all, short - run monetary developments are often affected by transitory shocks. we need to identify and account for such temporary “ special factors ” or “ distortions ” that may affect monetary developments and blur their information content. second, and more permanently, it is necessary to disentangle, in monetary and credit developments, those which reflect structural and permanent changes from those which simply result from movements in the level of interest rates and the position in the economic cycle. finally, we must be able to assess whether these developments result from money supply shocks, in which case they clearly entail some risks to price stability, or whether they are caused by money demand shocks that may raise the desired level of money balances without necessarily impacting aggregate demand. such demand shocks can be triggered by structural changes in the behaviour of economic agents or result from portfolio shifts or financial innovations in the context of financial globalisation. there are indeed some signs that a money demand shock occurred at the beginning of the 2000s in the euro area, as illustrated by a structural shift in the trend velocity of money, which summarises the relationship between money, output and the price level. 5 one possible consequence of current events in credit markets may be to trigger a re - intermediation process, i. e. an expansion of banks'balance sheets which may further complicate our reading and interpretation of monetary and credit dynamics in the months to come. conclusion there is no doubt that globalisation has impacted in various and non - trivial ways the functioning of our economies. in doing so, it has blurred the information content of many important variables or indicators relevant for the monetary policy maker, making monetary policy probably more complex in a context of increased uncertainty. economic theory usually distinguishes between parameter and model uncertainty. in the presence of parameter uncertainty, i. e. when the policy maker is uncertain about the impact a policy instrument has on the economy, economic theory suggests that it is optimal to respond more cautiously than would be the case in the absence of uncertainty ( this is the well - known brainard conservative principle ). by contrast, model uncertainty would require more active monetary policy, the idea being to insure oneself against particularly bad outcomes. i will leave it to your wisdom to guess in the present circumstances which of these two approaches would be preferable. thank you for your attention. bordes, c., clerc l. and marimoutou v. ( 2007 ) : “ is there a break in equilibrium velocity in the euro

##bles in an open economy. but the overall level and dynamics of prices ultimately remain determined by the monetary authorities provided they ensure that steady growth in overall nominal demand is maintained through an appropriate monetary policy. 1 in addition, it is possible that the effects of globalisation on inflation will be reversed in the future. strong growth in big emerging economies is increasingly putting pressures on the price of oil, food and other commodities. while labour supply in these countries will remain abundant, it is not all that clear whether it will remain cheap. indeed, we are currently seeing speech by charles bean, “ globalisation and inflation ”, to the lse economic society, 24 october 2006. an increase in export prices in emerging countries, which translates into higher import prices for developed economies. this inflationary impact seems to have grown over the past few years, while, by contrast, the disinflationary impact of globalisation seems to have slowed down. going further, some analysts have suggested that, because of capital market integration, real interest rates will equalize around the world, thus reducing the ability of national central banks to control inflation. however, this need not be true. indeed, the classic mundellfleming analysis concludes that monetary policy should be more effective, rather than less, in the case of international capital mobility, although it can operate through different channels of transmission including the exchange rate. but inflation is more than the direct result of macroeconomic shocks. it is a process in which business cycles as well as expectations play an important role. has this process changed? a change in the output – inflation trade - off? inflation dynamics have changed over the past fifteen years or so. inflation persistence has declined, or, in other words, upward changes in the path of prices have become more temporary and easily reversed. also, inflation itself has become less responsive to shocks. both are very welcome developments for monetary policy. maybe the most documented and commented - upon change in inflation dynamics has been the so - called flattening of the phillips curve. this, in economists'jargon, means that domestic inflation has become less sensitive to the domestic output - gap ; or, alternatively, that it has become more stable during the business cycle. there are several possible – and not mutually exclusive – explanations for this phenomenon. it may well be that expectations of future inflation have become a more important determinant of current inflation at the expense of the current output gap, which would signal that monetary policies have become more effective in