Cases in point, to name a few, are the defence of competition and the regulation of specific industries, such as energy and telecommunications (under the responsibility of the National Markets and Competition Commission – CNMC – in Spain), the auditing of public sector accounts and economic management (carried out by the Spanish Court of Auditors) and, a more recent development, effective compliance by the general government sector with the principle of budgetary stability (the preserve of the Independent Authority for Fiscal Responsibility, AIRef). As I stated, the ultimate aim of assigning these functions to independent agencies is to obtain an institutional design that ensures a greater level of collective well-being. In this respect, allow me to begin by recalling the main reason why the control of inflation was assigned to independent monetary authorities in a large number of economies. The argument is what the economic literature calls “time inconsistency”, which highlights the role of expectations in agents’ behaviour. I believe price stability unquestionably enhances economic growth and improves well-being in the long run. However, if the monetary authority is not independent and, having regard to other more short-term goals, uses monetary policy to stimulate demand repeatedly and above what would be consistent with its inflation objective, an inflationary bias is generated. In the short run higher levels of economic activity and employment can be attained, but the costs emerge later. The inflationary bias is ultimately anticipated and incorporated into agents’ expectations and, therefore, into price-setting and wage bargaining.

Whilst in Switzerland disturbances affecting, in particular, the demand for central bank money “for reasons still unknown” have increased in recent years, the ECB faces additional uncertainties at the beginning of Monetary Union in terms of the effects of the shift of regime to a single monetary policy in Europe. It is difficult to assess whether conventional and reliable macroeconomic relationships are changing as a result of the introduction of the euro. In view of these uncertainties, but also in general, it is unwise to rely on a few indicators or only one when making monetary policy decisions. Indeed, to date our studies have  BIS Review 99/1999  2  revealed that the M3 monetary aggregate shows clear signs of stability and healthy indicator properties. This provides a sound basis for the prominent role given to the M3 monetary aggregate. Monetary policy instruments and the operational framework of the Eurosystem The operational framework of the Eurosystem has proved to be an effective instrument for steering money market interest rates and for limiting fluctuations. The Eurosystem controls money market interest rates by means of either the provision or withdrawal of liquidity in the banking system. Open market operations play an important role in the context of monetary policy strategy. The weekly main refinancing operations give an indication of the Eurosystem’s monetary policy and provide the largest share of liquidity. Longer-term refinancing operations provide the banking system with longer-term liquidity (three months).