Less than a decade ago, we did not even have the statistical requirements for the Monetary Union, let alone the statistics themselves for the euro area. Today, euro area statistics compare favourably with those of other major countries in many respects. A concrete example is the monthly balance of payments for the euro area and the availability of a timely, flash estimate of the euro area Harmonised  2  BIS Review 67/2004  Index of Consumer Prices (HICP). Moreover, the ECB compiles an elaborate and timely set of monthly statistics on monetary developments in the euro area and interest rates. Statistical preparations had to start early, due to the long lead times involved. On average, it takes around 18 months from inception to delivery of a new set of statistics that involves the collection of additional information from economic agents. While there is still room for improvement, which I will explain later on, I feel confident that the ECB has now at its disposal a solid set of statistics of sufficient quality for the conduct of monetary policy. Let me share with you some of the success factors and ‘lessons to learn’ from this development process. First and foremost, the achievements have been possible thanks to the intensive and fruitful cooperation and coordination with other statistical agencies.
At the same time, just as a good meal not only requires high-quality ingredients but also an excellent cook and recipe, high-quality monetary policy analysis also requires excellent staff and an appropriate analytical framework. The importance of the latter can hardly be overstated. While central bankers around the world are “data fiends” in their heroic attempts to minimise errors of inference and to make robust decisions amidst uncertainty about the true structure of the economy, the availability of a vast wealth of raw data from diverse sources may mean that policy-makers become constantly bombarded by conflicting signals. Amidst such a flood of information, policy runs the risk of losing its bearings and of over-reacting to the latest indicator. It is against this background that the ECB decided to adopt an analytical framework within which all possible sources of information - statistical as well as judgemental - can be brought together in a coherent fashion while at the same time allowing for alternative and diverse models and perspectives of the workings of the economy. In our view, this framework enables a wealth of information to be “digested” routinely without compromising the ultimate objective: to maintain a clear sense of direction. In order to give a structure to the diverse sources of information, a structure that is consistent with our view of the monetary policy transmission mechanism, we have organised our analytical framework into “two pillars”. These consist of two complementary perspectives on the determination of price developments.