##entionally seems to have affected expectations. its legend annual review appears to have added to the misperception that the reference value is announced " for a specific year " and to confusions with an annual targeting of m3 growth. the governing council agreed to continue to assess the stability properties of money demand and the validity of the assumptions underlying the reference value with respect to trends in income velocity and output growth. the governing council will change the reference value if necessary. however, the experience has shown that the underlying assumptions change over longer periods only. the governing council therefore refrains from announcing a specific frequency at which the reference value will be reviewed. the co - existence of two pillars the twin pillar architecture triggered a good deal of criticism, much of which seems to neglect the specific merit of the twin architecture. first, the two - pillar strategy perfectly reflects the difference in the time perspectives relevant for analysis under the economic and the monetary analysis. it is widely acknowledged that long - term price movements are driven by trend money growth, while higher frequency inflation developments appear to reflect the interplay between demand and supply conditions at short - to medium - term horizons. from the perspective of central bankers, the kind of information provided by both the economic and the monetary analysis is equally relevant, but differs qualitatively. second, the two - pillar architecture serves as an instrument to organise and convey information to the governing council and the public. at present, monetary phenomena are not fully captured by conventional economic models. the two - pillar structure represents an analytical commitment on the part of the eurosystem to ensure the robustness of monetary policy by taking due account of different paradigms in policy considerations. third, the two - pillar architecture serves as a communication device. it allows conveying monetary policy decisions and the underlying rationales to the public in a most transparent manner. empirical evidence suggests that nowadays interest rate decisions by the governing council are very well anticipated by market participants. the co - existence of economic and monetary analysis : main conclusions economic and monetary analysis operate under different time horizons. the governing council wishes to clarify communication on the cross - checking of information in deriving its unified overall judgement on the risks to price stability. to this end, the introductory statement of the president will henceforth follow a new structure. it will start with the economic analysis to identify short - to medium - term risks to price stability. as in the past, economic analysis is based on further developments in structural models, tools and models in forecasting, etc

was innovative. not surprisingly, it triggered many discussions as well as criticism. the latter focused on the reference value and the co - existence of two distinct pillars. the first pillar and the use of the reference value much of the criticism owes to an overly simplistic understanding of the first pillar as a simple comparison between observed monetary growth and the reference value. contrary to much journalistic discussion, however, m3 growth away from the reference value over shorter periods may not be interpreted as a policy failure. in fact, the relationship between interest rates and monetary growth is complex, it may vary over time and it is shock specific. most importantly, monetary policy actions are not geared to returning m3 growth to the reference value as quickly as possible, but to achieving the objective of price stability over the medium term. it seems that m3 has been more sensitive to short - term developments in financial markets than one may have expected. as a consequence, monthly changes in m3 growth became quite volatile and measures of short - term trends in monetary aggregates have to be interpreted with caution. most importantly, in order to overcome the limited signalling properties of money in the short - run, the scope of monetary analysis has been enriched over time and goes well beyond the narrow study of deviations between the growth rate of m3 and its reference value. the monetary analysis undertaken by the eurosystem consists of a comprehensive assessment of the liquidity situation based on information from a large number of sources, ranging from monetary and banking statistics to balance of payments and financial accounts. it involves a thorough analysis of components of monetary aggregates ( in particular m3 and m1 ) as well as their counterpartsfrom both mfi liabilities and mfi assets ( in particular loans to the private sector ). various money gap measures, concepts of excess liquidity and monetary models are used to identify the factors underlying the developments in money and credit and to best extract the information contained in money for longer term price developments. monetary analysis and the reference value : main conclusions the governing council acknowledged the need to communicate more convincingly the enriched scope of monetary analysis and stressed the rich choice of data and methods used. to underscore the longer - term nature of the reference value as a benchmark for assessing monetary developments, the governing council decided to no longer conduct a review of the reference value on an annual basis. importantly, the reference value for m3 is based on medium - term assumptions for real gdp growth and velocity. the mere announcement of the annual review, however, unint