the bank - sovereign nexus, have plagued the euro area for a long time. given the importance of banks for credit provision to the real economy, the ecb employed a wide variety of unconventional instruments to address impairments in monetary transmission. at the same time, deposit insurance schemes and macro - prudential policies are still a national responsibility and the banking sector remains fragmented along national lines. financial frictions may therefore also emerge along national lines. this creates additional uncertainties and interdependencies for the ecb. before i conclude, let me say some more words about the design of emu in light of these ecb - specific challenges i just mentioned. in the aftermath of the crisis, emu ’ s functioning has been enhanced, for instance, by the establishment of the european “ knows and unknowns of monetary policy instruments : implications for monetary policy strategies ”, speech at the european banking institute ’ s policy conference, frankfurt, 14 november 2019. stability mechanism and the steps towards a european banking union. such enhancements help align the incentives for policy action by other players with those of us, monetary policymakers. this is helpful for monetary policy in two ways. first, it reduces the likelihood of adverse shocks hitting the economy to which monetary policy would need to respond. and where monetary policy would need to respond to risks to price stability, the risk of undesirable side - effects is reduced. there is however no room for complacency. future steps to complete the emu could provide further comfort to the ecb that monetary policy will not be the only game in town. fostering more risk - sharing, would for instance entail developing a capital markets union and completing the banking union by means of a european deposit insurance scheme. this, by the way, was already foreseen by han de jong as early as in 1980, when he joined the european commission to work on proposals for harmonizing deposit insurance schemes in europe! conclusion so let me conclude. today i discussed what i see as the main challenges for central banks worldwide and the ecb in particular. these challenges underline the need for a review of the monetary policy strategy under the new ecb - presidency. and, as i have also tried to illustrate, some of these challenges imply that elements and lessons from other central banks cannot always be transposed onto the ecb. a discussion is therefore warranted on the merits of increased flexibility. the ecb has to navigate its policy in a world characterised by

. i wonder how han reflects on this quote today, looking at the current calibration of monetary policy on both sides of the atlantic. whereas by now the fed has unwound the bulk of its qe - portfolio, the ecb restarted net purchases under its qe - program as recently as in september. but today, i will not dwell on the merits of the policy package that was adopted in september and has been discussed extensively afterwards. instead, i will focus on longer - term challenges for monetary policy. in my view, these challenges constitute a point of departure for the review of the ecb ’ s strategy that is anticipated to start formally in the new year. earlier this week, han remarked in the dutch newspaper het financieele dagblad that a new captain is in charge of developing a new strategy for his team. 1 well, this is also the case for the ecb. i will focus on three challenges affecting central banks worldwide. i will also discuss two challenges related to the specific context in which the ecb operates. i will argue that these challenges warrant a discussion in the upcoming review of the monetary policy strategy on the merits of increased flexibility with respect to our inflation aim. three challenges for central banks worldwide let me start by outlining three challenges that are not unique to the ecb, but apply more broadly to central banks worldwide. the first challenge, of course, is the fact that in the current environment, inflation is persistently low, and no one knows exactly why … different possible explanations for this phenomenon have been put forward, of which i would like to mention four : 1. we now see a weaker relationship between real economic activity and inflation than in the past. 2. inflation may be subject to more negative shocks than in the past. 3. inflation expectations are increasingly backward - looking. 4. and, finally, inflation may be subject to a declining trend in some of its underlying components. this explanation has been confirmed by recent dnb research. 2 to be more precise, i am not talking here about a secular declining trend that will inherently go on forever. some of the underlying drivers of this trend, like globalization or ageing, might fade away or reverse, as was also stipulated by carl tannenbaum. the process of globalization of the past decades for example might reverse due to an ongoing escalation in protectionism. the various explanations for persistently low inflation are interrelated and may to some extent co - exist. in terms