##comitantly and as a consequence of this stabilisation of inflation at a low level, we have also seen lower volatility in macroeconomic variables. but it would be wrong to conclude that this correlation between globalisation and low inflation demonstrates a causal relationship. indeed several other factors – independent of globalisation – can be identified as helping to explain these good results. i see at least four. in the first place, the very rapid progress in science and technology, in particular information and communication technologies – leading to significant productivity gains which coincide with globalisation and, moreover, are one of its underlying causes. in the second place, structural reforms which have been introduced in the industrialised world from the beginning of the 1980s and which have gradually increased throughout these economies. these structural reforms, like the spread of technological progress, have helped to increase the growth potential of the economies and thus to facilitate price stability. in the third place, the greater budgetary discipline which has recently characterised most economies following the previous period of poor fiscal management. and finally, the monetary policy pursued by the central banks and their enhanced credibility. i would particularly like to stress the last point. whatever the influences being exerted in the context of globalisation, the basic principle which allows the anchoring of monetary policy remains : in the long run, inflation is a monetary phenomenon. as a consequence, globalisation does not affect the central role and overriding responsibility of central banks to preserve price stability. in the short term, the central bank must continue anchoring inflation expectations at a level that is consistent with the central bank ’ s definition of price stability. let me illustrate this by means of an example. let ’ s take the significant increase in energy prices over the last few years. i will assume that a central bank credibly commits to maintain stable prices and is fully and unequivocally trusted by the public and by other policy - makers. the corporate sector, which uses energy as an input for its production processes, observes a significant and sharp rise in the price of oil. since there is a credible commitment to price stability over the medium term and inflation expectations are well anchored at low levels, entrepreneurs easily understand that it is the relative price of energy that is rising, while the aggregate price level may not increase as much. therefore, their incentives to fully pass the increase in input prices to consumers are reduced because, if they did, their competitiveness could be significantly eroded, especially in an increasingly competitive global environment. hence

jean - claude trichet : the role of central banks in a globalised economy speech by mr jean - claude trichet, president of the european central bank, on the occasion of the 13th conference de montreal, montreal, 18 june 2007. * * * ladies and gentlemen, thank you for inviting me to the 13th conference of montreal hosted by the international economic forum of the americas. i am delighted to speak today before such a distinguished audience. i greatly appreciate your objective to organise wide - ranging and open discussions on major international economic issues. the theme of this year ’ s conference – succeeding through uncertainty : from risk evaluation to strategic decisions – is a very timely and challenging one. we at the european central bank often have to navigate uncertainties and find that our monetary policy strategy is of great help in setting the course. one of the themes most discussed in the conference programme is globalisation, and rightly so given its huge importance. i would like to investigate with you the role of central banks in a globalised economy. first, i will outline some of the features of the debate. second, i will reflect on the integration of the euro area within the globalised economy. third, i will reflect on some of the implications of globalisation for central banks. 1. globalisation and some of its underlying trends globalisation encompasses several phenomena and trends which have led to a growing interdependence of most economies throughout the world. it displays its effects through a strong increase in cross - border transactions in goods and services, capital, labour and natural resources. i would add that, at the same time, we are witnessing a substantial increase in the cross - border exchanges of ideas and concepts between the various institutions, organisations and non - trading companies. the concept of globalisation has been of vital importance over the last 20 years – and has been even more so in the last ten years – thanks to a combination of factors, including the diffusion of ever more sophisticated and affordable information and communication technologies. the cost of shipping goods has fallen. economies have continued to open up and many trade and financial barriers have been lifted. national barriers to the circulation of goods, services and production factors are diminishing everywhere. foreign direct investment ( fdi ) flows have also surged, leading to an internationalisation of production processes and new ways of doing business as companies have established affiliates abroad both to gain access to foreign markets and to reduce input costs. globalisation has allowed many emerging countries to enter and compete in world markets