to arrive at a robust assessment of r * that can then be used for monetary policymaking. let me call this the policy - relevant r * estimate. what are the requirements for such an estimate? it cannot simply be a mechanical average of all available model estimates. rather, it must be based on expert judgement. on the one hand, it should reflect the broadest possible agreement among our model estimates. on the other hand, it should also take into account information from outside these models, such as an assessment of structural drivers of real interest rates that cannot be adequately captured in r * models. furthermore, a realistic assessment of the distribution of risks surrounding the policy - relevant r * estimate is also important. let me discuss these aspects in more detail. our portfolio approach of different r * models is crucial for arriving at a policy - relevant r * estimate. it allows us to take account of alternative macroeconomic models, as well as different estimation methods. the portfolio approach also protects against the risk that individual r * models could at times give erroneous assessments. in a first step, a sound understanding of the various structural drivers of r * in individual models helps in judging the plausibility of these estimates. uncertainty about r * can be narrowed down by using expert judgement to select only the most plausible models and to discount models deemed less reliable in certain situations. let me give you a recent example where we applied expert judgement to discount information from individual r * models. as is well documented, 5 extraordinarily large swings in macroeconomic data during the early part of the covid - 19 pandemic caused strong cf. benigno et al. ( 2024 ) for a quantification of the combined statistical and model uncertainty for the us and the euro area. cf. holston, laubach and williams ( 2023 ). page 4 / 11 fluctuations in r * estimates in variants of the r * model introduced by laubach and williams. our analysis showed that we should discount these models during this episode. in a second step to arriving at a policy - relevant r * estimate, we apply a robust statistical measure – such as a median – to the range of model estimates selected in the first step. this filters out some of the unsystematic variation that a few outlier estimates might cause. an additional crucial step on the way to a policy - relevant r * estimate is to cross - check the result of the second step against a broader set of indicators. for instance,

low. the evidence, however, also suggests that financial institutions pursue the deleveraging process mainly by tightening credit standards and curbing new lending. monetary policy against this background of rapid disinflation, weak economic activity and persisting financial market stresses, the ecb will continue to face the twin challenge of securing price stability and contributing to financial stability in the euro area. to meet this challenge, the conduct of unit labour costs in the euro area rose by 3. 6 % in the third quarter of 2008 compared with 3. 2 % in the second quarter, despite the decline in gdp growth occurred over that period. monetary policy by the ecb has been based on its medium - term oriented strategy and a fundamental principle : the separation of the monetary policy from liquidity management. the monetary policy stance is defined by the level of the key ecb interest rates and is determined with a view to achieving the primary objective of preserving price stability over the medium term. liquidity management aims at ensuring the orderly functioning of money markets which is necessary for the efficient transmission of monetary policy and for the mitigation of financial stability risks. the separation principle implies that the policy interest rate is not employed to alleviate stresses in the financial system if upside risks to price stability prevail. if the preservation of price stability is secured over the medium term and will not be jeopardised by a change in the monetary policy stance, the interest rate can be adjusted to mitigate the impact of financial market stresses on the economy, including their potential effect on medium - term price developments. for more than a year since the outbreak of the financial turmoil in august 2007, the ecb did not reduce its key policy rates in view of significant medium - term inflation risks, but intervened in a decisive manner in the money markets, by taking “ unprecedented ” measures to provide liquidity so as to maintain orderly market conditions and contain the spillover effects of financial market tensions on the real economy. since october 2008, following the intensification and broadening of the financial crisis and in view of the significant change in the balance of risks to price stability, the ecb responded in a timely manner both with an unprecedented – in terms of speed and magnitude – easing of monetary policy ( having reduced its policy rate by 225 basis points in a period of three months ) and by taking unprecedented – and indeed “ unconventional ” or “ non - standard ” measures – in the money markets by providing unlimited funding in euro ( but also in other curre