academic or policy context. after the presentations, there will be time for a general discussion. we will open the conference with a session on interest rates. since the global financial crisis, the level of equilibrium real interest rates has been widely debated. knowledge of this equilibrium level is important for assessing the stance of monetary policy. some economists argue that the level has dropped as a consequence of either the gfc or other long - run trends, such as demographic trends, that are exogenous to monetary policy. if this is the case, the nominal policy rate will not necessarily return to its pre - crisis levels. there are, however, other economists who argue that the observed drop in real rates was mainly of a cyclical nature. if this view is correct, the steps towards neutral monetary policy – steps already undertaken by some central banks in recent years – may easily continue to the pre - crisis levels. i am therefore glad that we have here two papers that may shed some more light on this policy important topic. the next session will be devoted to the exchange rate. nobody doubts that exchange rate movements are of utmost importance for open economies. the papers in this session analyse the monetary policy channel of the exchange rate and the possibilities of international policy 1 / 2 bis central bankers'speeches coordination. both are simultaneously fascinating and policy relevant. friday, the second day of our conference, will include two sessions. one will be dedicated to bounded rationality in macroeconomics. the rational expectations revolution that started in the late 1960s changed modern macroeconomics in a significant way. the rise of new keynesian dsge models some 20 years ago demonstrated that the rational expectations approach can be fruitfully applied even to large - scale models that are of practical use in policy institutions such as central banks and international organisations. let me remark that the cnb has been successfully using its own dsge model as its main forecasting and policy analysis tool for more than a decade now. on the other hand, the experience with models based fully on rational expectations sometimes shows that certain aspects or policy implications are at odds with what is considered reasonable. one example is the forward guidance puzzle, i. e. the unrealistically large responses of inflation, long - term rates and output to the announcement of the future path of interest rates. therefore, we as macroeconomists want to reconsider the assumption of superrational agents and replace it with something more realistic. the second session on friday will be devoted to two papers

the long shadow of high inflation 32nd frankfurt european banking congress 18. 11. 2022 | frankfurt am main | joachim nagel 1 introduction 2 inflation in the focus of public attention 3 scarring effects of personal experiences 4 monetary policy must act decisively to attain price stability 5 conclusion 1 introduction ladies and gentlemen first, i would like to thank you for the invitation. it is a pleasure and an honour for me to speak here to such a distinguished audience. “ a situation where ordinary people in their ordinary course of business are not thinking and worrying about inflation. ” [ 1 ] this is how alan blinder once defined price stability. unfortunately, we are far from that : almost everybody is thinking and worrying about inflation these days. the goal of price stability is currently being missed. that ’ s what the numbers tell us, and people are experiencing it first - hand. for many, soaring prices are the most pressing problem in their daily lives. accordingly, price developments have become the focus of public attention. the eurosystem is committed to price stability. we must ensure that high inflation rates do not become entrenched, and that they return to our target of 2 % in the medium term. we therefore have to act decisively. and that is exactly what we are doing in the governing council. i will go into more detail in the second part of my speech. but will high inflation also disappear from people ’ s minds once it has disappeared from the measurement of consumer prices? or could the present experience of unusually high inflation rates leave a lasting mark on people ’ s behaviour? what economic research has found on these questions and why it matters for monetary policy will be my first topic. 2 inflation in the focus of public attention to understand the impact of current price pressures, it is important to recall where we have come from. a long period of low inflation rates lies behind us. in low - inflation environments, households and firms tend to pay only little attention to inflation dynamics. [ 2 ] they have less incentive to track inflation closely as its relevance for economic decisions is relatively small. but the environment has changed fundamentally : inflation has returned with a force that hardly anyone thought possible. this year we are experiencing the highest inflation rates in decades. in germany, the annual inflation rate has reached double digits. the last time this happened was in 1951, more than 70 years ago. in this new environment, households and firms can no longer afford to ignore inflation. everyone is worried about their next gas and electricity bills and