banks ’ research is that competition with the academic world ensures adequate monitoring of the quality of models and analytical tools used for policy. for instance, the new area - wide model is a structural macroeconomic model for the euro area that has been developed by staff in dg research for simulation tasks and scenario analysis. the model is also regularly used to produce research papers that are widely presented in academic conferences and central banks workshops. this provides a quality check and guarantees that a model used for policy analysis is kept up to the highest standards. finally, a fourth reason for investing resources in research is that the policy process sometimes requires research output not yet available at universities or other research institutes. the ecb has at times identified issues of fundamental importance for understanding the impact of monetary policy in the euro area, upon which limited information was available. as a consequence, the ecb has decided to lead and co - ordinate research efforts through eurosystem networks, which involved the ecb and the national central banks of the euro area. the monetary transmission network pursued for three years empirical analyses of the transmission of monetary policy in the newly formed euro area. macroeconomic time series data were used to estimate a variety of econometric models of the transmission at euro area and national level, while microeconomic data were used to measure the effects of monetary policy on investment of non - financial firms and on the lending behaviour of commercial banks. the inflation persistence network worked for two years at understanding the patterns and determinants of inflation persistence. the network availed itself of an unprecedented data set. the individual price records underlying the construction of both consumer and producer price indices was made available in a large number of euro area countries. moreover, the network conducted surveys on price setting behaviour in nine countries of the euro area. these databases enabled to understand the behaviour of price setters, to investigate the determinants of nominal rigidities and to empirically test alternative price setting models for the euro area. finally, the ongoing wage dynamics network aims at identifying the sources and features of wage and labour cost dynamics that are most relevant for monetary policy. it aims at clarifying the relationship between wages, labour costs and prices both at the firm and macro - economic level. the ecb trusts that research is enhanced by exposure to external ideas and latest advances in the field. this exposure is mainly achieved through regular seminars and conferences. on top of internal seminars given by staff, the ecb weekly organizes an invited speaker seminar and, jointly with the center

the ecb – like many other central banks – has decided to develop its own research capability from its start. first, central banks need research - oriented economists to follow the latest developments in economics and to recognise their potential relevance for policy - making. let me provide an example based on the sustainability of a country ’ s external imbalance – a topic that greatly benefited from the work of professor rey. the literature has recently pointed to the limits of traditional approaches to the balance of payments, where currency depreciation provides the bulk of the adjustment needed to correct a country ’ s current account deficit. traditional approaches fail to realize the consequences of financial globalization for the sustainability and adjustment of the external position. in the presence of variation in asset returns, cross - border asset holdings introduce valuation effects that decouple the dynamics of net foreign assets from that of current accounts, altering the role of the trade balance in correcting a country ’ s external position. recent research at the ecb has been very enlightening in this respect. a second reason for conducting research in a central bank is that a major task of central bank research is to bridge the possible gap between academics and policy makers and to create occasions for interactions with the academic community where the diversity of views can be expressed and discussed. for instance, at the ecb we are convinced that a thorough analysis of monetary developments – our “ monetary pillar ” – is important for the conduct of monetary policy and for the anchoring of inflation expectations. our view is supported by the strong empirical link between money growth and inflation over the long - run and by theoretical considerations relating to the ability of monetary and credit aggregates to point at imbalances in the financial system and inflationary risks. looking at the historical experience, the analysis of monetary developments has helped the ecb to assess the risks to price stability, to identify the nature of the shocks impacting on the euro area and to signal its medium - term orientation. this has been a key factor in anchoring agents ’ expectations and in establishing the high credibility of the ecb. to broaden and deepen the monetary analysis we trust that it is important for us to have an ongoing, direct and candid openness to discussion with the academic world. an example is provided by the 4th ecb central banking conference on " the role of money and monetary policy in the twenty - first century ", where the ecb engaged in an open debate with academics on this important topic. a third argument to invest in central