john hurley : a central banker ’ s perspective of the irish and international economic situation speech by mr john hurley, governor of the central bank of ireland, at the finance dublin conference, dublin, 25 march 2003. * * * the international and euro area economy this is a time of exceptional uncertainty in the world economy. this uncertainty has been driven by a number of factors, notably the deterioration of equity and financial markets during 2002 and more recently, rising geopolitical tensions and the ensuing war in iraq. as a result, the outlook for global economic growth has weakened compared with earlier expectations. the impact of the war in iraq on the global economy will depend on the extent and duration of the conflict. the range of scenarios is wide but one can characterise two contrasting situations. in one case, a prolonged conflict could trigger a marked increase in oil prices and undermine consumer and business confidence, slowing consumption and investment spending and leading economic growth to weaken. alternatively, a short and decisive conflict would eliminate the uncertainty that now exists. it is not possible at this point to assess conclusively the implications for the euro area. but the governing council has made it clear that developments will be monitored closely, that it stands ready to act if necessary and will provide liquidity should that be required. the geopolitical situation masks the fact that, by historical standards, this has been an unusual economic recovery. evidence from the past half - century suggests that typically a recovery in economic growth is driven by rising equity prices and falling savings rates, in addition to low interest rates. over the past year, however, equity markets have weakened further, while savings rates have risen. these developments reflect to a large degree an attempt to correct the problems of the past, in particular the significant economic and financial imbalances generated during the preceding boom in the us. the current account deficit has, moreover, continued to grow and is now being driven by the emergence of a sizeable fiscal deficit. ultimately, this situation has to be corrected, and this will undoubtedly have implications for the rest of the world. with the external impetus to growth likely to be modest, euro area growth will have to be driven largely by domestic demand. however, the recent track record of larger euro area economies is not encouraging. their underperformance has acted as a headwind to sustainable economic recovery and this situation may change only gradually. in summary, i would remain concerned that, even in the event of an unwinding of geopolitical tensions, euro

currently by - passed by their communication and build higher and durable levels of trust, complementary activities are needed in addition to simpli ed communication. the authors summarise these activities as explanation, engagement and education, the 3 es of central bank communication. in short, better education makes explanation easier, and increases the effectiveness of engagement. explanation, engagement and education are essential to help the public understand why the ecb prioritises price stability over other, perhaps more tangible, economic objectives, why a positive rate of in ation, of say 2 per cent, is better than zero in ation, why people ’ s perception of in ation can be so different from the price index. they are necessary, in short, to help people understand and appreciate what central banks do and why they do it. this should allow monetary policy to be trusted by the public and central banks to be able to guide the formation of expectations and to deliver effective policymaking. but successfully explaining to, engaging with and educating the public is far more than just a matter of removing jargon from our communication. central banks should rst ask themselves : is our monetary policy framework suf ciently consistent, and are we open and transparent enough to allow for such engagement and understanding? conclusion. the eurosystem : the progress made, the remaining challenges, and the strategy review so nally, what about the eurosystem? the review of the monetary policy strategy, is an opportunity to re ect on our communication strategy. at its foundation, the ecb ’ s communication strategy was less transparent and open to the public than today. for example, accounts of the meetings were not released, staff forecasts were not published and the price stability de nition needed clari cation. since then, we have seen a higher degree of transparency of both the strategy and the decision - making process of the ecb. staff economic forecasts have been published since december 2000, the two - pillar framework and the price stability de nition was amended during the 2003 strategy review, and accounts of the meetings have been released since january 2015 ( rostagno et al 2019, hartmann and smets 2018 ). 33 although these have been important improvements, there is more to be considered in our review. i began this speech by asking a number of questions. all of them are important to our understanding of monetary policy and some are within the direct control of the central bank, while others are not. in preparing this speech,