of the euro against the dollar. it ’ s hard to identify the primary cause of the fall in oil prices : the increased supply or the weak demand. it would of course be serious if prices were not pushed down by low demand. cheaper oil supports growth but also threatens to drag inflation expectations down too far. it is a mixed blessing. will the ecb take extra measures to boost growth and inflation? we already further loosened monetary policy in june and september. we do not feel comfortable with the current low level of inflation and are closely monitoring the path of inflation. we have clearly stated, and that is new, that the ecb ’ s balance sheet will increase considerably as a result of these measures. that is necessary because we want to stimulate lending. ecb president mario draghi has given an indication, but that is not an objective in bis central bankers ’ speeches itself. we do not target a specific balance sheet total, but rather inflation over the medium term. are the current measures sufficient? some observers doubt whether the current measures will be enough to bring about the considerable expansion of our balance sheet. we are stating clearly : if we need to counter the risk of a prolonged period of low inflation, the governing council is unanimously prepared to take unconventional measures. the debate on the need for extra measures still lies ahead. what do you think? as always, i will thoroughly analyse the new information. but let there be no doubt : if it is necessary, we will not hesitate. nothing is being ruled out. we have two clear messages : we are planning a significant liquidity injection and we are keeping a close watch on the situation. what can governments do to stimulate growth? germany and france are holding talks on that. monetary policy alone is not enough. a coherent package of measures is required, with contributions from monetary policy, fiscal policy and structural reforms. this combination is not easy. if necessary, we, as the central bank, will not hesitate to do more. but the politicians must also shoulder their responsibilities. they must find the right mix of fiscal policy and structural reforms. france is once again seeking more time to reduce its budget deficit to 3 %. i think that france must do more to restore public finances. but as structural reforms may have a negative effect on growth in the short term, the stability and growth pact allows countries that implement more reforms to extend the deficit reduction programme over a longer period. the problem is that, in the past, many countries have abused that flexibility in

of monetary policy requires transparency about the risks involved. 4 see greenspan, alan ( 2004 ), risk and uncertainty in monetary policy, remarks at the meetings of the american economic association, san diego, california, january 3, 2004. stock, james h. und mark w. watson ( 2003 ), has the business cycle changed? evidence and explanations, federal reserve bank of kansas, jackson hole symposium. as the fed chairman in his cited speech did i will not explicitly differentiate between uncertainty in the definition of “ knightian uncercainty ” and “ risk ”. i believe that markets will trust central banks more, if they openly address the risk they face and the uncertainty under which they operate. above all, prudent policy requires being cautious and to pondering the risks ahead. as confucius put it : “ when people feel safe, danger will arise. ” 5 in addition, there is ample evidence that the monetary policy landscape has changed to an extent that warrants even more intensive research into risks although monetary policy performance has not been too bad over the past decade. the major change i should like to refer to is the increasing role of financial markets. on the one hand, broader and more liquid financial markets improve the ability to diversify risks and lead to more robust financial institutions. on the other hand, in well integrated financial markets the possibility of contagion and spill - over effects grows and potentially makes the financial system more crisis - prone. it therefore comes as no surprise that most of the papers presented at this conference dealt with issues relating to financial markets. 2. progress in macroeconomic modelling and open questions macroeconomic modelling of the real economy - though far from perfect – has made substantial progress over the past few decades. the main reason for this may be the long history of research in an agreed paradigm using less than a handful of different approaches. for instance, as governor donald kohn has pointed out last week, the basic framework for analysing inflation used by the fed has remained fundamentally unchanged over the past 35 years. he said “ that basic framework is essentially the expectations - augmented phillips curve introduced by milton friedman and edmund phelps in the late 1960s. ” 6 of course, there has been a lively debate and substantial theoretical and empirical progress leading from the neoclassical synthesis in the spirit of paul a. samuelson and john r. hicks in the late 1960s to the new classical theory focusing on real business cycles and, more recently, to the new keynesian framework, which