services and factor markets. as a means of cross - checking, we have equipped ourselves with another perspective, which we refer to as the “ monetary analysis ” and that is grounded on the belief that medium to long - run price developments can be attributed to the growth rate of the stock of money. each of these “ pillars ” is, in turn, characterised by a rich and comprehensive analysis of a large amount of data. for example, within the “ economic analysis ” we monitor the developments in prices and unit costs, overall output, aggregate demand and its components, government finance accounts, capital and labour market conditions, exchange rates, financial markets, balance sheets of households and firms, etc. the ecb ’ s “ economic analysis ” has been significantly extended and enriched over time. this is largely thanks to the progress made in the production of euro area general economic and financial statistics and in the analytical processing of such information. as mentioned above, the inaugural publication of integrated financial and non - financial quarterly accounts for the euro area, hopefully in 2006, will be another milestone. the ecb and the national central banks use a variety of models for macroeconomic analysis and forecasting. the macroeconomic projections by eurosystem staff constitute an important input into the monetary policy decisions, because they are a way of organising a large amount of information and they help to create a consistent picture of possible future developments. however, the economic projections cannot encompass or even reflect all the complexities, conditioning factors, nuances and the multi - dimensional nature of a comprehensive assessment of the risks to price stability on which monetary policy decisions need to be based. while the information synthesised from various indicators serves as an important input into the decision - making process, the governing council of the ecb does not take decisions only on the basis of projections. the governing council ’ s “ judgement ” must eventually come into play in order to assess the likelihood of the alternative scenarios suggested by the economic analysis. this is particularly important when it is quite unclear how a certain situation will evolve, as is the case sometimes with sharp movements in asset prices. related to this, attempts to base monetary policy decisions solely on inflation forecasts would involve significant limitations. notably, they would entail an inefficient use of information, since every forecast, or any composite index of indicators, is based on one possible scenario and one combination of assumptions. in the end, monetary policy requires judgement on the part of the policy - maker to assess not only the pl

data is a big challenge for a multinational economy such as the euro area. the same applies to the much needed enhancement and harmonisation of information on insurance corporations and on the financial the financial and non - financial accounts would cover the following sectors in principle : households ( including non - profit institutions serving households ), non - financial corporations, financial corporations, government and the rest of the world. situation of firms and households. moreover, this work should exploit synergies with the initiatives of other international organisations, in particular the work of the imf on financial soundness indicators. the need for a comprehensive analytical framework statistics as well as additional information such as synthetic indicators, model forecasts and anecdotal evidence provide economic analysts with the raw material to derive a consistent and timely judgment about the true prevailing economic circumstances and the position of the economy in its business cycle. at the same time, just as a good meal not only requires high - quality ingredients but also an excellent cook and recipe, high - quality monetary policy analysis also requires excellent staff and an appropriate analytical framework. the importance of the latter can hardly be overstated. while central bankers around the world are “ data fiends ” in their heroic attempts to minimise errors of inference and to make robust decisions amidst uncertainty about the true structure of the economy, the availability of a vast wealth of raw data from diverse sources may mean that policy - makers become constantly bombarded by conflicting signals. amidst such a flood of information, policy runs the risk of losing its bearings and of over - reacting to the latest indicator. it is against this background that the ecb decided to adopt an analytical framework within which all possible sources of information - statistical as well as judgemental - can be brought together in a coherent fashion while at the same time allowing for alternative and diverse models and perspectives of the workings of the economy. in our view, this framework enables a wealth of information to be “ digested ” routinely without compromising the ultimate objective : to maintain a clear sense of direction. in order to give a structure to the diverse sources of information, a structure that is consistent with our view of the monetary policy transmission mechanism, we have organised our analytical framework into “ two pillars ”. these consist of two complementary perspectives on the determination of price developments. one perspective, which we refer to as the “ economic analysis ”, is grounded on the belief that price developments over the short to medium term are largely influenced by the interplay of supply and demand in the goods,