assuming constant interest rates - typically lead to instabilities or indeterminacy. 16 at the same time, bringing exogenous assumptions on the interest rate policy into line with the expectations of economic agents underlying these forecasts in a credible and convincing way constitutes a considerable challenge in practice. the aforementioned simulation of alternative interest rate paths is thus barely practicable. an alternative to this would be to use market interest rates, as opposed to a fixed interest rate. if the central bank ’ s reaction function is understood by the public and the markets and if its monetary policy enjoys credibility, the interest rate path expected by the market will mostly be consistent with the envisaged inflation target. however, if new economic shocks arise, it can be extremely difficult to communicate necessary deviations of the monetary policy stance from the interest rate path anticipated in this way. this can place an undue restriction on the ability of monetary policy to react in a timely manner to changes in economic conditions and in risks to price stability. last but not least, inflation forecast targeting neglects the information stemming from monetary developments. up to now it has not proved possible to integrate the monetary side into the inflation forecast in a satisfactory manner. whether this will ever be possible in a convincing way - not least on account of the different horizons involved - remains a matter of conjecture. at any rate, the governing council is adhering to its stance of considering all important indicators and of according monetary factors a prominent position in its assessment of the risks to price developments and thus in its monetary policy. 2. 4 the medium - term orientation of the ecb ’ s strategy and the role of money for good reason the ecb has chosen a strategy which does not focus exclusively on either a single indicator or a single analytical tool - be it money or an inflation forecast. by contrast, the strategy offers an appropriate means of bringing together different analytical perspectives and of using all the information relevant to decision - making in a systematic way. the advantages of this approach are increasingly being recognised, not least from the perspective of the relationship between monetary and credit developments and asset prices. the appropriateness of inflation targeting strategies has come under particular scrutiny in the context of the share price booms witnessed in the 1990s, their subsequent collapse and the effects that this had on the financial system. 17 if financial imbalances accumulate and there is, for example, a sharp, broadly based increase in asset prices, there is little sense in continuing to pursue an inflation forecast for consumer prices over

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