, they might, for example, simply speak of upside risks to inflation towards the end of the forecast horizon, whereas the bank of england might publish that the skewness of its inflation density forecast equals 0. 1 in the third quarter of 2010, implying that there is a slight upward risk in that quarter. 3. 3 how to convey uncertainty and risk? given the uncertainties and risk associated with macroeconomic forecasts, the question arises of how these facts should be conveyed to the public. one possible approach could be to communicate both elements in a purely qualitative ( verbal ) way without any specific quantitative piece of information. however, many forecasting institutions apply a method which also includes some additional numerical information or which, in addition, translates this information into charts. the bank of england, for instance, has been publishing its well - known fan charts for more than 12 years now. these skewed fan charts reflect both the degree of uncertainty and the perceived risk to the forecast and, being in the form of a graph, they are quite intuitive. the eurosystem, by contrast, does not use fan charts as part of its quarterly macroeconomic staff projections, which include projections for inflation and the growth of real gdp. rather, the governing council has decided to communicate the inherent uncertainty of forecasts by publishing the projections in the form of ranges, whose width is twice the average value of the absolute forecast error. with respect to the issue of risk, some observers make the criticism that the eurosystem approach is not as advanced as that of the bank of england, for example, because how the projections are conveyed to the public does not adequately communicate the balance of risk to the projected outcome. in particular, the criticism has sometimes been made that the eurosystem does not make use of skewed fan charts as the bank of england does. in this connection, i would like to stress that, although the eurosystem does not explicitly use fan charts, the way in which the governing council communicates the balance of risks with respect to the staff projection has, in my view, the same information content, at least qualitatively. at first sight, when looking at the ranges of the eurosystem ’ s staff projections, there seems to be no indication whether risks to the outlook are symmetrically or asymmetrically distributed – in other words, whether risks are balanced or skewed to the upside or downside. therefore, many observers simply take the mid -

axel a weber : monetary policy in the eurosystem speech by professor axel a weber, president of the deutsche bundesbank, as part of the ken dixon public lecture series, university of york, york, uk, 10 june 2008. * * * introduction ladies and gentlemen it is a pleasure for me being invited to deliver a speech as part of the ken dixon public lecture series. some of you probably know that i worked as a professor of economics at various german universities before i became president of the bundesbank. as a professor, i used to dig rather deeply into economic issues related to both international economics and monetary policy and shared the insights i gained with my students in lectures and seminars. as a policymaker, however, my public speeches now often focus on the outlook for current monetary policy in the eurosystem. thus, as a side effect of my change of direction from being an academic to becoming a policymaker, the subject matter delivered in my public appearances has narrowed somewhat to mid - term inflation and economic outlooks. given that i still like to talk about more fundamental issues in my speeches from time to time, i welcome occasions such as this lecture in which i can shed greater light on a more basic feature of monetary policy. over the next 45 minutes or so, i shall mainly be elaborating on the nature and role of macroeconomic projections in monetary policy. in this context, i shall draw on the experiences of the bank of england and of the eurosystem and will also provide you with some details of the projections which the bundesbank now publishes semi - annually. since the design of monetary policy, the underlying strategy and its various inputs, such as macroeconomic projections, usually provide a good deal of food for thought leading to an exchange of views, i am looking forward to a discussion afterwards. before i talk about macroeconomic projections in greater detail, i would like to start my remarks by bringing to mind the basic state of monetary policy in general and of eurosystem monetary policy in particular. the current state of ( european ) monetary policy over the past few decades, a well - founded consensus has emerged about the nature of sound monetary policy. it comprises two key elements. first, the agreement that inflation should be low and stable. the rationale behind this lowinflation paradigm is that price stability reduces the degree of economic uncertainty, and, therefore, facilitates the efficient allocation of resources in an economy. in addition to this key benefit, maintaining price stability