cpix because of its demonstrated superiority on both empirical and theoretical grounds. its advantage was confirmed by additional research when our inflation targets were renewed again in 2006, and it has recently been retested as part of a more comprehensive international study looking at a range of measures of total and core inflation. clearly, this process of refinement and retesting never ends. this is because it is crucial that we be able to determine the most effective indicators of underlying inflation and how these might be further refined and improved upon over time. so the next question becomes : how can we distinguish between good and bad measures? an effective core measure must have four key properties. first, and most obviously, a core measure should be less volatile than total inflation. second, it must be unbiased. by this we mean that the core inflation measure must track long - run movements in the total cpi very closely. third, a good core measure must also be a reliable predictor of future trend movements in the total cpi. fourth, a good core measure must be easy to understand and to explain to the public. when all four requirements are considered together, cpix has been shown to be as good as, or better than, all of the alternative measures that the bank might use. other measures may outperform cpix when they are judged on just one or two of these four criteria. cpiw, for example, which is calculated using the reweighting method, can give slightly better predictions of the total cpi and bears a somewhat tighter relationship to the long - run trends in the total cpi. these differences are very minor, however, and are offset by other considerations such as ease of understanding. for this reason, cpix is still the bank's preferred core measure. nevertheless, given the demonstrated strengths of cpiw and one or two other trend measures, the bank continues to monitor a set of indicators rather than relying on any single one. popular misconceptions about core inflation our choice of cpix as an operational guide for monetary policy has, at times, been a source of controversy and has led to several popular misconceptions. journalists and other interested observers frequently question the use of cpix and other measures of trend inflation as operational guides. they argue that such measures give an overly sanguine picture of true inflation, especially during episodes of sharply rising food and energy prices. critics say that cpix inflation is frequently lower than total cpi inflation because, they claim, the bank has stripped

bankers ’ speeches kurt biedenkopf : “ new debt is tantamount to issuing bills of exchange which my grandchildren will pay off. ” however, many tend to agree more with groucho marx, who is reputed to have asked himself, “ why should i care about posterity? what has posterity ever done for me? ” 1. 3. reform of federal financial relationships sound finances are important not only for central government but also for state governments. the debt brake will enter into force for the federal states, too, in 2020. the rules for the state government revenue - sharing scheme will also expire at the same time – at least if the motion by hesse and bavaria before the federal constitutional court is struck down. follow - up provisions will have to be adopted pursuant to the basic law. the discussion about reforming the states ’ financial relationships is very complex. it should therefore begin early, especially in order to achieve genuine structural improvement and not to get stuck at questions purely relating to distribution, which are at the forefront of short - term reforms. what is important is the creation of better incentives to increase regional taxgenerating capacity, in terms of transferring less from additional tax receipts. 1. 4. equal taxation of debt and equity capital targeted public investment in education and infrastructure can strengthen the forces of growth. in the area of private investment, the government ’ s most important job is to set suitable framework conditions that minimise distortion. here, too, there is room for improvement. on the topic of corporate taxation, the focus is mostly on tax avoidance and the use of accounting options by multinational groups. i do believe this to be an important point. and it is clear that economic returns on entrepreneurial activity should be properly taxed. international cooperation is of central importance in order to avoid undesired evasion and distorting accounting options. however, i do wish to bring to mind another aspect which has been on the agenda for quite a long time – in both academia and the policymaking world – for which a solution has not yet been found : differences in the taxation of investment depending on the type of funding and legal form. this runs counter to the fundamental principle of like taxation of like economic quantities. entrepreneurial decisions should be oriented to economic criteria irrespective of the enterprise ’ s legal form and funding. therefore, we need to work more on limiting the current tax treatment favouring debt financing over equity financing and thus, at the same time, encourage enterprises to