Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB



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Dopez vos plus-values
Financial market speech series Landesbank Hessen-Thüringen
permanent representation of Hessen in Brussels
Brussels, 20 November 2007
[1]It is a great pleasure to be here tonight to speak on this special occasion since we will be discussing issues related to both economics and architecture, with one theme in common, the European Central Bank. After my speech, Professor W. Prix of COOPHIMMELB(L)AU will present the results of the planning of the new headquarters of the European Central Bank in Frankfurt, a fascinating project that will create a world landmark – the “Home of the Euro”.

The ECB Values
The brief for the architectural competition, dated April 2003, stated that: “ The design should reflect the values we regard as essential…We are committed to transparency, integrity, excellence and efficiency”. [2] Prof. Prix will explain shortly how his project fulfils the main “values of the ECB”.

However, as you will see in a few minutes, Prof. Prix deviates a bit from the competition brief. He totally forgets about the values of Integrity and Excellence and replaces them with two new ones which were not in the brief: Stability and Communication. This discrepancy was evidently not considered as a sufficient reason to disqualify him from the competition. He still gets away with it, even after winning the competition.

I actually find it interesting to compare the two lists of values. It could reflect a difference between, on the one hand, the image that we, in the ECB, would like to project and, on the other hand, what people outside the ECB see as our most important values.

Let’s start with the two values from the original competition brief that have been dropped by Prof. Prix: Integrity and Excellence. There are only two possible interpretations for this. The first is that they are simply to difficult to express in architectural form and COOPHIMMELB(L)AU dropped them hoping that nobody would notice. The second is that these values are so obvious for an institution like the ECB that they are simply taken as given - “Ca va sans dire”, one would say in French. Indeed, what could one expect from the ECB if not Excellence and Integrity? I suppose we could all agree on this, so we can move to the two new values that Prof. Prix added to the list and were not in the remit: Communication and Stability.

Let’s start with stability. Stability, from our standpoint, is not a value, it’s an objective. Indeed, our primary task is to achieve price stability. However, if you think about it, for the people of Europe, stability – and in particular price stability – is a value. All polls show without any doubt that in all countries of the Union people are firmly attached to price stability, and rightly complain when it is not achieved. [3] Price stability might therefore be an objective for the ECB but, for the general public, it is a value that the ECB must express in all ways, including through its premises.

The other value added to the list is Communication. That’s not really a value. It’s an instrument. The ECB communicates its objectives, its strategy, its decisions. It’s a way to be accountable. It’s a way through which transparency is achieved. How can it thus be considered as a value?

Communication is a “Value”
There is no doubt that the public wants the ECB to report on what it does to ensure stability. Seen from the outside, the ECB must not only communicate but also give a high priority to communication This is what I gather has led Prof. Prix to elevate Communication, to turn it into a value and make it a central part of his architectural project.

I think that we - at the ECB - should take this kind of suggestion seriously. I would actually like to devote the rest of my speech tonight to the issue of central bank communication, in connection with the ECB’s other main values, as perceived by the public at large. Indeed, communication is key to achieving Transparency, Accountability and Efficiency.

Why communication is essential to ensure Transparency and Accountability should be pretty obvious. With respect to Efficiency, I would just like to point out that, in today’s world, central bank communication can be as important and effective as the traditional instrument of monetary policy, i.e. the interest rate. [4] Why? Because inflation expectations are an important determinant of agents’ behaviour in the labour, product and capital markets. By affecting agents’ expectations, central bank communication, if appropriate, can reinforce, or even replace, policy action conducted through the interest rate. Communication is effective if it affects agents’ expectations in a desired way.

To be effective, communication has to be clear and credible. Communication is nevertheless a difficult instrument to use, possibly even more difficult than changing the interest rate. There are several reasons for that and I will elaborate further on the basis of the experience of the ECB.

The central bank communicates with at least three different target groups: i) financial market participants; ii) other institutional actors, in particular in the political sphere, and iii) the public at large. The type of communication differs significantly depending on the audience. However, such an easy distinction cannot always be made. This is a constant challenge for policy makers, especially in an environment like the euro area, with 13 – soon 15 countries, with different cultures, languages and traditions, where even words, when translated directly, can have different meaning and provoke different reactions.

Let me analyse one by one the challenges the ECB faces in its communications with the different counterparties.

Communicating with financial markets
Central bank communication is important for financial market participants because it forms the basis for their extrapolations regarding future policy actions, actions that might impact on the value of financial assets. The objective of the communication to this target group is to achieve at the same time efficiency and transparency.

Central bank communication is efficient if it enables market participants to understand the monetary policy that the central bank intends to implement. If market participants align their expectations with what the central bank intends to do, any policy change will be significantly less disruptive. Transparency means that communication is aimed at all market participants; nobody has preferential access to information so that no market distortion occurs.

Central bank communication with financial markets is based on a fixed and a variable component. The fixed component is the definition of the price stability objective – below but close to 2% inflation over the medium term – and the analytical framework that characterises the reaction function of the central bank to the changing environment so as to achieve its objective – the so-called two-pillar strategy of the ECB. The variable component of central bank communication concerns the assessment of the changing economic environment. This is the most delicate part because, as I mentioned previously, it affects market participants’ information set that is used to make extrapolations about interest rates and thus a whole series of asset prices. Such communication presents two challenges. On the one hand, it is not always easy for market participants to distinguish between central bank communication and what I would call “noise”. On the other hand, central banks have to be aware that if their communication is badly interpreted, market participants may be led to make wrong decisions, with potentially large economic losses. Ultimately, if market participants have difficulty understanding the central bank, this might undermine the credibility of the central bank itself.

As a consequence, central bank communication with financial markets should be based on two requirements. First, market participants should be able to distinguish between information and “noise”. Second, central bankers should provide markets with information, while avoiding “noise”.

How can this be achieved? I would put forward four simple principles, which should apply in general but even more so in times of financial turbulence as those we are currently experiencing:

First, central bankers should be aware that their communication can, whether they like it or not, “move the markets”.

Second, central bankers should communicate in a way that moves the markets only on rare occasions, when there is a clear case of misalignment between market prices and expected central bank action.

Third, when there is such a mis-pricing and communication is needed, it should be coordinated and occur through a single channel, coming from the institution’s top decision-making body.

Fourth, if markets are accidentally moved, it is likely that a communication mistake was made.

As a consequence of these four principles, markets should learn not to move in response to communications that are not explicitly designed to have that effect, in particular if they do not take place through the channel indicated in the third principle just mentioned. If markets do nevertheless move under these circumstances, they do it at their own risk.

It’s not always easy for market participants to distinguish between communication relevant for them and other type of communication that central banks regularly provide, for instance with a view to their domestic audiences, which might have different tones and emphasis, as I will argue shortly.

By and large, communication between the ECB and financial markets has worked fairly well. Markets have learned over time how to distinguish between relevant communication and “noise”. The main source of information is the statement made by the ECB President at the start of the monthly press conference, right after the meetings of the Governing Council. This communication provides a clear opportunity to explain the policy decision, the underlying assessment of economic conditions and the supporting framework. Empirical analysis has shown that the Press conference helps market participants to understand the message. [5]

It has occurred however at times that markets have been moved by “noise” or communication that was not intended - or should not have been intended – to move the markets. On these instances, corrective communication took place in a timely fashion to eliminate the misperception. For instance, in mid-November 2005 the President of the ECB made clear in a speech that the ECB was ready to increase interest rates two weeks later, thus aligning expectations and avoiding surprising market participants. In May 2006 market participants were expecting an acceleration of the pace of interest rate increase, based on scattered (and unqualified) rumours and “noises”. The ECB President advised market participants not to give importance to stories from anonymous sources or to individual statements, often made out of context, for their assessment of the future ECB policy stance.

Communication has been instrumental also in the midst of this summer market turnmoil, to help market participants distinguish between measures directly linked to the implementation of monetary policy and those aimed at restoring the proper functioning of the money market. In particular, the ECB indicated its intention to intervene in the money market to reduce the variability of the overnight rate as long as this is deemed necessary, including around the year-end when market participants are expecting a tightening in the demand for liquidity. This communication has contributed to reduce the tensions in the money market.

One issue which is debated by academics and market participants is whether there are limits to the amount of communication that a central bank should provide to the markets. In this context, the ECB has refused to give explicit guidance on the path of future interest rates over a horizon longer than a month. The reason is that, in our view, it is not appropriate to make firm commitments in a world of uncertainty. [6] One could of course make conditional forecasts, based on the information available at the time. Some central banks have started to do this, by announcing the future path of interest rates over a horizon of two years or more. However, the case has still to be made that this information really benefits market participants in a consistent way. Since this type of announcement is conditional on the information available at a specific moment in time, it is valid only at that precise moment and bound to change shortly after. Market participants will thus regularly ask the central bank whether the published forecast is still valid or not, and in the latter case in what direction it is moving. Under these circumstances it is not easy for a central bank to avoid such discussions. Why would it be appropriate to publish the interest rate path only three or four times a year rather than six or eight, or even monthly, or any time a policy-maker addresses an audience?

What is more important for the proper conduct of monetary policy is that market participants have a good understanding of the analytical framework used by the central bank to conduct its monetary policy. This allows market agents to make their own forecast of the interest path, based on their understanding of underlying economic conditions. If the central bank revealed its own forecast of interest rates, market participants might be less inclined to draw up their own forecast, which would then make it difficult for them to assess the future conduct of monetary policy, especially when that policy deviates from the forecast because of unexpected developments. The central bank would not be in a position to assess whether inflation expectations are appropriately anchored at a level consistent with its objective of price stability.

Communicating with political authorities
The main objective of the central bank communication with the other authorities is to ensure proper accountability, which is a prerequisite for independence, and to improve the efficiency of economic policy overall.

The communication between the ECB and the political authorities takes place within a clear framework, laid down in the Treaty. The ECB interacts with the European Parliament, through regular hearings by the ECB President and other members of the Executive Board on a whole range of issues. The European Parliament adopts, on its own initiative, a yearly resolution on the actions implemented by the ECB, in which it explicitly comments on monetary policy and other tasks of the ECB. Such a report is not required by the Treaty and is not the customary practice of most other advanced countries.

The ECB and the Eurogroup interact frequently, with the President of the ECB attending the monthly Eurogroup meetings and the President of the Eurogroup joining the meetings of the ECB Governing Council whenever he can. Discussions cover a whole range of issues, while fully respecting the independence of the institutions.

One issue which has been made clear from the start is that monetary and budgetary policies should be conducted autonomously, although taking into consideration all the information made available by the other policy maker. The coordination of monetary and economic policies, a concept often examined in the literature, in practice entails an exchange of information on the economic conditions underlying policy decisions. It is not an exchange of pre-commitments, a tit-for-tat in order to achieve a desired common objective. Indeed, the primary objective of the ECB is price stability, while other goals of economic policies, such as growth and employment, are the responsibility of the political authorities.

This interpretation applies also to central banks which formally have more than one objective, like the US Federal Reserve. Alan Greenspan, in his recent book The Age of Turbulence, writes that the Fed has never committed to any interest rate move in exchange for budgetary or other policies, much to the disappointment of some Treasury Secretaries, in particular Brady under the Bush (senior) administration. [7]

Although there is a clear framework within which the ECB and the European political bodies are expected to communicate, there are at times undesirable slippages in public. This is a peculiarity. In most other countries, the political authorities never communicate in public on issues related to monetary policy, even less on interest rates. The independence of the central bank is considered as an asset and never questioned. Again, Greenspan in his book explains why the US President, or the Treasury Secretary avoid commenting on interest rates, thus allowing the Federal Reserve to effectively deal with inflation. [8] Beyond the reasons given by Greenspan, two others deserve mentioning.

First, a cacophony of statements on the tactics and/or strategy of monetary policy coming from different institutional actors adds unnecessary “noise” to the system, to the possible detriment of monetary policy’s overall effectiveness.

Second, statements made by politicians may backfire, in the following sense. History has clearly shown that statements coming from actors other than the central bank almost invariably call for a monetary policy loosening. Under such circumstances, the risk is that the central bank may feel inclined, for reputational reasons, to follow a marginally more hawkish stance than it would otherwise do. Such a possibility was effectively expressed by former ECB President Duisenberg when he quipped that “central bankers are like cream – the more you whip them, the stiffer they get”.

Alan Greenspan describes his encounters with different Presidents who committed to respect the independence of the Fed. Robert Rubin, former Treasury Secretary, writes in his book, In An Uncertain World, how he advised President Clinton never to speak about interest rates. [9] He also recounts how, in the weekly meetings with the Fed Chairman, the two never discussed monetary policy.

The same approach is followed in most other advanced countries.

In the euro area, however, some people adopt quite a different attitude. Some politicians across the political spectrum have no inhibition about advising, commenting on or even asking the ECB outright to move in one direction or the other – mainly one direction! - as if they knew better. The independence of the ECB, and its primary objective of maintaining price stability is even questioned at times, as if the Treaty could be regularly amended.

How should central bankers respond to such remarks? Athanasios Orphanides, Governor of the Central Bank of Cyprus and, come January, a fellow member of the Governing Council of the ECB, made an exemplary comment on this matter to the Financial Times recently: “ What the founders of the ECB incorporated into its mandate is the essence of what we have learnt from monetary history in the past 100 years. The clarity of the mandate makes it easier in my view to take the correct monetary policy decisions with much greater confidence, which allows monetary policy to best contribute to the welfare of nations.” In other, less diplomatic words, I would say that over 100 years of monetary history show that when monetary policy is left in the hands of politicians the outcome for society is worse, both in terms of inflation and growth. That’s why in all advanced countries central banks are independent and have clearly stated price stability as being their overriding objective. Fortunately, this has been reaffirmed in the EU’s Reform Treaty and hopefully this discussion will come to an end, at least for some time.

But why do politicians in the euro area comment on interest and exchange rates, although they know that their chance of influencing the ECB is practically zero? Well, to develop Greenspan’s reasoning, politicians who ask the ECB to move, or not to move, naturally want to be heard primarily by their domestic audiences and to be seen as influential. Not having influence might however undermine their credibility in the eyes of their electorate. So why do they persist? There can be three explanations. I repeat: explanations, not justifications.

The first one is that, unlike financial market participants, politicians and other social partners have difficulty in understanding the forward-looking nature of monetary policy. In particular, they don’t always understand why monetary conditions have to be tightened on some occasions even if inflation has not increased. “Why are you putting up interest rates if there is no inflation?” is a question that I am often asked. Evidently, if you wait for inflation to rise, then it will be too late and very costly to bring it down. Interest rates are increased in order to prevent inflation from rising. The success of recent years in keeping inflation low in the euro area might have come at a cost: economic agents, in particular politicians, may have forgotten or underestimated what it has taken to achieve this result, including increasing interest rates when needed.

The absence of a significant financial constituency in continental Europe could be a reason why - differently from other countries like the US and the UK - politicians continue to make statements about monetary policy and interest rates without being excessively penalised.

The second possible explanation is the frustration felt by politicians, who are expected to refrain from speaking on monetary policy while the ECB and the national central banks can express their views on a whole range of issues, including budgetary and structural policies. I have to confess that I felt this frustration myself at times when I was sitting on the other side of the table, working for the Italian finance ministry. Is there a remedy to this asymmetry? As I mentioned, allowing political bodies to speak about monetary policy would only be confusing. It would create uncertainty about the institutional set-up of the Union. It is not done in other countries. Should then the ECB stop talking about fiscal and structural issues? I put this as a question. Who would benefit from this censorship?

In continental European countries, central banks are traditionally asked to express their views on their countries’ budgetary policies, sometimes even in a formal address to parliament. This is considered, by some of the political authorities themselves, in particular parliament, and the public at large, as a way to get an independent assessment. In Italy, for example, the central bank Governor has the role of “senior economic adviser” to the government and parliament. This is also the experience in the US, where the Chairman of the Federal Reserve is called by Congress to express his views on specific public finance issues. It seems to me that various groups in society are interested in asking the ECB and the national central banks for their views on budgetary and other issues. I guess therefore that European politicians have to accept this asymmetry, as other politicians around the world have done.

The third explanation is that the blame-Europe game, which includes “blame the ECB”, has been a popular one for some time. It has actually had devastating effects. First, it has undermined people’s trust in European institutions, as the rejection of the Constitution in France and the Netherlands showed. Second, it has exacerbated the relationship between the various institutions themselves. The ECB is often asked why it doesn’t publish the minutes of its meetings, as other central banks do. It is indeed true that other central banks, like the US Federal Reserve or the Bank of England, do publish the minutes of their meetings and their voting records. But these central banks live in institutional environments different from the ECB’s. As I mentioned, in these countries the political authorities do not continuously try to influence or pass judgement on monetary authorities; they, and that includes their heads of state, do not criticise the central bank, let alone individual members of the Governing Council, in public speeches, including in front of the parliament. Their parliaments do not vote on the policies of their central banks. This would be totally unheard of.

It’s a different story in the euro area. Here, the respect for the ECB’s mandate and decisions is not yet a fully established principle. Publication of the minutes of the Governing Council meetings would be premature, at this would expose the individual members to public discussions in their own countries, while their accountability is with the whole Union.

The institutional framework that Europe has given itself needs to be trusted and respected. This framework stipulates not only that the ECB is independent but also that the political institutions and bodies of the European Union and the Member States “undertake to respect the principle (of independence) and not to seek to influence the members of the decision-making bodies of the ECB” (Article 108 of the Treaty). It is the task of the political authorities to show the example and display that trust and respect.

Communicating with the public
Communicating with the public has two main objectives: Efficiency and Accountability. It is, in my view, one the most challenging tasks, for a number of reasons. The first is the language issue. Unlike other central banks, the ECB has to use 11 languages to speak to the 317 million people who live in the 13 euro area countries, each of which has different cultures and traditions. In addition to the sheer quantity of languages, there is the problem of so-called “false friends”: words that look similar in different languages may have different connotations. For instance, the word “risk” seems to be much more neutral in Anglo-Saxon languages than in Romance languages, where it tends to have a negative meaning. For example, the concept of “upside risks to growth”, which is just a statistical concept related to probability distribution, sounds like contradiction in Romance languages as it combines both a positive and negative connotation.

In the Eurosystem, the national central banks play a key role in communicating with the public. The Governors of those banks, who are members of the ECB Governing Council, pass on the common message to their national audiences and explain the policy of the ECB and how it contributes to achieving price stability.

Communicating with the public can have an impact on agents’ behaviour, thus increasing the efficiency of monetary policy. Such communication has to strike a balance between two rather incompatible objectives. On the one hand, the central bank should raise awareness of the potential inflationary risks and warn against any behaviour that could jeopardise price stability. On the other hand, it should also reassure the public that all necessary action will be taken to ensure that price stability is maintained. This requires a delicate balancing act between creating alarm about risks to inflation and being complacent. Any marked shift in one direction or the other may undermine the credibility of the central bank.

Again, the appropriate balance may differ across countries and cultures. For instance, the German public seems to have become used to being constantly warned about inflationary risks and would interpret softer language as a weakness of the central bank. [10] In other countries, however, the same words may lead to think that the central bank is somewhat “obsessed” with inflation.

Communicating in the face of unexpected price shocks, like the rising oil and food prices we are currently experiencing, is one such “tightrope act”. This kind of shock affects price levels, and thus inflation, without the central bank being able to counteract it immediately. Indeed, while an increase in the price of oil or primary agricultural commodities pushes up end-prices for consumers within a few weeks, the central bank’s weapon for fighting inflationary pressures, i.e. the interest rate, takes at least a year to have an effect on inflation. Raising interest rates today affects inflation one year from now. It has no impact on today’s inflation rate.

So what should a central bank do when faced with, say, an oil or food price shock? The answer is: it depends. If the shock is one-off and temporary, it affects only relative prices, so there is no need for a monetary policy reaction. Inflation would increase only mechanically, to account for the relative price change, and would come back to normal when the adjustment is completed. If, however, the shock triggers further reactions by wage earners and firms, who will want to pass on this increase to other costs and prices, inflation might increase on a more permanent basis. Monetary policy needs tightening in this case to bring inflation back down. This solution is less efficient and more costly in terms of foregone output and employment. The optimal solution is that economic agents consider oil and food price increases as a once-and-for-all “tax” that cannot be offset.

How can this optimal solution be achieved? Communication is key. It has to raise awareness of the inflationary problem but without causing alarm because the shock can remain temporary and be re-absorbed if agents behave properly. If the central bank’s message fails to convince agents not to engage in second-round effects, the temporary inflationary pressures may become permanent. The central bank has then no other choice than to tighten monetary policy to counteract these pressures.

Convincing agents to accept the “tax” of higher oil and food prices without compensation is not easy, and understandably so for the most vulnerable members of society who suffer most from these increases. On the other hand, the alternative of letting inflation get a grip is much worse, as inflation hurts precisely those whose incomes are less protected, and the cost of containing inflation is higher once it has become entrenched in agents’ behaviour and expectations. Experience in the euro area suggests that inflation can be kept in check, even in the face of these shocks. In the last few years, the price of oil has more than quadrupled, but the impact on inflation has been temporary. There have been no substantial second-round effects, and inflation has remained under control. This shows that Europe’s economy has become more flexible and that European households and firms have been able to distinguish between temporary and permanent cost pushes. It is important that this continues to be the case.

It must be made clear to the public that monetary policy can only affect the general price level, not relative prices. Other policies should aim to compensate for the income distribution effects of relative price changes. For instance, the constraints on agricultural production under the Common Agricultural Policy should be removed, the use of alternative sources of energy should be encouraged, and so forth.

Another issue which has been challenging for central banks’ communication with the public at large has been the discrepancy between measured and perceived inflation. This, by the way, is not only a phenomenon limited to the euro area but has been experienced in many other countries, which provides further evidence that the euro is not responsible for inflation. In recent months we have seen a new spike in inflation perceptions, reaching levels last seen in January 2004, coinciding with the increase in food prices.

Several studies have investigated the difference between inflation perceptions and measured inflation. [11] One explanation is that, in a world of uncertainty, people attribute more importance to price changes that affect goods that are more frequently purchased, so-called small-ticket items like bread, milk and other diaries, and even petrol, than those like apparel and electronics whose prices have fallen but which are purchased less frequently. The perception of higher inflation, which is often fuelled by the media, is a concern because it affects inflation expectations and increases the likelihood of second-round effects. It can also undermine the credibility of the central bank and its primary objective –to achieve price stability. It is therefore essential that citizens have a correct perception of the underlying inflationary developments.

Concluding remarks
In an uncertain world, in which people face a variety of shocks and changes in the environment, communication is not only an instrument. It is also an asset valued by the public.

Central bankers have to communicate with great care, being aware of the damage that a misunderstood message or “noise” can inflict on financial market participants, households and business. This is particularly the case in the euro area. Not so much because its economy is different or subject to different shocks. The reason is that communication is more difficult in an area with cultural, historical and linguistics differences and in a political environment that is much more complex than in other countries. The risk that Europe and the euro are blamed for any negative economic development is omnipresent. It’s a convenient scapegoat, to distract the attention of the public from internal problems.

We all, not only central bankers, but also academics, politicians, government officials, journalists, at national and European level, are responsible for explaining economic developments that are affecting the millions of citizens in our countries. Only in this way can they regain confidence both in themselves and in the institutions that govern their countries and Europe.

Thank you very much.

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[1] The views expressed reflect those of the author. I thank Luca Benati for input and Livio Stracca for helping in preparing the draft.

[2] The values of the ECB have been further elaborated since then. In the 2004 ECB Annual report - Competence, Effectiveness & Efficiency, Integrity, Team Spirit, Transparency & Accountability, Working for Europe - thus adding two values - Team Spirit and Working for Europe - that reflect the Eurosystem dimension.

[3] I have elaborated elsewhere why price stability is conducive to the maximisation of citizens’ economic welfare; see L. Bini Smaghi, “With or without prejudice to price stability?”, speech at the Barclays annual conference, London, 24 May 2007.

[4] The issue has been widely examined in the literature. See in particular A. Blinder and others, (2001) “How do Central Banks Talk?”, ICMB/CEPR Geneva Report on International Economy. For a more recent analysis of both conceptual and practical aspects of central banks’ communication, see for example Geerats, P. (2006), ‘Transparency of Monetary Policy: Theory and Practice’, CESifo Economic Studies, Vol. 52.

[5] See in particular Fratzscher, M., and Ehrmann, M. (2007), ‘Explaining monetary policy in press conferences’, ECB Working paper N. 767, June 2007. They conclude that ‘[…] ECB press conferences provide substantial additional information to financial markets beyond that contained in the monetary policy decisions […]. Press conferences indeed have on average had larger effects on financial markets than even the corresponding policy decisions, and with lower effects on volatility. Moreover, the Q&A part of the press conference fulfils a clarification role about the economic outlook, in particular during periods of large macroeconomic uncertainty.’

[6] I discussed this issue in depth in a speech entitled “Three Questions on Monetary Tightening” at the Nomura conference, 26-27 October 2006.

[7] A. Greenspan (2007): The Age of Turbulence: Adventures in a New World, Penguin Press, in particular pages 118-120.

[8] See Greenspan, cit., page 491.

[9] R. Rubin and J. Weisberg (2003): In An Uncertain World, Texere Publishing.

[10] T. Padoa Schioppa, The Euro and its Central Bank, MIT Press, Cambridge, 2004, p.94.

[11] See ECB Monthly Bulletin (May 2007) article: “Measured inflation and inflation perceptions in the euro area” for a summary of the main results.

European Central Bank
Directorate Communications
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.europa.eu
Reproduction is permitted provided that the source is acknowledged.



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