about the future and knowing that investment is a sunk cost, may choose to postpone investment in order to obtain further information about future market conditions. one can show that, in this case, the required rate of return to undertake the investment project increases. it is clear that, hereby, uncertainty introduces additional frictions in the investment decision process, which are likely to temper the effect of a change in the policy - controlled interest rates. therefore, also in this respect, the monetary authorities need to evaluate the precise timing and magnitude of these frictions, which are caused by uncertainty. as to the requirement to use micro data, it is known that aggregation can blur identification of important parts of the behaviour of economic agents. so, studies at the aggregate level often fail to find an economically significant relation between investment and the user cost of capital, a relation of the utmost importance for the transmission of monetary policy. this failure is attributed in literature to the so - called simultaneity bias. using micro data allows alleviating these problems. moreover, micro data allow analysing important economic questions that cannot be addressed using aggregate data sets. this is precisely the case if one wants to identify the existence of financial frictions, because here the individual balance sheet position of the particular firm matters. next, i want to review the importance of the launch of the euro and of the ecb ’ s price stability policy for investment behaviour. the introduction of the single currency three years ago provoked fundamental changes in the environment in which the public and the private sector operate. first, the most apparent change has been the elimination of exchange rate risks. together with the lower transaction costs and more transparent markets, this has created new opportunities for companies within the euro area. second, the euro has given impetus to the process of financial integration by enhancing the widening and deepening of the euro area financial markets. this evolution may appear to be beneficial for firms, which were or still are financially constrained and unable to execute all their investment plans. especially young and risky firms often suffer from insufficient tangible assets, that might serve as collateral for external funds, and / or develop activities that are highly risky in terms of future returns. since these are typically the enterprises which tend to bring new technologies to the market, financial market deepening, as triggered by the euro, may contribute to boost investment and economic growth. although with the launch of the euro, the exchange rates of the currencies of the euro area countries became irrevocably

monetary policy. a relaxation beyond the degree that is consistent with domestic stability is beneficial to nobody. in the medium and long run, it actually does harm, not only to the country itself but to the global economy as a whole. that is a lesson taught by the current problems in japan. they are due not least to the overly expansionary monetary policy pursued in the late eighties. at the time, japan regarded that policy as a contribution to international cooperation, and it was actually called for by the united states. that does not mean that monetary policy should bury its head in the sand. in the communique of the interim committee, it says : “ should there be a worsening of the crisis or a further slowdown in economic activity, additional action on both domestic and international grounds would be required by both emerging market countries and industrial countries. ” however, upheavals in the financial markets cannot be tackled by monetary policy instruments alone. monetary policy in the industrial countries must preserve the high level of confidence and credibility it now enjoys in the financial markets. otherwise, any measures could back - fire. vi without any doubt, given the crises besetting many parts of the world, the euro has passed its first acid test. that is gratifying. the markets regard the euro as a safe haven. in that respect, it has already become a serious rival to the dollar. and exchange rates in the ems between the future euro currencies have remained stable. that demonstrates two things : the markets have accepted the transition to monetary union as being irreversible. and the euro and the independent european central bank are enjoying a high degree of confidence in investors ’ eyes. the continuous and sometimes exasperating insistence on the achievement of the necessary stability conditions has thereby borne its first fruit. however, maintaining those conditions for success is a long - term task. the role of the euro as an international investment currency, anchor currency and reserve currency is inseparably associated with its internal stability. the markets will focus their attention on that. and that is the criterion whereby the markets, and also the man in the street, will judge european monetary policy at the end of the day. it is this anti - inflationary basic orientation by which the governing council of the european central bank will be guided ; that emerged very clearly again from the debate we held on strategy two days ago. however, for a durably stable monetary union, european monetary policy also needs the support of the other