elements of the monetary policy strategy of the escb. ” o. issing ( 2002 ), “ why stable prices and stable markets are important and how they fit together ”, monetary stability foundation, frankfurt am main. see in particular j. c. trichet ( 2009 ), “ credible alertness revisited ”, intervention at the symposium “ financial stability and macroeconomic policy ”, jackson hole, wyoming, august 2009. t. adrian and h. s. shin ( 2008 ). “ financial intermediaries, financial stability, and monetary policy, ” presented at the federal reserve bank of kansas city jackson hole symposium. imbalances. 7 i take this opportunity to raise awareness in the central banking community of the importance of monetary analysis and its implications, both for economies individually and globally. concluding remarks we are emerging from the uncharted waters navigated over the past few years. but as central bankers we are always faced with new episodes of turbulence in the economic and financial environment. while we grapple with how to deal with ever new challenges, we must not forget the fundamental tenets that we have learned over the past decades. keeping inflation expectations anchored remains of paramount importance, under exceptional circumstances even more than in normal times. our framework has been successful in this regard thus far ( see figure 2 ). the rba has operated through fifty turbulent years of monetary policy making. as recent experience has shown, there will be a need for innovation by central banks to meet novel challenges. but the lessons of the past fifty years – and, in particular, our success in anchoring inflation expectations – should remain uppermost in our minds. figure 1 : inflation developments in industrial economies percent per annum, averages of quarterly data note : “ other industrial countries ” denotes the ( equally weighted ) average of cpi inflation rates in australia, canada, the united kingdom and the united states. source : oecd and euro area wide model database. see l. alessi and c. detken ( 2009 ). “ real time early warning indicators for costly asset price boom / bust cycles : a role for global liquidity, ” ecb working paper no. 1039. figure 2 : measures of longer - term inflation expectations in the euro area percent per annum, 5 - day averages of daily data note : data in percent ; beir denotes the break - even inflation rate ; spf denotes the ecb survey of professional forecasters. source : consensus economics, reuters, ecb calculations.

fifty years there has been a preference for rules to constrain policy makers, so as to avoid previous mistakes. australia ’ s experience, which is in line with the experience of english - speaking countries, has been different. medium - term orientation and monetary analysis whether characterised as “ constrained discretion ” or “ rule - based, but not rule bound ”, modern monetary policy frameworks accord central banks a certain “ degree of freedom ” in their decision making. to what ends should this freedom be put? to be clear, it is crucial that price stability is maintained over the medium term. but it is neither feasible nor desirable for inflation to be targeted on a short term basis. within the academic literature, this is recognised in the so - called “ flexible inflation targeting ” framework. 2 this framework explicitly foresees the use of monetary policy to smooth developments in economic activity over the business cycle, while anchoring longer - term inflation expectations at levels consistent with price stability. from the outset, such considerations were also recognised in the ecb ’ s strategy. we have always acknowledged the need to avoid excess volatility in output and nominal interest rates, which would have resulted from excessive “ fine tuning ”. 3 our approach is characterised by a medium - term orientation, which recognises that – given lags in monetary policy transmission and the inevitable short - term shocks to price developments – we should not attempt to j. taylor and j. c. williams ( 2009 ), “ a black swan in the money market, ” american economic journal : macroeconomics 1 ( 1 ), pp. 58 - 83. l. e. o. svennson ( 1998 ), “ inflation targeting in an open economy : strict or flexible inflation targeting? ”, victoria economic commentaries 15 ( 1 ). ecb ( 1999 ), “ the stability - oriented monetary policy strategy of the eurosystem ”, monthly bulletin ( january ). “ micro - manage ” price developments. rather we evaluate risks to price stability at the medium - to - longer term horizon. the literature has focused on the use of monetary policy to smooth output in the relatively shorter run. but the flexibility accorded by a “ rules - based, but not rule - bound ” approach can be oriented in other directions. for example, it can be used to contain financial imbalances, by applying the same approach as we adopt when facing other sources of inflationary pressure. if the slow accumulation of financial imbalances poses a threat to macroeconomic