The historical fact that, at the time of the introduction of the euro, market interest rates on instruments denominated in euro all along the yield curve were to be aligned with the lowest – and not with the average – rates prevailing prior to the euro was not foreseen by many observers prior to Stage III. The historically low level of short, medium and long-term market interest rates was unthinkable in some countries, which had experienced much higher inflation in the past. In my view, the incorporation of monetary analysis into our monetary policy strategy served, in the eyes of the global market, as an anchor for expectations that in no small way contributed to our success in building and maintaining credibility. The monetary policy strategy of the ECB announced in October 1998 explicitly recognises the monetary nature of inflation by assigning an important role to money in the formulation of monetary policy decisions aimed at the maintenance of price stability. As Prof. Issing explained to us in detail, there were and still are many good reasons to do so. Milton Friedman’s famous dictum that “inflation always and everywhere is a monetary phenomenon” is one of the central tenets of economic theory.
Jean-Claude Trichet: The role of money – money and monetary policy in the 21st century (closing address) Closing address by Mr Jean-Claude Trichet, President of the European Central Bank, at the Fourth ECB Central Banking Conference “The role of money: money and monetary policy in the twenty-first century”, Frankfurt am Main, 10 November 2006. *  *  *  Ladies and Gentlemen, It has been a great pleasure to host you at this fourth ECB central banking conference. Over the past day and a half, we have enjoyed several outstanding presentations and stimulating discussions, which have helped understand better the role of money in modern monetary policy-making. The richness of the discussions stems in large part from the diversity of views that have been expressed. In selecting the leading participants at this conference, we did not hesitate to choose speakers who would challenge our established views and those of others. And we strongly believe in frank and candid exchanges of views and in the benefits of a close interaction with the academic community. At the conclusion of the conference, I certainly can agree with Prof. Woodford that there is indeed room for further refinement of the intellectual framework used as a basis for monetary policy deliberations. At the same time, I remain convinced that we should not lightly discard elements – such as monetary analysis – that have served central banks well in the past. With these two points in mind, what are the main messages we should draw from the proceedings?