that can enable the central bank to update its estimates of r * and u * in order to obtain its best estimate of the destination to which the economy is heading. as i mentioned a moment ago, a challenge for policymakers is that key variables that are essential inputs to monetary policy — such as u *, r *, and expected inflation — cannot be observed directly and must be inferred from observed data. and as is indicated in the summary of economic projections, federal open market committee ( fomc ) participants have, over the past seven years, repeatedly revised down their estimates of both u * and r * as unemployment fell and as real interest rates remained well below previous estimates of neutral without the rise in inflation those earlier estimates would have predicted. i would argue that these revisions to u * and r * indicate that the fomc has been data dependent in this second sense and that these updated assessments of u * and r * have had an important influence on the path for the policy rate actually implemented in recent years. indeed, had the fed not been data dependent in this second sense and remained closed to the possibility that the economy had changed and historical estimates of r * and u * needed to be revised, that stubbornness would have represented a material policy mistake. in addition to u * and r *, an important input into any monetary policy assessment is the state of inflation expectations. one of the robust messages from the dsge ( dynamic stochastic general equilibrium ) literature on optimal monetary policy is that, see john b. taylor ( 1993 ), “ discretion versus policy rules in practice, ” carnegie - rochester conference series on public policy, vol. 39 ( december ), pp. 195 – 214. - 4away from the effective lower bound, optimal monetary policy will not eliminate all inflation volatility — there are always shocks — but will, under rational expectations ( re ), deliver average, and under re, expected, inflation equal to the target. since the late 1990s, inflation expectations appear to have been stable and well anchored in the neighborhood of our 2 percent goal. however, like r * and u *, inflation expectations are not directly observable and so must be inferred from data. but which data? financial data and monetary policy let me now discuss in more detail how i use a form of model averaging to combine financial market data with data from surveys and econometric models to inform my thinking about the evolution of two key inputs to monetary policy : r

christine lagarde : ecb press conference - introductory statement introductory statement by ms christine lagarde, president of the european central bank, and mr luis de guindos, vice - president of the european central bank, frankfurt am main, 10 september 2020. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to our press conference. we will now report on the outcome of today ’ s meeting of the governing council, which was also attended by the commission executive vice - president, mr dombrovskis. the incoming data since our last monetary policy meeting in july suggest a strong rebound in activity broadly in line with previous expectations, although the level of activity remains well below the levels prevailing before the coronavirus ( covid - 19 ) pandemic. while activity in the manufacturing sector has continued to improve, momentum in the services sector has slowed somewhat recently. the strength of the recovery remains surrounded by significant uncertainty, as it continues to be highly dependent on the future evolution of the pandemic and the success of containment policies. euro area domestic demand has recorded a significant recovery from low levels, although elevated uncertainty about the economic outlook continues to weigh on consumer spending and business investment. headline inflation is being dampened by low energy prices and weak price pressures in the context of subdued demand and significant labour market slack. against this background, ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium - term price stability. therefore, we decided to reconfirm our accommodative monetary policy stance. we will keep the key ecb interest rates unchanged. we expect them to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 % within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics. we will continue our purchases under the pandemic emergency purchase programme ( pepp ) with a total envelope of €1, 350 billion. these purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. the purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. this allows us to effectively stave off risks to the smooth transmission of monetary policy. we will conduct net asset purchases under the pepp until at least the end of june 2021 and, in any case, until the governing council judges that