, especially in periods of heightened uncertainty and perceived structural change. this difficulty is potentially greater the larger the size of the decision - making body is, and particularly if the committee endeavours to forge a consensus on the economic outlook, the balance of risks to the policy objectives and the appropriate course of monetary policy in the future. • a third issue relates to the risk that the markets and the public will not fully understand the conditionality of the announced future policy path on forecasts or assumptions about the future evolution of exogenous variables that will influence the choice of the policy path. the potential problem is likely to be greater given the implicit or explicit assumption about the time invariance of the underlying structural relations. communication of the likely future path of policy rates may be see woodford ( 2005 ). see, for example, mishkin ( 2004 ) ; morris and shin ( 2002 ), and kahn ( 2007 ). there may be periods of greater certainty and perceived stability of the underlying structural model when it is relatively easy to formulate a future policy path. there may also be exceptional situations, such as when the economy faces deflation risks and the policy rate approaches the lower zero bound, when it may be appropriate to provide a clear signal of future policy intentions. but such situations, by their very nature, do not justify the adoption, as a general rule, of a pre - announcement of the future monetary policy stance. for instance, the recent financial market turmoil may result in a reassessment of banks ’ business models – at least by some banks – and may affect their lending practices and the stability of the relationships between policy rates, bank lending rates and credit availability. misinterpreted as a quasi - promise or commitment and could lead to a disorderly adjustment of interest - rate expectations. • fourth, another problem is the potential effect on the central bank ’ s credibility if its communication of future policy rates often deviates from the subsequent actual path of interest rates. in this respect, policy - makers may also be concerned that frequent revisions of a previously announced policy path may weaken the public ’ s confidence in their forecasting ability or in their commitment to follow through. in particular, policy - makers may hesitate to reverse the direction of such a path, e. g. from an accommodative to a restrictive stance and this could lead to the implementation of a policy path that does not take fully into account new, incoming information and is therefore sub - optimal. there are

strategy to achieve that goal. the ecb announced its monetary policy strategy in october 1998, well before the launch of the euro on 1 january 1999. the strategy includes a quantitative definition of price stability and a twopillar, medium - term oriented, analytical framework, employing economic and monetary analyses, to assess risks to price stability. by defining and communicating its policy strategy, the ecb adopted a framework for internal analysis and decision - making which also provides the basis for explaining policy decisions to the public. the quantitative definition of price stability serves as a yardstick by which the ecb can be held accountable and as a guide to the public in respect of expected future price developments. the clarification of aspects of the strategy in may 2003 contributed to better communication in two respects : first, it clarified the ecb ’ s aim in terms of price stability – namely, an increase in consumer prices of below, but close to, 2 % over the medium term – thus giving more precise guidance to private sector inflation expectations, which have remained solidly anchored to that quantitative definition ; second, it helped enhance the market ’ s understanding of the use of monetary analysis to cross - check the assessment of risks to price stability over the medium and longer term. more generally, communication of the ecb ’ s strategy emphasises the bank ’ s commitment to conduct its policy in a systematic manner following a well - defined approach ( analytical framework ) and to be open and transparent about its analysis and decision - making. in addition, communicating the strategy helps markets to better understand how monetary policy is likely to respond to adverse shocks and potential risks to price stability, thus establishing a basis for assessing the predictability and credibility of monetary policy. for all these reasons, the announcement of, and consistent commitment to, our monetary policy strategy constitute a milestone in our communication activities. iii. 2 communicating the monetary policy stance nevertheless, in a world of uncertainty, with incomplete information about the state of and prospects for the economy, knowledge of our strategy is a necessary, albeit insufficient, condition for the general public – and in particular market participants – to understand the decisions taken and to form expectations about the future course of monetary policy. we therefore aim to explain clearly and systematically the economic rationale underlying each monetary policy decision by providing detailed and comprehensive analyses of the current economic and monetary conditions and of the governing council ’ s assessment of the medium and longer - term risks to price stability on the basis of our strategy. several forms and channels of communication are employed