eased urgently. the most important point i want to make to those who run these arguments is that, just because other central banks have eased monetary policy substantially, the reserve bank of new zealand is not necessarily remiss in taking a somewhat different course. why? simply because every national economy is unique. monetary policy is not a race, with every central bank trying to get to the finishing line first. it is about adjusting interest rates to influence demand within a specific economy to ensure price stability in that economy. what is right for one country might well be entirely wrong for another. so while of course it is important that we in new zealand are aware of what other central banks are doing – because their actions may say something about their economies which could be relevant to inflationary pressures within new zealand – matching the decisions of other central banks point for point will often make no sense at all. should we in new zealand have been easing monetary policy more quickly than we have been doing? or in other words, will the slow - down in the world economy reduce inflationary pressures in new zealand so much that some time in the next year or so inflation will fall towards the bottom of the agreed 0 to 3 per cent target band? still plenty of risks in the world economy it is certainly possible to imagine some very pessimistic scenarios which would warrant a major further easing of interest rates in new zealand, or indeed make us wish that we had eased more quickly over the last few months. in june 1999, i was one of three central bank governors who gave speeches in answer to the question " is deflation a risk? " at a seminar held in conjunction with the annual meeting of the bank for international settlements in basel, switzerland. my task was to sketch out a situation in which the world economy found itself in a situation of generalised deflation. i found it disturbingly easy to do. two years later, there are still considerable risks. while the high - tech parts of the us equity market have fallen from stratospheric levels to more moderate levels over the last year, the market capitalisation of the stocks in the s & p 500 index, which reached a peak of 132 per cent of us gdp in march 2000, remains at around 110 per cent of us gdp, compared with an average for that ratio of just 50 per cent over the last 75 years. or to put the matter differently, the us share - market appreciated between 1982 and the year 2000 at a rate five times faster than

will do what is necessary to guarantee price stability. this contributes to anchoring inflation expectations at levels consistent with price stability. 2. 2. 4 communication and the introductory statement the introductory statement of the eurosystem published shortly after the policy decision is announced provides the policy relevant information in a structured manner to the public in real time. it is the governing council ’ s main instrument of context - specific communication. the wording of the statement is agreed upon in the foregoing meeting, and thus it presents the consensual assessment of the governing council. it portrays the council ’ s deliberations through the lenses of the two pillar strategy. and it puts into perspective the linkages between data, decisions and stated medium - term policy objectives. the time lags in the transmission of monetary policy and the medium - term orientation of the eurosystem require describing how present and future information that comes in is processed. in this respect, we offer guidance about what academics would call the reaction function of the governing council. the introductory statement specifies the way we react to economic and monetary developments, analyse and judge shocks hitting the euro area, and view the outlook for economic growth and inflation as well as the associated risks over different time horizons. in doing so we constantly emphasise the forward - looking nature of our policy framework and the medium - term orientation with regard to our price stability objective. the first part of the statement entails our combined broad assessment of the information from both pillars. in the subsequent parts economic and monetary analysis is presented in greater detail and cross - checked with one another. i will only make some remarks on the latter sections. our assessment keeps economic and monetary analysis distinct because from an empirical perspective the information content of both pillars relates to different time horizons regarding the risks to price stability. having both, monetary and economic analysis instead of just cyclical information, one avoids the mistake of taking a too narrow view of the data. our broad - based and robust strategy thus prevents us from ignoring potentially relevant information. let me put these general remarks into a more specific context by referring to the statement we published today. as the president of the ecb announced today we decided to increase the key ecb interest rate by 25bp to 4 %. this decision was based on our assessment of the risks to price stability which we have identified from our economic and monetary analysis. our economic analysis suggests the following : regarding growth, incoming information clearly confirms that the euro area economy continues to expand at a pace significantly