- lived interruptions in our information infrastructure. in early 1996, a major winter storm paralyzed large portions of the country. commerce ground to a halt for up to a week in some areas but activity bounced back rapidly once the roads were cleared again. although individual firms and households were adversely affected by these disruptions, in the aggregate, the economy quickly recovered most of the output lost due to the storm. in this instance, the shock to our physical infrastructure was transitory in nature, and, critically, the recovery process was under way before any adverse “ feedback ” effects were produced. last year ’ s strike by workers at the united parcel service is a second example. ups is a major player in the package delivery industry in this country, and the strike disrupted the shipping patterns of many businesses. some sales were lost, but in most instances alternative shipping services were found for high - priority packages. some businesses were hurt by the strike, but its effect on economic activity was small in the aggregate. obviously an important element in any forecast for the year 2000 is the degree to which the failure of the computer system at one institution causes ripple effects on the systems of others. if the disruptions that occur are not isolated events, as i have assumed, but spread across key sectors of the economy by interacting with each other, then an outright decline in real gdp in the first quarter of 2000 could be a plausible outcome. the more dire of the y2k scenarios would involve, among other things, a perpetuation and intensification of these feedback effects. in such an event, production disruptions could turn out to be a national or international phenomenon and could spread from one industry to another. under these circumstances, the decline in economic activity would prove to be longer lasting, and a recession - typically defined as a decline in real gross domestic product in two consecutive quarters - could ensue. but let me quickly stress that i do not think this recession scenario has a very high probability. it is possible, but a lot of things have to go wrong for it to occur, and much is being done to prevent its occurrence. what can monetary policy do about the millenium bug? what can monetary policy do to offset any y2k disruptions? the truthful answer is “ not much ”. just as we were not able to plow the streets in 1996 or deliver packages in 1997, the central bank will be unable to reprogram the nation ’ s computers for the year 2000.

of major determinants of inflation – fully recognized by the governing council of the ecb. that is the reason why we rely upon a binocular vision of the factors of inflation, i. e. as a monetary phenomenon according to pillar 1 and as the result of short - term to medium - term developments of inflation according to pillar 2. this framework is also well suited to addressing the asset price bubble issue. in this context, the first pillar is very helpful for analysing how ample liquidity is within the euro area, that is to say how much the broad monetary aggregate ( m3 ) deviates from its reference value, and how economic agents make use of this liquidity : credit and loan developments are carefully monitored, in line with economical and financial developments. portfolio shifts are also an important part of the monetary analysis. too rapid a credit expansion to the private sectors associated with large portfolios shifts towards equities and a strong rise in stock or asset prices would, under normal economic conditions, signal the risk of a bubble formation. the second pillar consists of a wide range of economic and financial indicators : stock and bond prices, housing prices, exchange rates are also analysed in depth. obviously, their assessment is made in the context of maintaining price stability over the medium term, and the ecb does not react to their signals unless price stability is endangered. to recap, if monetary policy does not react directly to asset price developments or to an asset price bubble, it has clearly to take under consideration all the consequences of these developments on aggregate demand and aggregate supply, on economic agents ’ confidence and expectations, since they may at some point affect price developments. let me now turn to my second point, that is the implications of asset prices bubbles for financial stability. 2. implications for financial stability over the last decade, we have experienced several financial crises and contagion episodes : just to name a few episodes, the mexican crisis in 1994 - 1995, the russian - ltcm in 1998, the “ tech - bubble ” that ended in 2000, or more recently the financial crises in argentina and turkey. however, recent j. m guttentag and r. j herring ( 1986 ), “ disaster myopia in international banking ”, essays in international finance, 164, princeton university. research has shown that, if the frequency of financial crisis is not significantly different from what was observed in previous periods over the long run ( 1883 - 1998 ), recent episodes were certainly shorter