However, there remain two causes for concern: -  one is the natural difficulty in moving to an entirely new set of price references – and it may take a number of years before this switch is fully made by the public at large. -  and the second, probably related to the first one, is the feeling in the public that there have been excessive price increases linked to the cash changeover. Indeed, the public’s attention has focused on a small number of goods and services in which abnormal increases occurred at the time of this event, leading to a misperception of the real rate of inflation. This gap between perceived inflation and real inflation has however been narrowing progressively and should hopefully disappear in the near future. Concluding remarks To conclude, let me emphasise that eight years after its adoption, the euro has lived up to all of our expectations. After the unprecedented challenge of a continent-wide cash changeover, the euro almost instantly replaced the legacy currencies without any disruptions. It has fostered both price and macroeconomic stability through its credibility and has shielded many euro area countries from significant exchange rate volatility and financial market  1  On average, central banks of industrialised countries changed their policy rates every 5 months both in the 1980s and the 1990s (Source Clerc et Yates (1999): “Interest rate stepping: some puzzles and facts”, mimeo Bank of England), which is close to the frequency of the ECB interest rate changes (4.7 months).
Is the central bank forward-looking or rather “behind the curve”? These are actually some of the recurrent criticisms I have heard about the Eurosystem’s monetary policy: too obscure, too narrow-focused, too late. One can build up (see Figure page 7 of the Annex) a forward-looking Taylor-type rule for the ECB’s minimum bid rate. As an overall assessment, the Taylor-type rule closely matches Eurosystem’s monetary policy decisions. Under the proviso that this rule provides a good benchmark, it is quite unclear why the Eurosystem has attracted so much criticism: in particular, the output stabilisation “objective”, as encapsulated in a standard Taylor rule, has not been overlooked by the overriding objective of price stability. In that regard, one should be aware that, in the euro area as elsewhere, price stability aims at providing the highest sustainable growth and employment in the longer run; finally, the decisions have been taken in a timely fashion, the Eurosystem conducting its monetary policy in a forward-looking and pre-emptive way. However, the same figure shows that policy decisions deviate from the Taylor rule benchmark. Actually, being rule-based doesn’t imply being rule-bound and monetary policy decisions are not taken on the basis of mechanical rules. I already mentioned the Eurosystem adopted a full-information approach, which besides the usual array of economic and financial indicators also gives a key role to monetary analysis not factored in usual Taylor rules. Identifying in real time the nature of monetary developments and their implication for future price developments represents however increasing challenges.