Episodes such as substantial increases in oil prices remind us that central banks, no matter how welldesigned their institutional foundations, how well-intentioned and personally committed their management, do not operate in a vacuum. Technological factors and agents' attitude towards consumption, saving and work combine with governments' thrift and the workings of law and regulations to determine the real basis for economic welfare.
Credibly reassuring market participants and the public at large about price stability over the medium run, and acting in a determined manner to fulfil this promise, is the best contribution that a prudent monetary authority can make to social welfare.