prudent, stability - focussed policy approach we have followed in recent decades. this has helped to deliver domestic economic stability, has contributed significantly to attracting foreign investment and has greatly facilitated growth. to ensure a sustainable recovery, it is very important that we maintain this approach and focus on key policy areas under our control. these include the public finances, the efficiency and effectiveness of public spending, particularly in relation to increasing the productive capacity of the economy, and overall competitiveness. the updated assessment while the emergence of a slowdown in the economy was not unanticipated, the loss of momentum has been greater than expected this year. this has arisen from a sharper - thanexpected adjustment in the housing sector alongside a deterioration in the international environment. our current forecasts are that both gnp and gdp growth will remain positive this year, albeit significantly less than 1 per cent. it will be the end of july before we finalise our forecasts, but a ballpark estimate, at this point in time, would be around 0. 5 per cent growth this year and about 2 per cent in 2009. in common with other developed economies, ireland is facing significant inflationary pressures arising from very elevated levels of energy and other commodity prices. we are all conscious of the experiences of the 1970s, when the response to the oil price increases of the time resulted in persistently high inflation. this undermined growth and employment in the economy and was especially damaging to those on fixed incomes. while the current situation is not identical, there are some similarities. it is important to accept that economic conditions here have weakened and we cannot compensate ourselves on an economy - wide basis for commodity price increases over which we have no control. as we know from past experience, if we attempt to do so, recovery inevitably becomes delayed. ireland ’ s competitiveness position has weakened in recent years because wage and broader cost inflation has been higher than in our main trading partners. it is vital for our growth prospects to ensure that our competitiveness position improves rather than deteriorates further. based on the potential for future growth in productivity and the labour force, the medium - term outlook for the economy remains favourable and growth will return to stronger levels, if the appropriate corrective action is taken. growth should pick up next year on the basis of a bottoming out in domestic housing output and some improvement in the external environment. residential housing market the housing market weakened significantly during 2007 with sharp declines in both output and prices.

erkki liikanen : monetary policy in theory and practice speech by mr erkki liikanen, governor of the bank of finland, at the turku school of economics and business administration, turku, 26 april 2006. * * * i would like to thank the turku school of economics and business administration and professor okko for providing me with this opportunity to lecture on monetary policy to representatives of academia. as i myself work in the practical sphere of monetary policy, it is natural that in this presentation i shall look into the relationship between theory and practice in monetary policy. according to an old anecdote, an economist is a person who, when seeing that something works in practice, asks whether it could also work in theory. robert solow's satirical comment may, in its time, have been half true, but when it comes to monetary policy it is equally clear that the influence should also operate in the right direction – from theory to practice – and that central bankers have been greatly influenced by economic research. research and accumulated practical experience have led to central bankers and economists currently sharing surprisingly similar views on monetary policy principles the world over. in the last two decades, both the theory and the practice of monetary policy have undergone sweeping changes that have resulted in a high consensus with respect to the theory of monetary policy and its conduct in practice. the gap between theory and practice is at present apparently narrower than for a long time. i shall break down my brief overview of the relationship between monetary policy practice and theory into three sections. i shall first focus on setting monetary policy objectives, then go on to dealing with the institutional framework for monetary policy and finally review monetary policy strategy and implementation. in all these areas, the practice of monetary policy has made enormous progress in the last few years, in fruitful interaction with monetary policy research. monetary policy objectives the stability of the general price level is currently widely recognised as the primary objective of monetary policy. this means that monetary policy seeks to ward off fluctuations in the overall price level, ie inflation and deflation. the objective of price stability invariably concerns the general level of prices for goods and services over the medium term. accordingly, the objective of monetary policy is not to stabilise the prices of individual goods but to review the price level for the economy as a whole, for instance, by means of a consumer price index. it is expressly the prices of goods and services that are at stake, so that monetary policy does not basically aim at stability in