particular, how monetary policy affects investment spending by firms. given that investment is an important element in the complex transmission mechanism of monetary policy, and given the continuous change of economic behaviour and institutional structures, a continuous interest of the central bank in this kind of research can easily be motivated. despite the best efforts of economists working in various research institutes and in central banks, it remains, however, imperfectly understood. this is, of course, to a large extent due to the volatility of investment itself, which is many times higher than that of gdp. by choosing it as the theme for its second international conference the bank wants to encourage further research in this field of economics. in that respect, after the pioneering work of dale jorgenson, analysing the investment decision in a neo - classical framework, and who will speak about taxation issues today, two major strands in the literature have been developed, which examine the implications of capital market imperfections and uncertainty for investment behaviour. our distinguished invited speakers, lenos trigeorgis, jean - bernard chatelain, charles himmelberg and julian franks, will give an overview of these subjects in their contributions. the first strand shows that in the presence of information asymmetries firms with weak balance sheets may become financially constrained in the sense that their cost of external funds substantially increases or that they are unable to attract external funds. in these circumstances, the effects of a change in the monetary policy - controlled interest rate will not only be transmitted through an increase in the user cost of capital but also through their impact on the financial structure of the firm. indeed, an increase in policy rates will result in larger interest payments, hence a worsening of the firm ’ s cash flow and its ability to self finance, and in a decrease in the value of assets that could be used as collateral for new loans. as a consequence, firms that are likely to be more exposed to problems of asymmetric information, will react more to a monetary tightening. variations in the availability of credit as a result of changes in monetary policy may act as an important channel of transmission, since these financial frictions amplify the effect of changes in the policy - controlled interest rates. in order to assess the monetary policy stance it is important for the policy maker to know whether these frictions are present or not. a second recent strand in the theory of business investment addresses the impact of uncertainty on investment. the main insight from this literature is that a firm, being uncertain

about the future and knowing that investment is a sunk cost, may choose to postpone investment in order to obtain further information about future market conditions. one can show that, in this case, the required rate of return to undertake the investment project increases. it is clear that, hereby, uncertainty introduces additional frictions in the investment decision process, which are likely to temper the effect of a change in the policy - controlled interest rates. therefore, also in this respect, the monetary authorities need to evaluate the precise timing and magnitude of these frictions, which are caused by uncertainty. as to the requirement to use micro data, it is known that aggregation can blur identification of important parts of the behaviour of economic agents. so, studies at the aggregate level often fail to find an economically significant relation between investment and the user cost of capital, a relation of the utmost importance for the transmission of monetary policy. this failure is attributed in literature to the so - called simultaneity bias. using micro data allows alleviating these problems. moreover, micro data allow analysing important economic questions that cannot be addressed using aggregate data sets. this is precisely the case if one wants to identify the existence of financial frictions, because here the individual balance sheet position of the particular firm matters. next, i want to review the importance of the launch of the euro and of the ecb ’ s price stability policy for investment behaviour. the introduction of the single currency three years ago provoked fundamental changes in the environment in which the public and the private sector operate. first, the most apparent change has been the elimination of exchange rate risks. together with the lower transaction costs and more transparent markets, this has created new opportunities for companies within the euro area. second, the euro has given impetus to the process of financial integration by enhancing the widening and deepening of the euro area financial markets. this evolution may appear to be beneficial for firms, which were or still are financially constrained and unable to execute all their investment plans. especially young and risky firms often suffer from insufficient tangible assets, that might serve as collateral for external funds, and / or develop activities that are highly risky in terms of future returns. since these are typically the enterprises which tend to bring new technologies to the market, financial market deepening, as triggered by the euro, may contribute to boost investment and economic growth. although with the launch of the euro, the exchange rates of the currencies of the euro area countries became irrevocably