judgment - based assumptions concerning the functioning of the economy. the oir approach necessitates the commitment of the decision - making body to this conditional forecast. given that the eurosystem staff projections are under the sole responsibility of the staff, and not the governing council, the adoption of a oir forecast is no viable option for the eurosystem. moreover, although the oir has the appealing property of being fully consistent with the central bank ’ s targets and other inputs there are several problems with this approach. they can explain why only very few central banks are pursuing this alternative. the oir is highly dependent on the specific analytical framework from which it is derived ; in particular, a core forward - looking model and a monetary policy loss function. in light of additional model - uncertainty and the necessary integration of judgment in the forecasting process the optimal interest rate is therefore surrounded by difficult - toquantify uncertainties which make it somewhat problematic to communicate. moreover, the oir might be interpreted as an unconditional commitment to the future path. therefore, communicating the conditional nature of the assumption is more demanding than for the other two assumptions. 3. 2 future challenges for eurosystem forecasting looking to the future, the eurosystem will face various challenges with respect to forecasting. of course, in order to provide the best possible forecasts as inputs for monetary policy decisions, there is a constant need for the use of the latest forecast methods in the eurosystem macroeconomic projection exercises. for this purpose, extensive evaluation studies of recently developed forecasting methods are necessary, which might lead to extensions of the forecasting toolkit where appropriate. in this regard, an important question will be how to integrate new approaches into the forecasting procedures. for example : what are the benefits and risks of recently developed dsge models for forecasting – and for policy analysis? can they be integrated into the forecasting procedures, and how can the results be communicated? moreover, another central direction for future work might be the adoption of formal forecast and model combination methods to take account of model uncertainty in an effective manner and to make efficient use of the large datasets that are nowadays available for forecasting at central banks. research projects on dimension reduction using model selection, large factor modelling or systematic forecast and model combination are already under way and might also play an important role in the future. these topics are particularly useful for short - term economic forecasting in the eurosystem in order to identify

risks in the course of 2010 and imposed a significant capital increase and a strengthening of the internal control and risk management system. we subsequently intensified our control bis central bankers ’ speeches activity, up to the decisive inspection begun in september 2011 and the consequent request in november of that year for a sharp change in the bank ’ s management. our intervention has made it possible, in an environment of increasingly severe financial tensions, to preserve the bank ’ s stability by strengthening its capital base and beginning to bring the precarious liquidity situation back to normal. the transactions deemed to be illegitimate have been brought to the attention of the competent judicial authorities, with which the bank of italy ’ s supervision area and the financial intelligence unit, for the matters within their respective powers, are cooperating fully. with the crisis, the need for strict regulation of the derivatives market has come to the fore. the initiatives promoted by the financial stability board at the behest of the g - 20 go in the right direction, increasing the market ’ s transparency through contract standardization, the requirement to trade on regulated markets, settlement through central counterparties, and the reporting of the terms and conditions of transactions to trade repositories. the aim is ambitious. progress has been made, but it is necessary to pick up the pace, overcoming the difficulties of implementation, particularly for cross - border transactions, and the industry ’ s resistance. a timely reflection is under way at international level on the organizational structure of banks, on the need to separate traditional credit business from activity in the financial field. the reports of the vickers commission in the united kingdom and the liikanen group for the european commission trace out possible lines of intervention. with stringent rules for supervised institutions, it will be necessary to keep risks from migrating to the shadow banking system – the ensemble of intermediaries, products and markets that slip through the regulatory net. let us not forget that the financial crisis originated in the us securitization market, largely populated by unregulated or scantily regulated operators. but the correct conduct of credit and financial business requires competence and good faith on the part of intermediaries, both factors being decisive to ensure sound and prudent management and preserve the confidence of savers. this necessity is heightened by the complexity of the external environment, by the presence of large intermediaries, and by the economic and reputational damage that can result from illicit behaviour. no market can function without rules, nor is prude