widening of risk premia. given the unprecedented degree of financial interdependence, the consequences might be serious. so, somewhat paradoxically, we are in a situation in which the baseline economic outlook remains benign, and many measurable risks remain low or are even receding, while uncertainty, i. e., those risks that cannot be readily quantified, timed, priced or hedged in the markets, may in fact be on the rise. 1 it is this apparent dichotomy and its implications that i will focus on in the rest of my remarks. i will first look at in more detail the various forces that have been driving down the risk premia. then i will discuss what implications and challenges the constellation of low risks and heightened uncertainty has for central banks. i will conclude by highlighting some broader policy implications. declining risk premia a broad - based compression of risk premia has been an important force in supporting global growth in recent years. much of this decline in price of risks seems to have reflected developments that are on a sound basis. • " the great moderation ", lower volatility of output and inflation, has played an important role in reducing risk premia, in particular inflation risk premium. central banks have clearly contributed to this by credibly anchoring inflation expectations. • whether reflecting a " savings glut " or " monetary overhang ", the ample global supply of funds – as reflected in the growth of monetary aggregates and their counterparties – has also contributed to lower long - term interest rates, as well as the compression of risk premia more generally. according to frank h. knight ’ s famous distinction, " risk " refers to situations where the decision - maker can assign mathematical probabilities to the randomness which he is faced with ( e. g., risk premia and volatility based on historical data ), while " uncertainty " refers to situations when this randomness cannot be expressed in terms of specific mathematical probabilities ( e. g., disruptive unwinding of global imbalances, possibly accompanied by unprecedented widening of risk premia ). to put it slightly differently, uncertainty is a type of ambiguity where the probability of an act or outcome cannot be calculated whereas a risk has some element of calculation - there is a certain probability of some known act or outcome occurring. • improved market liquidity, reflecting a host of different factors, such as development of market infrastructure, broadening of

ecb ’ s policy goals, strategy and actions. in the end, the governing council confirmed the definition adopted in 1998, but supplemented it with an aim of “ below, but close to, 2 % ” for the inflation target. this was expected to provide a safety margin against deflation risks and an inflation buffer for the labour market, as well as enough room to facilitate relative price adjustment in the monetary union. however, setting the inflation target at the upper bound of the price stability definition generated a perception of asymmetry and ambiguity on the target. this will be discussed by dr. juha kilponen in the first session today. in a way similar to other major central banks that have adopted a framework of flexible inflation targeting, the ecb ’ s current monetary policy strategy includes two additional key elements. the first is that price stability is a forward - looking concept that is to be maintained over the medium 1 / 5 bis central bankers'speeches term. the second is that the ecb is mandated “ without prejudice to price stability ” to support the general economic policies of the union. and this is not a mere footnote, since when reading the eu treaties ( article 127 of the tfeu and 3 of the teu ), “ without prejudice to the objective of price stability ”, we as the eurosystem are pledged to “ work for the sustainable development of europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress ”. hence, i find the sometimes passionate debate that every now and then pops up on the need for a ‘ dual mandate ’ rather pointless, almost like shadowboxing. it is already in the treaty, unless we call it a ‘ triple ’ or ‘ quattro ’ mandate, since if we respect our legal mandate we need to aim at achieving full employment, balanced growth and sustainable development – indeed as long as price stability is not compromised. ecb strategy review so much for the historical and legal background. in january this year, the ecb launched a new strategy review of its monetary policy framework, but unfortunately this had to be postponed for half a year due to the covid - 19 outbreak. the review was re - launched in september this year and is expected to be completed by september next year. the review is ongoing, and we are currently in the middle of the debate. it is not yet the time to draw definitive conclusions, and i maintain an open mind and want