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4 / 14  BIS central bankers' speeches  The first one relates to the sharp depreciation of the euro in the run-up to the announcement of the APP. As you can see on slide 4, a simple model-based analysis suggests that a large fraction of the decline in the euro’s external value reflected the worsening economic outlook, to which we ultimately reacted. It is likely that exporters to the euro area, faced with falling euro area demand, absorbed part of the exchange rate movement in their mark-ups to protect their market shares, thereby mitigating the upward pressure on prices stemming from a weaker currency. The second example relates to the current situation. Slide 4 shows that there are three forces, of roughly equal strength, that help to explain the euro’s marked appreciation in recent months: improved euro area growth prospects, an exogenous component and a tightening in the relative monetary policy stance vis-à-vis the United States. 5 / 14  BIS central bankers' speeches  Slide 5 illustrates the implications of this shock decomposition for the assessment of the exchange rate pass-through. The black line, which is the net effect, suggests relatively mild downward pressure on core inflation, much below what the rule of thumb would tend to suggest, despite the sizeable appreciation. The reason is simple. The current solid economic expansion in the euro area allows firms that export to the euro area to increase prices in their currency without losing market share, thereby mitigating, once again, the pass-through.