well in the euro area – that is, aggregate demand responds to changes in real ex ante interest rates, and can also be shown to have done so in recent times, provided it is measured properly. a state - dependent exchange rate pass - through let me start with the exchange rate channel – a channel that has been heavily debated in recent months in the light of the large movements that we have observed in the foreign exchange market. for example, since the beginning of april the euro has appreciated by around 13 % against the us dollar and 7 % in nominal effective terms. textbook economics would suggest that such sizeable changes ought to lower the prices of imported goods and thereby put downward pressure on producer and consumer prices. 1 / 14 bis central bankers'speeches on the left - hand side of slide 1 you can see that there is indeed a strong correlation between annual changes in the euro ’ s nominal effective exchange rate and annual extra - euro area import price inflation, here shown for consumer goods excluding food, beverages and tobacco. simple eyeballing would suggest a pass - through of around 40 %, at least following depreciations, a point i will return to later. on the right - hand side you can see that the correlation is already much weaker in the case of the pass - through to producer and consumer prices. no discernible pattern emerges over the past seven years or so. of course, the reduced responsiveness at higher stages of the pricing chain in part reflects the fact that imports only account for a fraction of both producers ’ overall input costs and final consumption. but the seemingly stubborn resilience of consumer and producer price inflation to the sharp depreciation of the euro in 2014, and the subsequent appreciation in 2015, is nevertheless surprising. after all, based on prevailing estimates in the literature, the net effect of these two opposing exchange rate movements could have lifted hicp excluding energy and unprocessed food inflation – i will refer to this as core inflation from now on – by up to 0. 5 percentage point over the course of last year. 4 in other words, such estimates suggest that euro area core inflation in 2016 would have been less than half its actual level if it had not been for the euro ’ s depreciation in the preceding years. while this cannot be ruled out in the absence of a reliable counterfactual, it at least invites suspicion, not least as producer price inflation proved equally resilient lately. recent price developments therefore raise two important questions

new engagement strategy with mics based on the second pillar of the mandate : boosting prosperity. achieving this goal requires knowledge and practical solutions, which are somewhat scarce. the wbg should provide what these countries cannot find on the market. the knowledge bank should be an active knowledge manager able to mobilize its own expertise, know - how and information to provide tailored solutions to the specific problems of each single client. the development of a full scale business line of knowledge production and management is to be encouraged, provided that it is based on three principles : knowledge products need to be of the highest quality ; they have to respond to countries ’ needs and demands, rather than being supply driven ; they need to be provided on a cost recovery basis and contribute to sustaining the income generating capacity of the wbg. this market test would ensure that the knowledge products have value added for the mics. bis central bankers ’ speeches this strategy would free up enough ibrd lending capacity to meet the needs of the poorer members of the institution, without reducing revenues. however, the income generating capacity of wbg depends also on keeping costs under control. increasing the efficiency of the world bank through the current modernization process is of the upmost importance. in the medium term, it is necessary to reassess whether the current structure of wbg based on four organizations, ibrd, ida, ifc, miga, is still the best suited to serve the clients of the 21st century, or whether it is a legacy of the past that needs to be reorganized in a more efficient fashion. while searching for an answer, one can achieve valuable efficiency gains and cost savings by merging across institutions back office functions such as treasury, controller, risk management, human resources, information technology, general services, external relations, and unifying the country offices. making the most out of scarce resources by redesigning a very lean and efficient organization is a moral obligation to taxpayers and, more importantly, to the 1. 3 billion of poor people around the globe. bis central bankers ’ speeches