularly in the United States during 2001–5, arguably contributed to the build-up of the financial imbalances, it was but one of many causes, including a plethora of failings within financial institutions. These include: inadequate care in the extension of loans to risky individuals, when those loans are then sold on; the inappropriate use of off-balance-sheet vehicles to circumvent capital requirements; reward packages that encouraged an undue focus on short-term returns; excessive complexity and opacity in some asset-backed securities; and distorted incentives facing ratings agencies.
Even though we have called a pause in our asset purchase programme, the effects of past purchases will continue to work through the economy for some time to come. The aim of quantitative easing is to boost the supply of money, push up a wide range of asset prices and facilitate finance through the capital markets, thus raising nominal demand in the economy. How well is quantitative easing working? Chart 3 shows, for the two days following each successive announcement about the scale of the asset purchase programme, the movements in: average gilt yields; the expected average level of Bank Rate over the same maturity (from Overnight Indexed Swap rates); and the spread between them 1 . That suggests gilt yields are lower as a result of the programme by a total of around one percentage point. Moreover, since the programme began, investment-grade corporate bond yields have fallen by almost four percentage points, equity prices have recouped half their  1  The impact is measured by the change over two days in the average 5 to 25 year (zero coupon) gilt spot rate.