’ s monetary policy strategy. a close understanding of the framework of our analysis is indispensable in order to fully grasp the policy pursued by the ecb. the first element of the ecb ’ s monetary policy strategy is the published definition of price stability. price stability has been defined as “ a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ”. the ecb has also stated that price stability is to be maintained over the medium term. the definition is intended to securely anchor inflation expectations. moreover, it provides a clear yardstick against which the ecb ’ s monetary policy can be held accountable for the achievement of its primary objective. in order to take appropriate decisions with regard to this objective, the ecb monitors a broad set of indicators. first, a prominent role has been assigned to money as the so - called first pillar of the strategy. the assignment of such a prominent role to money is justified by the available econometric evidence. this evidence suggests the existence of a stable relationship in the euro area between the broad monetary aggregate m3, the price level and a small number of other euro area - wide macroeconomic variables. the important role assigned to money has been signalled by the announcement of a reference value of 4½ % for the annual growth rate of m3. the first pillar consists not only of a detailed analysis of deviations of m3 growth from the reference value for the information that they contain about the outlook for price stability, but it also embodies a thorough analysis of monetary developments, including careful monitoring of the components and counterparts of m3. in addition to a thorough analysis of monetary developments, a comprehensive assessment of a wide range of other economic and financial indicators constitutes a further basis for monetary policy. this assessment encompasses an analysis of, inter alia, cost and price indices, the exchange rate, real economic indicators, and financial markets indicators. in brief, the role of this second pillar is to provide information about the prevailing economic situation and on the nature and magnitude of risks to price stability, which are not made apparent from an analysis of the monetary aggregates in a complete or timely way. some commentators have regarded this strategy, based on the assessment of two sets of indicators, as unclear and overly complex. i have two responses to such criticism. first, new methods and new strategies are not always fully understood from the outset. the learning and familiarisation process can take some time. second

##t, a. and levine r. ( 2001 ), levine ( 2005 ). bis central bankers ’ speeches to conclude this brief overview, i would underline that larger financial sectors have generally been associated with a higher degree of economic diversification, resulting in a lower overall volatility of gdp growth for the same level of long - term output growth. ( manganelli and popov, 2010 ). however, the decade of the run - up to the crisis saw the effect of larger financial sectors on higher economic growth partly disappear. this phenomenon is connected to the complex non - linearities involved in the finance - and - growth - nexus, causing the effect of finance on growth to peter out over the development cycle, as well as to the trade - off between growth and tail risk exacerbated by the expansion of the financial sector. indeed, the main finding of research paper by popov ( ecb, 2011 ) is that financial globalization increases simultaneously the mean and the left skewness of output growth. this implies that while raising long - term growth, financial globalization has also exacerbated the risk of large, abrupt, and rare macroeconomic contractions. this is consistent with the view that in financially liberalized economies, systemic risk taking raises the probability of a collapse in financial intermediation. the paper also finds that the welfare effects of liberalization vary with the degree of economic and financial development, therefore financial globalization is not a one - size - fits - all development. there is also some evidence suggesting that higher growth of the financial sector may come at the expense of higher volatility in general ( levchenko et al., 2009 ), both for developed and developing economies ( popov, ecb 2011 ). these research papers emphasize the characteristics of the financial sector as key determinants of macroeconomic performance in all its facets, notably as regards long - term potential, cyclical fluctuations and likelihood and severity of crisis episodes ( see also kaminsky and reinhart, 1999 ). this may call for strengthening our efforts to understand the macro - finance nexus, extract lessons from the crisis and foster the synergies across the various analyses and perspectives ( monetary policy, stability, etc. ) in which central banks analyse the financial system. let me now turn to another important point : historical evidence seems to indicate that there is also no relationship between simple book capital ratio ( or leverage as its inverse ) and economic growth. miles et al. ( 2011,