##ers and c willeke ( eds ), monetary analysis : tools and applications, ecb, pp 47 - 62. see swiss national bank : monetary policy decisions of the swiss national bank for 2000, snb quartalsheft 4 / 1999, pp 1923. see p gerlach - kristensen : a two - pillar phillips curve for switzerland, mimeo, 2006. see o issing : the role of macroeconomic projections within the monetary policy strategy of the ecb, economic modelling, vol. 21, 2004, p 725. in practice it has to date proved difficult to capture statistically, in a sufficiently reliable way, the longerterm price effects of monetary policy on the basis of available macroeconometric models. ” 8 in recent years, several papers have come to the conclusion that monetary and credit aggregates – or variables which rely heavily on money growth such as the so - called “ money gap ” – provide valuable information for future inflation in the euro area. this is particularly true for the longer forecasting horizon, confirming the claim that monetary development is key to understanding inflation in the long run. in a recent bundesbank discussion paper, boris hofmann shows that the relationship between money and prices seems to continue. 9 in my view, the two - pillar approach of the ecb does not only show that there is a special relationship between the choice of a strategy and the need for forecasts. the use of a particular concept for monetary policy also has consequences for the efforts a central bank makes to improve its forecasting abilities. for the ecb one possible extension might be found in a more strongly formalised combined assessment of the information included in both pillars for future inflation developments at various time horizons. when i point to the fact that different strategies in monetary policy require different forecasting approaches i don ’ t want to deny that all central banks face a lot of similar forecasting problems. they all want to reduce the limits of forecasting. i hope that our conference has made a contribution to this aim. see l papademos : macroeconomic theory and monetary policy : the contributions of franco modigliani and the ongoing debate, bnl quarterly review, vol. lviii, june - september 2005, pp 187 - 214. see b hofmann : do monetary indicators still predict euro area inflation?, bundesbank discussion paper, 2006, forthcoming.

let me mention the debate about the role of asset prices. most central banks are wary of using asset prices as a target in their strategy. this is not because they deny that asset price bubbles can do a lot of harm to the economy. 2 however, serious shortcomings in our forecasting ability have to be acknowledged. there are several aspects to our limited knowledge : one is our inability to identify asset prices that are justified by economic fundamentals. these reflect unknown future returns and expectations. the paper presented by professor pesaran at this conference also highlighted many of the problems involved. another issue is our limited ability to forecast how asset prices will react to policy actions. up to now, i have discussed how certain limits in knowledge and forecasting ability have influenced the design of central banks ’ strategies. i would now like to consider the other side of the matter, namely how does the choice of a certain strategy influence the forecasting exercises carried out at the respective central banks? it seems that the introduction of an inflation targeting strategy has spurred on the efforts which those central banks have made with regard to formal forecasting procedures. of course, the respective central banks were always interested in forecasting. however, inflation targeting has brought a new see ecb, monthly bulletin, january 1999, p. 50. see, for example, ecb : asset price bubbles and monetary policy, monthly bulletin, april 2005, pp 47 - 60. challenge : how to convince the public that the central bank is really committed to meeting the inflation target? unlike a central bank which pursues an intermediate target with a contemporary target variable, a promise to realise a specific inflation rate in the future has to be supported by a transparent forecasting process which shows that the central bank sets its instruments consistently. this means that, at least in principle, the public must be in a position to understand and duplicate the central bank ’ s forecast. john robertson, an economist from the atlanta fed, when comparing the approaches of different central banks, therefore states that “ it is perhaps not surprising that there is a great reliance on models at central banks that have explicit inflation objectives, such as the bank of england and the reserve bank of new zealand. in those cases it is particularly important that the policymakers ensure that policy decisions are consistent with inflation objectives and are as transparent to the public as possible ”. 3 of course, these central banks also have to show the limits of the accuracy of their forecasts. this has become a very common feature since