action in implementing the appropriate monetary policy and in refinancing commercial banks. on the other hand, we need to communicate clearly the adherence of the central bank to the long - term objectives of policy and the way it intends to steer the policy course back to a normal path once the abnormal circumstances and risks have subsided. communication in difficult times is inherently challenging for all central banks. however, it is facilitated by two fundamental components of the ecb ’ s monetary policy strategy. the first is the quantification of a price stability objective. this grants a very significant level of predictability. the monetary policy easing that we enacted in the last two months – on a scale that is unprecedented in such a short period of time – was motivated by a sharp easing of inflation pressures looking into the future. the fact that markets could predict our moves with a fair degree of precision – despite the exceptional cloud of uncertainty that surrounds economic projections in present conditions – is a proof that our main mode of see, for example, alesina, a. and l. summers ( 1993 ),'central bank independence and macroeconomic performance : some comparative evidence ', journal of money, credit and banking, vol. 25, no. 2, may. benati, l. ( 2008 ), “ investigating inflation persistence across monetary regimes ”, quarterly journal of economics, 123 : 3, august 2008, 1005 - 1060. for instance, estimates of the inflation persistence in the euro area fell by around two - thirds from the period before ( until the bretton woods arrangement ) and after the launch of emu. communication, via disclosure of the economic outlook as we perceive it, is effective and robust to extreme occurrences. the second component of the strategy which helps in times when expectations become disoriented is what we have called the “ separation principle ”. in view of safeguarding its credibility and firmly anchoring long - term inflation expectations, it is crucial that the governing council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term. once the appropriate level of the key interest rates has been set, the executive board of the ecb implements its monetary policy stance so that the effects of its interest rate decisions are transmitted to the financial markets and the real economy effectively. in this sense, the ecb had to act swiftly and decisively to avoid that tensions in the money market would spill - over to other markets and adversely affect the real economy

jean - claude trichet : the ecb ’ s monetary policy strategy after the evaluation and clarification of may 2003 speech by mr jean - claude trichet, president of the european central bank, delivered at the center for financial studies ’ key event, frankfurt am main, 20 november 2003. * * * it is a pleasure to address such a distinguished audience. i am particularly happy to be able to devote one of my first public speeches as president of the ecb to a topic of fundamental importance for the ecb : its monetary policy strategy. as you know, this is a topic which the governing council of the ecb discussed at great length in the first half of 2003, when we conducted an evaluation of our experience with the strategy. this review resulted in the confirmation of our strategy on 8 may 2003. on the same day we also introduced some clarifications which have already proved very useful, particularly in terms of presenting and communicating to the public the more complex aspects of our monetary policy strategy. my aim here today is not so much to explain the meaning and details of the recent clarification, but rather to provide you with a description of the main features of the strategy. i will also address some important differences between our concept and alternative strategies, and i will explain why i consider the ecb ’ s strategy to be perfectly suited to the monetary policy of the euro area. i will then say a few words about the importance of sound public finances and structural reforms, particularly at such a critical point in time. 1. the ecb ’ s monetary policy strategy in a historic perspective in the initial stages of economic and monetary union ( emu ) in the early 1990s, many observers doubted that the single currency would ever see the light of day. then, when they realised that it would come, they speculated that only a few countries would be able to join. once it became clear that most eu countries were in a position to adopt the euro, some experts argued that the quality of the euro as a new currency would converge only towards a sort of an arithmetic average of the legacy currencies, rather than to the benchmark set by the stronger ones. it is now clear that such bouts of scepticism were much overdone. yet it was understandable that a substantial number of observers were initially cautious with regard to the euro ’ s chances of success. after all, monetary integration in europe was in itself an extraordinary innovation, which was surrounded by a large number of