has its effects, which is approximately 18 – 24 months. making projections is always difficult, but especially so in a period of economic recovery after a crisis like the one we have just passed through. these estimates are based on economic models that were mainly drawn up with pre - crisis data, so it is unclear if the parameters and correlations are still valid. i ’ ll try to give some examples, without going into detail. an initial element of uncertainty is the productive potential, both in terms of level and growth. can it be assumed that a crisis like the one we have been through had no effects on the potential level of economic activity and the growth rate? the implications for monetary policy are very different depending on the answer given to this question. the economic policy mistakes that risk being made if a wrong answer is given also differ. bis central bankers ’ speeches for example, if it is considered that the crisis has had a limited effect on both the level and potential growth rate of the economy, the output gap will be estimated to be very large and the risks of deflation may be considerable. this hypothesis justifies a very expansive monetary policy and fiscal policy, in order to fill the output gap as quickly as possible, with few risks that could have inflationary effects. in other words, the wider the estimated gap, the more reason for keeping the interest rate at very low levels, even close to zero, for an extended period of time, until the economic system returns to levels close to full employment. if the crisis had the effect of reducing economic potential in terms of level and growth, the accumulated gap is less than when compared with the previous case and will tend to fill up more quickly. in this case, if monetary policy remains accommodative for too long and does not adjust in advance, it risks being late and not countering inflationary pressures in time. if this delay materialises, the central bank then has to raise interest rates to a greater extent, with potentially recessionary effects. an overestimation of the potential growth rate of the economy also affects the ability of the central bank to properly calibrate the setting of its policy. in principle, as the economy gradually starts to grow above potential, and closes the output gap, the monetary stance should be gradually adjusted through a progressive increase in the interest rate, taking into account the lags with which monetary policy affects inflation and growth. otherwise, with the same interest rate, an increase in the rate of growth in economic

of the preparation for the governing council meeting, it became clear that the magnitudes of this distortion were both significant and higher than previously expected. as regards holdings of money market fund units / shares by non - euro residents the distortion has become greater in recent months and currently amounts to around 0. 5 percentage points in the annual growth rate of m3. there have also been non - negligible distortions to the annual rate of growth of m3 as a result of non - euro area residents ’ holdings of other marketable paper included in m3. precise statistical information on this is still being developed. nevertheless, preliminary evidence indicates that this distortion may have been similar in size to that related to non - resident holdings of money market fund units / shares. given the magnitude of these distortions it was clear that such information needed to be placed in the public domain without delay. however, this created a dilemma – whether to release such information and consider the policy implications immediately or to give financial markets time to ‘ digest ’ the information before reappraising policy. if the information had been released first then the ecb may not have surprised the markets with a subsequent policy move. however, imagine the press conference following the governing council meeting when the revised m3 data were released. you can be sure that one of the first questions to the president would have been : ‘ against the background of this new and important information – why did you not act today? was it impossible to reach a consensus?... etc, etc ’. market participants may – quite reasonably – have wondered why the ecb had not reacted to this new information. they may even have drawn erroneous conclusions as to the relative importance of the first pillar in the ecb ’ s monetary strategy. there would have been weeks of uncertainty and speculation about the likelihood of a policy easing and how large such an easing might turn out to be. another risk from delaying would have been the possible re - emergence of underbidding. to conclude, i would argue that it is not always possible or desirable for a monetary authority to satisfy the expectations of financial markets. nevertheless, the evidence from the financial markets indicates that ecb monetary policy has always been credible and also – for the most part – has been well anticipated by the markets. there is also some evidence that volatility in financial markets at the time of interest rate decisions has been declining over time. the ecb has, on occasions, been forced to surprise markets with policy decisions. however ‘ surprise