This has resulted in somewhat modified market dynamics and less efficient price determination mechanisms. In order to safeguard the smooth functioning of the markets, the diversity of participants’ behaviours must be protected or even reinforced. This necessary diversity should logically reflect natural differences in time horizons, strategies and reaction functions of market players. On this point, I would like to explore three possible avenues for future action for both authorities and the industry. First avenue: Strengthen the continuing efforts aiming at market transparency •  Experience shows that uncertainty and incomplete information are determining factors in mimetic behaviour. These shortfalls in market transparency make mimetic behaviour seem rational to agents, who prefer to follow bigger participants, who are thought to be better informed, rather than develop their own analysis. Strengthening transparency therefore continues to be a priority. •  One of the objectives of transparency is to enable better differentiation of borrower creditworthiness. A key feature of mimetic behaviour is that all borrowers are "tarred with the same brush". So when one emerging economy encounters difficulties, all neighbouring countries are treated in the same way – regardless of their actual economic and financial situation. The same applies to businesses operating in the same economic sector. Transparency as substantially improved since the Asian crisis thanks to a solid global consensus. Let us continue and reinforce these efforts. Second possible avenue: Taking into account the medium and long-term perspective of some market participants.

Possible policy implications of such developments from a monetary and a financial stability perspective  All the factors I have just mentioned require authorities to consider – in conjunction with the financial industry – ways of preserving monetary and financial stability in this changing environment. A. A stability-oriented monetary policy is a fundamental prerequisite for the smooth functioning of financial cycles. Financial deregulation has radically changed the conduct of monetary policies. More open economies and greater interdependence between financial systems have completely overhauled the context in which monetary policy is implemented. •  Financial markets can now penalise inflationary monetary policies by withdrawing capital, with a subsequent rise in long-term interest rates and/or depreciation of the exchange rate. •  At the same time, monetary policy transmission mechanisms have become more diversified and complex. This situation has prompted the authorities to separate the different instruments for implementing economic policy. In this context, monetary policy has been clearly been assigned the objective of maintaining price stability. Today, monetary policies are conducted within a framework characterised by three features: •  Firstly, reducing inflation expectations depends on compliance with a number of rules that have been clearly defined in advance. Consequently, this policy can only be effective if the authority responsible for defining and implementing it is credible. The conjunction of a clear, overriding objective of price stability (which has been explicitly laid down in the statute of the ECB), with well-established institutional independence ensures the continuity of the monetary policy decisions made by the authorities.