In the context of the ECB’s strategy, macroeconomic forecasts and projections therefore play an important - albeit limited - role. Two important points follow from the role of projections in the ECB’s strategy and the procedures used to produce projections within the Eurosystem. First, the projections are produced by staff experts and do not embody the policy judgement of the Governing Council. They therefore represent one input into the policy-making process and not the outcome of the Governing Council’s deliberations. The Governing Council must exercise a policy judgement in evaluating the projections it receives, alongside all other analyses, when drawing implications for policy decisions. Second, since policy decisions are based on a broad range of analyses conducted under the two pillars of the ECB’s monetary policy strategy - of which the Eurosystem’s projections constitute only a part one should not expect policy decisions to respond mechanically to developments in the published macroeconomic projections. In this respect, the projections published by the ECB and their role differ considerably from the forecasts published by some other central banks. One question which has been raised since the announcement is why the Governing Council does not assume full responsibility for the projections to be published by the ECB, whilst of course accepting full responsibility for the staff that produces them. Let me answer this question by recalling the Governing Council’s ultimate responsibility, namely to maintain price stability in the euro area.
The projections will be published in the June and December issues of the ECB Monthly Bulletin, commencing in December 2000. Projections will be published for the growth rate of real GDP and its components and for HICP inflation. They will have a two-year horizon, so that the projections for both 2001 and 2002 will be published in December this year. In order to accurately reflect the degree of uncertainty attached to such exercises, the projections will be published in the form of ranges, based upon the average absolute errors made in previous national central bank and Eurosystem projections. The projections will be accompanied by a text describing their main features. I should emphasise that we use the word “projection” in order to signal that the published projections are the results of a scenario based on a set of underlying technical assumptions, including the assumption of unchanged monetary policy. This is the way forecasts are produced in many central banks in order to best inform monetary policy decision-makers. As the Eurosystem’s staff economic projections are the products of a technical exercise, which assumes, inter alia, that short-term interest rates and the exchange rate will not change over the forecast horizon, it should be clear that the staff projection will not, in general, be the best predictor of future outcomes, in particular for somewhat longer horizons. Rather, it represents a scenario which is likely to be falsified in practice, since monetary policy will always act to address any threats to price stability.