Within the framework of the Treaty establishing the European Community (EC Treaty), the Governing Council shall be held accountable for the maintenance of price stability in accordance with its published definition. The Governing Council is neither responsible for the content of these projections, nor should its performance be judged against them. While macroeconomic projections are a useful instrument for undertaking the forward-looking assessment on which monetary policy decisions are based, the limitations I have outlined imply that such projections cannot be the only tool used by the Governing Council. The Governing Council should no more assume responsibility for the staff macroeconomic projections than it does for the content of other analyses that constitute inputs into its policy decisions, such as the monetary analysis under the first pillar or the evaluation of developments in individual indicator variables or financial prices and yields. Assuming responsibility for one input into its decisions would detract from the Governing Council’s true responsibilities, first for monetary policy decisions and ultimately for the maintenance of price stability. Given the Governing Council’s overriding commitment to the maintenance of price stability, the only forecast for which it could take responsibility would be one that was consistent with price stability. BIS Review 109/2000  4  Such a forecast - which, by its nature, would not change over time - would not, in itself, be very informative about the Governing Council’s assessment of the prevailing economic situation.

The Governing Council’s own guidepost for the future was published at the outset in the form of its quantitative definition of the ECB’s primary objective. This definition serves a different purpose, namely to anchor inflation expectations. Against this background, the published macroeconomic projections should not, under any circumstances, be seen as calling into question the commitment of the Governing Council to maintaining price stability over the medium term. The public, wage and price-setters, and all firms and households should continue to rely on the ECB’s quantitative definition of price stability as the “best prediction” of medium-term price developments, since the Governing Council is committed to changing monetary policy whenever this is necessary to maintain price stability. The publication of staff macroeconomic projections thus informs the public about an important input into the Governing Council’s decision process, which has already been used in the past. The publication of projections has to be considered in the context of the ECB’s monetary policy strategy. Publication thus changes neither the ECB’s monetary policy strategy nor the role of these projections within it. I am convinced that publication of these staff projections can help to improve the ECB’s presentation and explanation of monetary policy decisions. However, if this is to be the case, the public - and the European Parliament and your Committee - must recognise the limitations of forecasts and projections that I have just described, and the implications these limitations have for the role of staff projections in the ECB’s strategy. 3.