the real estate in japan, the capacity of monetary policy to stimulate demand and inflation is bound to be severely impaired. even if such strategy had proved to be successful, it would only have delayed the inevitable adjustment between the asset prices and economic fundamentals. 13. if central bank's predicting ability of post - bubble developments has to remain less than perfect, would it better once again to consider aggressive tightening when a bubble is perceived to be growing? this is the question i talked about three years ago here. i remain skeptical as i was. however given the fact it is always the preceding massive flows of credit that become worthless once the tide is reversed, leaving severe damages on the balance sheets of parties concerned, it might be worth considering possible ways to focus on restraining “ excessive ” credit flows during asset market upswings ( see chart 6 for the development of credit and asset prices in japan ). chart 6. credits and asset prices in japan notes : real aggregate asset price indices are a weighted average of equity and residential and commercial estate price indices deflated by consumer prices. the weights are based on the composition of private sector wealth. sources : bank for international settlements, quarterly review, international banking and financial market developments, august 1999 14. let me conclude by adding a few observations in somewhat broader context. it is ironic that, as the track record shows ( chart 1, chart 2 ), the bank of japan followed a path in the 1980s and early 1990s that could be regarded as fully consistent with some policy rule such as taylor rule, and yet suffered from the wildest swings of asset markets. suggestions have been made that the bank should have deviated from such implicit rule - based path both in times of upswing as well as downswing. from my perspective, for discussions on policy rules to be more relevant and robust, they should at least take into account major swings of asset prices. our experience shows that price stability, by making low interest rate possible, can pave a way to a major asset price bubble when it is coupled with excessive optimism for the future. 15. finally, what matters most in the post - bubble development is the magnitude of the lost capital and its distribution ie who in the system has to absorb the loss. in japan, that magnitude has been overwhelming and has concentrated in the banking sector. when an economy is faced with the size of lost capital as japan was, well - functioning financial infrastructure is crucially important for its prompt resolution. infrastructure in this context includes proper accounting

inflation expectations safely below 2 %. the interest rate decision was thus taken in a forward - looking manner which focused on maintaining price stability and would thus contribute to sustaining non - inflationary economic growth in the euro area over the medium term. i think that this comparison between the two decisions to change ecb interest rates in april and november is instructive. it shows that we do not react mechanistically to individual indicators, but always interpret the movements and signals in all of the indicators evident in both pillars in conjunction with each other. as we can see, this is a more reasonable approach than relying on a simple indicator, given that we are living in a complex world. after having discussed our strategy and the rationale behind our monetary policy decisions against the background of that strategy, i should like to say a few words about the eurosystem ’ s monetary policy instruments. the single monetary policy of the eurosystem is based on an operational framework that is common for all euro area countries. this operational framework turned out to be an effective instrument for steering money market interest rates and for limiting fluctuations in overnight rates. the eurosystem influences money market conditions mainly through its regular open market operations. the weekly main refinancing operations provide the banking system with short - term liquidity and the interest rate on this instrument gives an indication of the eurosystem ’ s monetary policy stance. in addition, the “ standing facilities ” effectively limit fluctuations in the money market interest rate. finally, the averaging provisions of the minimum reserve system have contributed towards smoothing daily fluctuations in the money market. the success of this operational framework can be demonstrated by the fact that the eurosystem has not yet found it necessary to recourse to any fine - tuning operations. moreover, since january, active market participants have typically and quickly eliminated cross - country interest rate differentials in the money market through arbitrage. overall, developments in short - term money market interest rates have thus far been very stable and money market rates have, on average, been close to the interest rates at which the ecb has provided liquidity through its weekly main refinancing operations. for an efficient conduct of monetary policy operations, it is essential to have the support of a powerful payment system. since its establishment, target has become one of the largest real - time gross settlement payment systems in the world. the system has increased the use of real - time gross settlement in the eu by roughly 20 % since the introduction of the