I am confident that the ECB is well equipped to cope with this challenge, not least due to the "full information approach" chosen in the form of the two-pillar-strategy. Of course, not only central bankers face uncertainty, but also private agents. Given this situation, the central bank itself must be an even greater source of stability. It must not only avoid any actions which may bring uncertainty to the economy, but must try to stabilise the expectations of private agents. When private agents are uncertain about the objective and the commitment of the central bank to this objective, they tend to shorten their planning horizons. They therefore become less predictable, which ultimately leads to a less foreseeable economic environment. BIS Review 10/2001  3  Thus, it is crucial for a central bank to define its policy objective and its strategy clearly and to provide a stable and broadly predictable pattern of behaviour to the public. In addition, central banks should avoid pursuing an activist monetary policy, i.e. they should avoid attempts to fine-tune the economy. In general, the limited knowledge of the monetary transmission process favours a clear medium-term orientation in order to accurately assess the risks to price stability. The current monetary and economic situation in the euro area Let me finally turn to the current monetary and economic situation and its implications for monetary policy. As you are no doubt aware, the ECB has kept interest rates unchanged since the beginning of October last year.
Furthermore, over the first two years of Monetary Union, there has come to be greater understanding that this is indeed a sensible approach. 2  BIS Review 10/2001  Monetary policy in an environment of structural change Central banking entails, by definition, acting under uncertainty. While this statement holds true in general, it is particularly the case for the ECB. The introduction of the euro had the potential to trigger structural changes in financial, goods and labour markets, which are in part already visible today and may evolve further in the near future. With regard to financial markets, the integration of national money markets into one area-wide money market has been almost without friction since the very start of Stage Three, which has allowed for an efficient implementation of monetary policy decisions. In the other segments of the financial markets, considerable progress has been made, although the integration process is far from complete. The removal of barriers to exchange rate risk between the countries of the euro area helped to facilitate the standardisation of debt instruments and widen the range of investment opportunities. Portfolio allocation strategies within the euro area are now mainly oriented towards a sectoral selection and, to a lesser extent, a national selection of assets. That is an impressive indication of the ongoing integration of financial markets in the euro area. This trend, in turn, enhances the liquidity of markets and affects the financing decisions taken by companies.