dynamics so that inflation expectations remain firmly anchored and no second - round effects emerge. this implies that the objective of monetary policy must be defined in terms of an aggregate and not in terms of a partial or so - called “ core ” price index which excludes, for example, food or energy prices, in order to allow the central bank to identify in a timely manner long - lasting trend dynamics. in their assessment of the monetary policy stance, central banks realise that the ultimate impact of increases in the prices of oil and commodities – including food – on inflation and output dynamics will depend crucially on the reaction of economic agents, particularly participants in labour and product markets. their reaction will be influenced by their expectations regarding the response of monetary policy to such developments. an absence of second - round effects following food and commodity price pressures depends crucially on inflation expectations being firmly anchored at levels in line with the central bank ’ s objective. in the presence of food and commodity - driven pressures on headline inflation, there is always a risk of inflation expectations becoming unanchored and a damaging wage - price spiral being established. given the costs of curbing such unpleasant inflation dynamics once they have started, a price stability - oriented central bank should react in a timely and preemptive manner on the basis of a comprehensive analysis of the shocks to headline inflation. pain and sollie ( 2006 ). pain and sollie ( 2006 ) argue that in the united states the impact is evenly distributed over the ten - year period considered, whereas in the euro area the disinflationary effect is concentrated mainly in the period 2001 - 05. 3. the impact of globalisation on the structure of the domestic economy over the past 20 years we have experienced a significant decline in the level and volatility of inflation in both developed and emerging economies. this has often been associated with the growing empirical evidence of a flattening of the phillips curve. can globalisation alone account for changes in the way that the domestic economy – and inflation in particular – reacts to economic shocks? globalisation may have played a role in this process through two distinct channels. first, the short - run phillips curve, which typically relates inflation to excess domestic demand, may have flattened owing to the increase observed in trade and production specialisation across countries, with domestic inflation increasingly being affected by cost pressures arising in trade partners. 5 second, globalisation may have played a role in reducing the inflationary effect of excess demand is linked to the reduced ability of firms to

lift the growth momentum and boost potential through higher productivity growth. this would, in turn, support the effectiveness of our measures and also help interest rates to rise again in due time. effective central bank communication means more effective policies let me now turn to the topic of central bank communication. central banks have come a long way in how they communicate. public institutions, including the ecb, have moved in the direction of disclosing more information and better explaining policy, also in response to parliamentary and public demands. this parliament has encouraged the ecb to follow this path from the very beginning : one of the topics chosen for the first econ hearing in 1999 was the ecb ’ s communication and transparency policy. good communication forms the bedrock of the ecb ’ s credibility and underpins our legitimacy in the eyes of the people we serve. but as central bankers it ’ s also in our interest to communicate effectively : being open and clear is essential to make our policy more effective. carefully calibrated communication – think of forward guidance – has itself become a tool of central bank policy. 2 / 4 bis central bankers'speeches traditionally, as central bankers we have been more comfortable speaking to experts and markets than to the general public. markets closely follow what we do and what we say, and surveys and studies find that we are well understood by them. we are very attentive to how markets interpret – or misinterpret – our actions. but we have to remain vigilant that we do not focus too narrowly on communicating to markets and create our own echo chamber. this is why, in my confirmatory hearing, i announced that one of the priorities of my presidency is to reinforce our bridge with the public. our own research finds that even though many europeans have heard of the ecb, very few have a deeper understanding of what we do, and certainly not of why we do it or how our work serves the common good. 1 we need to improve this. we have just started to develop a new survey in which we ask consumers about their expectations on inflation, housing, consumption, saving and the labour market. we need to understand them better, not least because they can vary significantly across different regions or groups in society. after all, it is the everyday economic decisions of people and companies that we seek to influence with our policy and communication. if our language is not accessible, our policy will be less effective. we also know that people will only come to trust us more, and