economy is very complicated, and in many cases not fully understood. the famous black box monetary economists talk about. finally, the problem of time inconsistency applies to monetary policy as well. monetary authorities may be tempted to create unexpected inflation to stimulate the economy in the short run. eventually, economic agents will revise their expectations and the result will not be a higher growth rate, but a higher rate of inflation instead. hence, playing the monetary piano is perhaps even more difficult than playing the fiscal violin. fiscal policy co - ordination against this background, let ’ s turn to discussing economic policy co - ordination in the context of emu, starting with the co - ordination of fiscal policies. as i have already argued, playing the fiscal violin is very difficult. by definition, it is even more difficult to prevent fifteen eu fiscal violinists to play out of tune. do my critical observations rule out any co - ordination, at any time? no, under certain special circumstances, fiscal policy co - ordination can be welfare - improving. this assertion is based on a conventional game - theoretical model : fiscal policy - makers maximise independently of each other - a welfare function in which the spillovers of their actions to other players are neglected. the joint welfare of the economies involved increases if fiscal policies are subsequently co - ordinated and policy makers take into account the consequences of their actions on the other players of the game. however, given the caveats mentioned, we have to conclude that the scope for active fiscal policy - making is limited. only in very specific circumstances, the ecofin council should consider the possibility of fiscal policy co - ordination. for instance, when there is a risk of overheating or a common recession, or when the euro area is faced with a persistent balance - of - payments deficit. the basis for the co - ordination of fiscal policies is the multilateral surveillance procedure provided for in article 103 of the ec treaty. in my view, it is possible to elaborate the so - called broad guidelines of the economic policies of the member states, which the ecofin council adopts in conformity with article 103, and include fiscal policy co - ordination. so far, these broad guidelines have been very broad indeed. in the future, they should address individual countries more specifically. when a member state does not comply with the broad guidelines, specific policy recommendations can, and should, be given to the member state concerned. when appropriate, these recommendations should be published. the multilateral surveillance

latitude in people ’ s expectations ; for example, some people may not share the view that the inflation rate will reach 2 percent in two years. for everyone – including those who are somewhat skeptical – to be convinced that sufficient monetary easing will be implemented, it is appropriate to state that the bank will continue with monetary easing, aiming to achieve the price stability target of 2 percent, “ as long as it is necessary. ” making such a commitment will, in the end, further ensure the achievement of the target in two years. i also want to elaborate on the meaning of “ as long as it is necessary. ” the bank does not believe 2 percent inflation achieved at a certain point in time is enough ; rather, it believes 2 percent inflation should be maintained in a stable manner. therefore, even if the inflation rate hits 2 percent at some point, the bank could continue with the quantitative and qualitative monetary easing if it is judged necessary to do so in order to maintain that rate in a stable manner. the opposite could also be true. in short, analyzing the fundamental movement of prices, the bank intends to continue with monetary easing, as long as it is necessary. iii. effects of the “ quantitative and qualitative monetary easing ” transmission channels of monetary easing effects i will next explain the mechanism of achieving the 2 percent target under the quantitative and qualitative monetary easing. the bank expects that the effects of monetary easing will permeate the economy and influence prices primarily through three channels. bis central bankers ’ speeches first, the purchases of jgbs, etfs, and j - reits will encourage a further decline in longerterm interest rates and lower risk premia of asset prices. this will raise firms ’ credit demand through a decline in funding costs. second, as a result of the bank ’ s massive purchases of jgbs, both investors and financial institutions investing in jgbs are expected to shift from jgbs to such risk assets as stocks and foreign - denominated bonds and / or to increase lending within their portfolios. in economic textbooks, this is referred to as a portfolio rebalancing effect. the extension of the average remaining maturity of jgb purchases reflects our understanding of such an effect. third, the commitment to achieve the price stability target at the earliest possible time and the continuation of the new phase of monetary easing are thought to drastically change the expectations of markets and economic entities. this is what i referred to earlier as the elimination of