and aig provided an example of such critical players ; key custodian banks or large correspondent banks play a similar role. let me add to this, that a particular institution might not only be critical to the functioning of financial markets or market infrastructures because other institutions are financially exposed to it, but also because other market participants rely on the continued provision of its services. for us as policymakers this is a crucial point, as the impact of a failure of a given market player also hinges on the ability of the financial infrastructure to support its resolution and to facilitate the orderly unwinding of positions. so let me now turn to the specific application of network theory to payment and financial systems. 3. network analysis applications to payment and financial systems research in network theory has received relatively little attention in economics until the last decade. therefore, i am delighted to see that this literature is growing and today ’ s workshop clearly illustrates its growing importance. the papers from today ’ s program highlight how direct and indirect interlinkages and contagion dynamics among financial institutions, as well as among institutions, markets and infrastructures, can be significantly influenced by three important network characteristics : first, the degree of connectivity, second, the degree of concentration and third, the size of exposures. we see from the papers that network analysis can help to better understand the interlinkages and systemic connections in many different segments of the financial markets, ranging from money markets to networks of credit default swaps ( cdss ), and from largevalue payment systems to cross - sector exposures in the euro area financial system. we see that this research gives important insights into the various amplification mechanisms in the global web of financial connections. such amplification very much depends on a number of factors, such as the size of aggregate macroeconomic shocks, asset price volatility, liquidity risk and financial leverage. moreover, network analysis can be used to simulate the effect of credit and funding shocks on banking and financial stability by taking into account – beyond the direct balance sheet exposures – also the impact of contingent claims and credit risk transfer techniques. see m. propper et al. ( 2008 ), “ towards a network description of interbank payment flows ”, dnb working paper no. 177, for an analysis of dutch payment flows ; c. puhr and s. w. schmitz ( 2009 ), “ structure and stability in payment networks – a panel data analysis of artis simulations ” in h.

expectations and reflects largely base effects resulting from the movements in global commodity prices a year ago. owing to these base effects, annual inflation rates are projected to turn positive again within the coming months. looking further ahead, inflation is expected to remain in positive territory, with overall price and cost developments staying subdued in the wake of ongoing sluggish demand in the euro area and elsewhere. in this context, it is important to re - emphasise that the indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. this outlook is consistent with the september 2009 ecb staff projections for euro area inflation. in these projections, annual hicp inflation is projected to range between 0. 2 % and 0. 6 % in 2009 and between 0. 8 % and 1. 6 % in 2010, revised slightly upwards from the june 2009 eurosystem staff projections, reflecting mainly upward revisions to energy prices. available forecasts from international organisations provide a broadly similar picture. risks to the outlook for price developments remain broadly balanced. they relate, in particular, to the outlook for economic activity and to higher than expected commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, the latest data confirm a continued deceleration in both broad money and credit growth. in july, the annual growth rates of m3 and loans to the private sector declined further to 3. 0 % and 0. 6 % respectively, reaching new lows since 1999. these developments support the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term. the short - term developments of m3 and its components have remained volatile. the recent changes in interest rates paid on the different instruments included in m3 have continued to underlie the strong shifts in the allocation of funds from, in particular, short - term time deposits to overnight deposits. the deceleration in annual m3 growth has thus continued to combine with a substantial further strengthening of annual m1 growth, which in july rose to 12. 1 %. in addition, the relatively steep yield curve and the re - emergence of risk appetite, reflected particularly in the increase in stock prices over the past few months, may have dampened m3 growth to some extent. the overall flow of bank loans to the non - financial private sector remained subdued