by the governors of the four non - euro area national central banks. the signing of this agreement by the latter parties implies their acceptance of the operating procedures. it does not, however, imply their participation in erm ii. for the currency of each member state participating in the mechanism, a central rate against the euro and a standard fluctuation band of ±15 % will be defined, in principle supported by automatic unlimited intervention at the margins, with very short - term financing available. however, the ecb and the participating non - euro area national central banks could suspend automatic intervention if this were to conflict with their primary objective of maintaining price stability. in line with the resolution of the european council, exchange rate policy co - operation may be further strengthened, for example by allowing closer exchange rate links between the euro and other currencies in the exchange rate mechanism, where, and to the extent that, this is appropriate in the light of progress towards convergence. 2. general documentation on escb monetary policy : instruments and procedures last friday, 18 september 1998, the ecb published a report entitled “ the single monetary policy in stage three : general documentation on escb monetary policy instruments and procedures ”. this report contains a detailed description of the monetary policy instruments and procedures to be applied by the escb in stage three of emu. hence it provides credit institutions with the information they need in order to prepare for participation in escb monetary policy operations as from 1 january 1999. the report expands upon and updates the material contained in an earlier version which was published by the emi on 23 september 1997. the report first sets out the criteria to be fulfilled by credit institutions in order to be eligible as counterparties to escb monetary policy operations. it then presents the features of the different types of open market operations which might be conducted by the escb and the escb ’ s two standing facilities ( the marginal lending facility and the deposit facility ). the report also contains a detailed description of the procedures related to the various types of operations, and specifies the eligibility criteria and the risk control measures to be applied to assets underlying the escb ’ s liquidity - providing operations. moreover, the report includes the description of the features of the escb ’ s minimum reserve system and sets out specific provisions to be applied for the escb ’ s monetary policy instruments and procedures in the transition to stage three. in this context i should also mention that on 11 september 1998 the governing council of the ecb endorsed the statistical

shocks, hicp inflation has been above - and sometimes significantly above - 2 % for quite some time. but inflation always bounced back following these shocks and today the outlook for price stability is once again favourable. a second related point i would like to mention is the medium - term orientation of our policy. as a central bank, we only affect prices with long lags and we cannot steer trends in prices with high precision. our focus on the medium term helps to avoid overly ambitious attempts to fine - tune inflation developments. you might ask what “ medium term ” means exactly. it is certainly not a fixed time horizon, as some have argued. experience in recent years has taught us that flexibility in this respect is very important. from this point of view, the ecb ’ s monetary policy strategy is different from pure forms of inflation targeting. this leads me to my third issue, which is that one cannot simply rely on a single inflation forecast to conduct monetary policy successfully. experience suggests that it can be very misleading to summarise the assessment of medium - term inflationary pressures in one single figure, even when a measure of statistical error is attached to it. unfortunately, monetary policy is not so simple and the repeated significant forecast errors by all major institutions over the last few years provide evidence of this. indeed, i agree with alan greenspan who once said that central bankers should be less reluctant to admit that they sometimes do not know. instead of relying on a single forecast, our monetary policy strategy emphasises this fundamental uncertainty. our strategy builds on several forecasts and indicators and includes a cross - check of the information from the economic analysis, which is relevant from the short to medium - term perspective for inflation, with that from the monetary analysis, which is important for the medium to long - term outlook. in this respect, the fourth point that i would like to discuss today is that over the last few years we have seen that monetary analysis is not only an important, but also a complex business. i have no doubt that inflation is a monetary phenomenon over the long term and that we are right in attributing a prominent role to monitoring monetary developments in our monetary policy strategy. a fifth point i would like to make is that it was difficult to gauge the effects of global interdependencies when we began to conduct the single monetary policy. what we have learnt, in particular, is that global linkages go well beyond the international trade channel, which was traditionally considered to be the main,