questionable how far monetary countermeasures only based on inflation forecasts ( which are by their very nature always uncertain ) can satisfy theoretical requirements. after all, they neglect the uncertainty ruling in practice about future price movements. the degree to which such uncertainty exists over forecasting horizons that are relevant to monetary policy is also demonstrated for sweden, after all, by the inflation forecasts of sveriges riksbank. 3 for instance, the width of the corridor in which the future inflation rate will lie with a probability of 50 % for a one - year time horizon is already roughly one percentage point. for a two - year perspective it actually doubles. if this degree of uncertainty of the inflation forecast is compared with the target corridor of the eurosystem ’ s definition of price stability, the criticism levelled at the corridor concept appears at most to be relevant in theory. iii a major prerequisite of the eurosystem being successful in discharging its stability mandate without incurring unnecessary real economic costs lies in it rapidly acquiring the credibility that it can do just that. needless to say, such credibility is particularly essential for a new institution like the ecb. in this context, it has become fashionable to draw attention to the role played in this by the transparency of monetary policy. disinclined though i am to question this correlation between credibility and transparency ( quite the contrary! ), i find myself unable fully to comprehend the criticism - mainly coming from outside the euro area. first and foremost, the concept of transparency designates quite generally the disclosure of information that is relevant to the conduct of monetary policy. such information may relate to utterly different areas of central bank policy : - to the basic institutional framework under which it operates, to its precise objectives, - to its strategy and - to the instruments at its disposal. in addition, the detailed and up - to - date notification of the general public about monetary policy decisions and the reasons behind them must certainly also be included. there is general agreement on the advantages of monetary policy transparency : firstly, as i mentioned before, transparency is able to enhance the effectiveness of monetary policy. moreover, the understanding of monetary policy is facilitated among the general public, always provided it is successful ; the credibility of monetary policy can be fostered more readily in this way. this is accompanied by the anchoring of the public ’ s inflation expectations at the level envisaged by the central bank. that minimises friction between monetary policy and other economic policy

mr. tietmeyer addresses the topic of the eurosystem ’ s approach to monetary stability address by the president of the deutsche bundesbank, prof. dr dr h. c. mult. hans tietmeyer to the swedish economic association in stockholm on april 12, 1999. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ i at the beginning of this year, the euro was launched as a common currency in eleven of the 15 member states of the european union. as you all know, germany was one of those countries whereas sweden, by its own choice, was not. but i am hopeful that this state of affairs - as far as sweden is concerned - will not persist for too long. as the president of the deutsche bundesbank and a member of the governing council of the ecb, i have been following the recent debate in your country on the merits and drawbacks of joining the euro area with particular interest. i hope you will therefore allow me to take advantage of your invitation to argue in favour of the eurosystem ’ s approach to the attainment of lasting price stability which contributes to an environment conducive to lasting growth. i realise that this will not be an easy task in a country whose central bank is now reaping the fruits of many years of efforts to achieve price stability. the sveriges riksbank has recently actually lowered its repo rate slightly below that of the eurosystem - thus creating a situation which the eurosystem, of course, could not leave unchanged. of course, this was not the only reason for our somewhat surprising decision last thursday. there were other reasons, too. i will come back to them later. in retrospect, in the eyes of the central banks involved, the merging to form a common, larger monetary area went beyond a mere geographical reorientation of monetary policy. it is true that, in the run - up to monetary union ( and bolstered by the maastricht treaty ), there had already been a large measure of convergence in monetary policy thinking in europe. that primarily affected the ultimate goal of monetary