boom episodes that have sometimes been followed by post - boom recessions. these findings are obviously important for the role of money and credit in the monitoring and assessment of financial stability, but they are also relevant for the conduct of monetary policy. a recently expressed view is that a narrow focus of monetary policy on price stability in the short term might pose risks to price stability in the longer run, if the potential consequences of financial instability for long - term price developments are overlooked. the ecb ’ s monetary policy strategy, with its medium - term orientation and the important role it assigns to monetary analysis for assessing mediumto long - term price developments, allows us to address challenges that may arise from financial imbalances and potential instability in the financial markets. monetary analysis can help us to identify distortions and imbalances in the financial system, and the implied potential risks to long - term price stability, in a timely manner. moreover, market expectations of the monetary policy response to these long - term risks to price stability should help to contain evolving financial imbalances and thereby mitigate the vulnerability of the financial system. there is, therefore, no conflict between the conduct of a monetary policy focused on the preservation of price stability over the medium and longer term, and the safeguarding of financial stability. on the contrary, price stability and financial stability should be mutually reinforcing. and the monitoring and assessment of monetary and credit developments contribute to this, which reinforces what i said before : there is “ value in money ”. however, it is worth keeping in mind the implications of the rapidly changing global economy. its structure and functioning is affected not only by ( i ) productivity developments related to technological advances ; and ( ii ) the process of globalisation, but also by financial innovation and the increasing complexity of financial instruments. all these factors have a bearing on the dynamics of the inflationary process and the evolution and information content of monetary and credit aggregates. it is therefore essential that we continue to monitor these developments, and keep our antennas alert for monetary and financial signals that can be of use in assessing medium - to long - term trends in consumer and asset price developments and their potential interaction. needless to say, it is not easy to interpret this information in the context of the ongoing structural changes in the real economy and financial markets that are difficult to identify and measure in real - time. but we have to. i am convinced that the information value that can be provided by money will remain important, but it

of money and the price level is captured by the quantity theory of money. in the context of this simple theory, the causality of the link is clear. the point that i would like to stress, however, is that the causal relationship between the stock of money and the price level is in principle also valid, at least in the long - run equilibrium, in more general and sophisticated macroeconomic frameworks, which incorporate alternative hypotheses concerning the factors and processes that determine the level and the dynamics of aggregate demand and supply and, consequently, the evolution of the price level over time. one such general framework is what could be called the consensus macroeconomic model, which was developed in the 1980s and has been widely accepted as a useful stylised framework for monetary analysis, at least until the late 1990s. it is useful to briefly discuss the role of money in the transmission of the effects of monetary policy in the context of this framework for three reasons : first, because it incorporates many of the advances in macroeconomic theory made over the past 20 years, reflecting different approaches to, or schools of thought on, the functioning of the macroeconomy ; second, because in a general sense, it underpins most of the macroeconometric models currently used by many central banks ; and, third, because it provides a benchmark for comparison with the latest generation of macroeconomic models developed in recent years for the analysis and assessment of monetary policy. this consensus theoretical framework for monetary analysis is the outcome of a synthesis that combines three elements : first, the insights and basic characteristics of the new classical models of robert lucas ( 1972, 1976 ) and the real - business - cycle models of kydland and prescott ( 1982 ) and others, including the emphasis placed on forward - looking “ rational ” expectations ; second, the inclusion of institutional factors, staggered wage and price contracts and market imperfections, which have been associated with the work of phelps, calvo, fischer and taylor, and which result in nominal rigidities in a keynesian tradition that have important implications for the dynamic response of real output and the price level to shocks and to a change in the monetary policy stance ; third, the elaboration, in certain extensions of this framework, of the economy ’ s financial structure, which would allow for a richer representation of the potential channels through which monetary policy can affect economic activity and the price level, for example via wealth effects, variations in asset prices, credit and liquidity constraints and other