of thumb to form their short - term inflation expectations. and current inflation seems to be the most widely used heuristic in this respect, making some degree of inflation persistence a natural and inevitable phenomenon. developments over the past year, however, mark a clear and visible departure from past regularities. as you can see on the right - hand chart, a growing gap has emerged between the inflation expectations of market participants on the one side, and households and professional forecasters on the other. this is not about differences in the level, which – as i have argued before – may not mean much. this is about different dynamics, with the two - year moving correlation between market - based and household expectations dropping from 0. 8 in the summer of last year to below 0. 3 in june, the lowest level in nearly nine years. so, unlike the situation in late 2014 and early 2015, when inflation expectations fell sharply across the population, and when we launched the asset purchase programme, today households are much less sceptical about the future. this raises two important questions. the first is what happens to inflation if financial market participants and households hold diverging views on the future direction of inflation. 5 / 13 bis central bankers'speeches the second question is why we are seeing this divergence in views, and whether it is temporary or likely to persist. let me try to answer each of these two questions in turn. which expectations matter most? existing research casts some doubt on the macroeconomic relevance of professional inflation forecasts, including those of financial markets. there are three related strands in the literature that suggest that household inflation expectations are often better predictors of future inflation outcomes. 13 the first is that financial market participants are not particularly good at predicting future inflation. i ’ m not claiming that central banks are particularly better. you can see this on my next slide. but as you can see on the following one, financial market participants repeatedly failed to correctly project even the very near - term outlook for inflation in the euro area. 6 / 13 bis central bankers'speeches there are two sides to this finding. one is the automatic stabilising role that market - based inflation expectations play despite, or precisely because of, their poor track - record in projecting inflation. as market participants react in real time to any news potentially relevant for the medium - term inflation outlook, they support the monetary policy transmission process : they tend to frontload accommodation when inflation risks are skewed to the downside, and they tend

and investment decisions that drive the business cycle. understanding these channels better is at the heart of the agenda to enhance the monetary analysis that is being pursued by eurosystem staff at the behest of the governing council. 3 four avenues for further research in order to deepen our monetary analysis have been identified. first, new money demand equations are being developed, which can better explain monetary developments observed over the past few years. second, the indicator properties of monetary developments for inflation are being investigated in greater detail, with a focus on the relationship over longer horizons. third, the governing council has commissioned further work on structural models of the economy that incorporate an important role for monetary and financial variables. finally, the governing council seeks tools that will aid its cross - checking of the economic and monetary analyses, which is central to the ecb ’ s monetary policy strategy. scenarios constructed using structural models are one such approach, while the integrative framework provided by the new euro area accounts is another. work on these four avenues is ongoing. our ambitious agenda not only challenges those developing the monetary analysis ; it also creates new data demands and statistical requirements. it is to those that i now turn. statistical requirements for enhancing the monetary analysis what are the statistical requirements for enhancing the monetary analysis? see “ monetary analysis in real time ”, ecb monthly bulletin october 2004 and b. fischer, et al. ( 2008 ) “ money and monetary policy : the ecb experience 1999 - 2006 ” in eds. a. beyer and l. reichlin the role of money – money and monetary policy in the twenty - first century ( ecb ). see r. adalid and c. detken ( 2007 ) “ liquidity shocks and asset price boom / bust cycles ”, ecb working paper no. 732. see j. stark “ enhancing the monetary analysis ”, speech at the conference “ the ecb and its watchers ix ”, frankfurt 7 september 2007 ( http : / / www. ecb. europa. eu / press / key / date / 2007 / html / sp070907 _ 1. en. html ). first, the availability of long runs of historical data is crucial to the development of appropriate models and tools. there is thus a vital need for long monetary time series that are consistent over time. meeting this requirement is crucial to developing a better understanding of the leading indicator properties of money for future price developments over longer horizons, and thus for constructing the policy - relevant