of the escb shall be to maintain price stability ” and that, “ without prejudice to the objective of price stability, the escb shall support the general economic policies in the community with a view to contributing to the achievement of the objectives of the community ”, which include a high level of employment and sustainable and non - inflationary growth. in the euro area, monetary policy goals are therefore not stated, and cannot be expressed in terms of their relative importance ( which, in principle, cannot be captured by choosing the size of the parameter λ defining the relative weight ), but are clearly specified in a hierarchical ( or lexicographic ) manner, which emphasises the overriding importance of price stability and also implies that policy should not be formulated in terms of an objective function which trades off inflation volatility against output volatility. the underlying proposition is that, in general, price stability contributes to reducing output volatility. i should also briefly mention that the selected loss function does not seem to be able to capture the points raised by some economists concerning the potentially asymmetric costs of high and low unemployment, relative to its natural or nairu level. it is also unclear as to whether it can provide an appropriate representation of policy preferences for those central banks that have opted for an inflation - targeting strategy and at the same time aim to support a high level of economic activity. this observation partly relates to the specific functional form and partly to the results of svensson ( 1997 ), who has shown that the parameters of a taylor rule are not related in a straightforward way to the relative weight λ of inflation and output deviations from their target values. monetary policy strategy and the operational target for price stability given the choice and ranking of objectives, a key aspect of the policy framework is the strategy adopted for pursuing them, which involves decisions concerning the method of analysis and the quantitative definition and operational target for price stability. the approaches chosen by central banks differ, but they are converging. many central banks have opted for an inflation - targeting strategy based on a single analytic model and aimed at an inflation rate of 2 % or 2. 5 % as the midpoint of the target range. the ecb has adopted a more general and eclectic strategy that includes both economic analysis and monetary analysis. it has also adopted a quantitative definition of price stability – an increase in the price level that does not exceed 2 % – and, given this definition, it aims to maintain inflation at “ below but close to 2 %

would otherwise be the case if confronted with a similar macroeconomic outlook under more normal market conditions. given the uncertainty surrounding the appropriate monetary policy stance under such circumstances, it could consider to err on the side of caution by trying to avoid feeding the bubble with an overly accommodative policy. these issues, which have been extensively discussed, deserve further analysis and consideration. v. the implications of globalisation for monetary policy and the global responsibilities of central banks my final remarks relate to the last, very challenging and open question raised by alan on the global responsibilities of the main central banks. this is an important question that cannot be answered in a simple, straightforward manner and in a limited period of time. and alan does not provide an answer, either. i would like to pose, however, a set of related questions on the implications of globalisation for monetary policy. in a globalised economy, should the role and orientation of monetary policy be changed? should the framework for analysis and policy formulation be amended? is the required analysis for setting policy becoming more demanding? the direct and brief answers i recently gave to these questions are : no, no and yes to some extent. it is sometimes argued that the monetary policy of a major central bank should help guide the domestic economy ’ s adjustment to the evolving global economic environment and the competitive pressures associated with globalisation ; and that it should foster the adjustment of global imbalances and even assume responsibility for the smooth functioning of the global economy. in my opinion, globalisation does not affect the central role and overriding responsibility of central banks to preserve price stability “ at home ”. on the contrary, maintaining price stability in a rapidly evolving, globalised economy that may influence the dynamics of inflation in various ways becomes more essential and challenging, particularly in situations where adverse inflation shocks or inflationary pressures in some economies are now more easily transmitted to others. consequently, if the primary objectives of monetary policy are unaffected by globalisation, the appropriate strategic framework for analysis and policy formulation should remain the same. however, the analysis required for policy formulation will have to carefully take into account the various effects of globalisation on the dynamics of inflation, economic growth and asset prices. for example : in the a globalised economy, traditional measures of core inflation are even more difficult to interpret and use as indicators of underlying domestic inflationary pressures ; the estimates of potential output are more difficult to calculate in a robust manner ; and the measurement and usefulness of output gaps are subject to greater