at times acting subconsciously. this reinforced our view that it was necessary to enhance the role of research for policy making. this conference series was one step in that direction. through this conference, the reserve bank intends to bring together central bankers, academicians, policy makers, financial regulators and supervisors and private sector experts to a common platform to share their thoughts and to evolve solutions. the conference will hopefully provide a useful forum for the economists across the globe to exchange their views and research findings on issues relevant from a central bank ’ s perspective, which will, in turn, provide valuable insights for policymakers. motivation behind the second international research conference the world has moved a great deal since the first conference, but without resolving its financial problems. as a result, the sustainability of the recovery is in doubt. at the time of the bis central bankers ’ speeches first conference, we were seeing green shoots of revival and were hoping that recovery may well strengthen in due course. since then, growth in emerging markets rebounded but inflation surged. by contrast, recovery in advanced economies was relatively subdued. inflation remained largely benign, but nevertheless did climb up from extremely low levels, posing some difficulties. financial fragilities stayed unresolved. in spite of some deleveraging, risks abounded and were compounded as public sector balance sheets weakened with weaker growth and private sector bailouts. clearly, new dimensions of financial crisis have emerged since the first conference. the nature of the crisis has changed with fragilities of the private sector balance sheets transmitting to the fragilities of the sovereign balance sheets. there appears to be no solution till the burden sharing problem amongst various state and non - state actors are resolved. sovereign debt sustainability poses the biggest threat to sustainability of the recovery, while coming into potential conflict with the central banking objectives of price stability and financial stability. any crisis resolution strategy needs to accord priority to resolution of sovereign debt problems, but there is a lack of clarity on what roles central banks can perform in this. a case could be made that it would be better that central banks focus on their main jobs, while let governments handle their debt problems. however, at the present juncture there are significant spillovers. monetary authorities ’ actions impinge on markets ’ ability to refinance debt and fiscal authorities ’ actions constraints monetary responses. central banks were seen as partly responsible for the current crisis, but they were also at the forefront of unprecedented public policy response that was put in place swiftly, using a combination of conventional

axel a weber : monetary policy in the eurosystem speech by professor axel a weber, president of the deutsche bundesbank, as part of the ken dixon public lecture series, university of york, york, uk, 10 june 2008. * * * introduction ladies and gentlemen it is a pleasure for me being invited to deliver a speech as part of the ken dixon public lecture series. some of you probably know that i worked as a professor of economics at various german universities before i became president of the bundesbank. as a professor, i used to dig rather deeply into economic issues related to both international economics and monetary policy and shared the insights i gained with my students in lectures and seminars. as a policymaker, however, my public speeches now often focus on the outlook for current monetary policy in the eurosystem. thus, as a side effect of my change of direction from being an academic to becoming a policymaker, the subject matter delivered in my public appearances has narrowed somewhat to mid - term inflation and economic outlooks. given that i still like to talk about more fundamental issues in my speeches from time to time, i welcome occasions such as this lecture in which i can shed greater light on a more basic feature of monetary policy. over the next 45 minutes or so, i shall mainly be elaborating on the nature and role of macroeconomic projections in monetary policy. in this context, i shall draw on the experiences of the bank of england and of the eurosystem and will also provide you with some details of the projections which the bundesbank now publishes semi - annually. since the design of monetary policy, the underlying strategy and its various inputs, such as macroeconomic projections, usually provide a good deal of food for thought leading to an exchange of views, i am looking forward to a discussion afterwards. before i talk about macroeconomic projections in greater detail, i would like to start my remarks by bringing to mind the basic state of monetary policy in general and of eurosystem monetary policy in particular. the current state of ( european ) monetary policy over the past few decades, a well - founded consensus has emerged about the nature of sound monetary policy. it comprises two key elements. first, the agreement that inflation should be low and stable. the rationale behind this lowinflation paradigm is that price stability reduces the degree of economic uncertainty, and, therefore, facilitates the efficient allocation of resources in an economy. in addition to this key benefit, maintaining price stability