estonia, latvia, lithuania, slovakia, slovenia, bulgaria, czech republic, croatia, hungary, poland, romania 4 excluding turkey 5 owing in part to historical events that have delayed countries ’ transition to a market economy. 6 jan in ‘ t veld ( 2019 ), “ quantifying the economic effects of the single market in a structural macromodel ”, discussion paper 94, directorate - general for economic and financial affairs, european commission 7 blind, k., mangelsdorf, a., niebel, c. and ramel, f. ( 2018 ), “ standards in the global value chains of the european single market ”, review of international political economy, 25 ( 1 ), pp. 28 – 48. 8 average ratio of intermediate goods exports to gdp in the eu. 3 / 4 bis central bankers'speeches 9 schmitz, m., fidora, m. and gunnella, v. ( 2017 ), “ the impact of global value chains on the macroeconomic analysis of the euro area ”, economic bulletin, issue 8, ecb. 10 ecb research finds that joining the eu increases inward fdi flows from other eu countries by close to 44 %. see carril - caccia, f. and pavlova, e. ( 2018 ), “ foreign direct investment and its drivers : a global and eu perspective ”, economic bulletin, issue 4, ecb. 11 as measured by the world bank worldwide governance indicators ( wg ). the wgi delivery index is a simple average of the regulatory quality, government effectiveness, control of corruption and rule of law sub - indicators. 12 by eliminating the costs of foreign exchange payments and settlements and hedging exchange rate risk. 13 see draghi, m. ( 2018 ), “ europe and the euro 20 years on ”, speech at university of sant ’ anna, pisa, 15 december 2018 14 intra - eu manufacturing trade rose from 28 % of eu gdp in 1995 to 44 % in2018. 15 see chiacchio, f., k. gradeva and p. lopez - garcia ( 2018 ), “ the post - crisis tfp growth slowdown in cee countries : exploring the role of global value chains ”, working paper series, no 2143, ecb. 16 see wto ( 2018 ), “ report on g20 trade measures ”, 22 november 2018 17 schmitz et al. ( 2017 ), op. cit

aggressively later, ultimately leading to a much higher rate. implicit in this argument is that inflation would be higher than if we had acted pre - emptively. on the other hand, critics of our recent rate increase argue that by moving pre - emptively we will be starting from a higher repo - rate level when the fed action begins, which will affect short - term growth. to some extent, we have tried to chart a middle road between these two views. our primary mandate is to maintain price stability in the interest of balanced and sustainable economic growth. this implies assessing the impact of our policies on inflation, output, and employment under current conditions. for this reason, our monetary policy tightening cycle has been moderate, and this approach remains our base case – although it is, of course, highly datadependent. we have not observed a knee - jerk reaction to every adverse move in inflation, particularly among pressures driven by supply - side shocks. but at the same time, completely ignoring the risk of second - round effects could entrench inflation expectations at higher levels and could require stronger action later, with consequences for output. monetary policy and inflation expectations the issue of inflation expectations has cropped up a number of times this morning. inflation expectations are potentially an important determinant of actual inflation outcomes : to the extent that price - setters set prices on a forward - looking basis, they will have some notion in their minds as to what future inflation is likely to be. similarly, wage negotiations generally revolve around expected inflation outcomes. in fact, an objective of an inflation - targeting framework is to anchor longer - term inflation expectations within the target range, and this will not only help to maintain inflation within the target, but will also make expectations resilient to temporary shocks to the inflation outlook. this requires monetary policy credibility, which means not only transparency and clear communication, but also demonstrated commitment to act appropriately to keep inflation under control. all this seems relatively straightforward. however, there are a number of complicated issues and questions which make the interpretation of measured or implied inflation expectations extremely difficult, particularly for policy purposes. first, in reality, it does not necessarily follow that inflation expectations are always correct or that they will be self - fulfilling. related to this : what do we do when inflation expectations diverge from our own forecasts, which already have inflation expectations incorporated into them? this relates to a second issue : whose expectations should we give most weight to, particularly when there is