shocks, hicp inflation has been above - and sometimes significantly above - 2 % for quite some time. but inflation always bounced back following these shocks and today the outlook for price stability is once again favourable. a second related point i would like to mention is the medium - term orientation of our policy. as a central bank, we only affect prices with long lags and we cannot steer trends in prices with high precision. our focus on the medium term helps to avoid overly ambitious attempts to fine - tune inflation developments. you might ask what “ medium term ” means exactly. it is certainly not a fixed time horizon, as some have argued. experience in recent years has taught us that flexibility in this respect is very important. from this point of view, the ecb ’ s monetary policy strategy is different from pure forms of inflation targeting. this leads me to my third issue, which is that one cannot simply rely on a single inflation forecast to conduct monetary policy successfully. experience suggests that it can be very misleading to summarise the assessment of medium - term inflationary pressures in one single figure, even when a measure of statistical error is attached to it. unfortunately, monetary policy is not so simple and the repeated significant forecast errors by all major institutions over the last few years provide evidence of this. indeed, i agree with alan greenspan who once said that central bankers should be less reluctant to admit that they sometimes do not know. instead of relying on a single forecast, our monetary policy strategy emphasises this fundamental uncertainty. our strategy builds on several forecasts and indicators and includes a cross - check of the information from the economic analysis, which is relevant from the short to medium - term perspective for inflation, with that from the monetary analysis, which is important for the medium to long - term outlook. in this respect, the fourth point that i would like to discuss today is that over the last few years we have seen that monetary analysis is not only an important, but also a complex business. i have no doubt that inflation is a monetary phenomenon over the long term and that we are right in attributing a prominent role to monitoring monetary developments in our monetary policy strategy. a fifth point i would like to make is that it was difficult to gauge the effects of global interdependencies when we began to conduct the single monetary policy. what we have learnt, in particular, is that global linkages go well beyond the international trade channel, which was traditionally considered to be the main,

if not the only channel through which economic shocks were transmitted. moreover, more shocks - such as those associated with the introduction of new technologies and those of a political nature - have increasingly become global in nature. related to this - and this is my sixth point - we have learnt that sharp asset price fluctuations may be very important for shaping economic trends. in recent years we have witnessed extraordinary developments in capital markets. initially, exceptional optimism about potential output growth and talks of a “ new economy ” drove stock prices to sky - high levels. the “ new economy ” euphoria was sowing the seeds of less positive developments even before it actually burst. it seems to have been accompanied by a rising short - termism of corporate managers, which in turn was accompanied by corporate malpractice and also pushed firms to over - invest, especially in the it and telecommunications sector. the subsequent large fall in equity prices and the revelation of corporate malpractice had a series of negative consequences, including an increase in leverage ratios of non - financial corporations, a decline in the value of collateral, increases in risk premia, and certain firms experiencing difficulties in obtaining external finance. all of this may still be part of the reason for the weak consumption and investment activity, and thus the slow pace of economic growth in the euro area that we are now observing. to cut a long story short : monetary policy obviously has to take into account the public and financial market sentiment in assessing the risks to price stability over the medium term. central banks must monitor financial market developments very closely in order to figure out what the consequences are for the outlook for price stability over the medium term, but they must not target asset prices. finally, and this is my last point on monetary policy, i would like to stress that effective communication is an all - important requirement for successful monetary policy. however, as we have learnt over the last five years, it is no easy business. i am sure you will appreciate that communication is particularly difficult in the context of the euro area, with so many different traditions and languages. over time, we have seen a significant improvement in public understanding of our communication of our monetary policy strategy and our monetary policy decisions. evidence of this is that our monetary policy decisions have been very predictable, as reflected in money market indicators, which i rate as a highly positive development. indeed, we want to be, and we have to be, well understood in order to be effective in our policy. and, as you were