ANNUAL REPORT 2008 - Polymer Bank Notes of the World

5 ECONOMIC RESEARCHThe main functions of research at the ECB, aswell as in the Eurosystem as a whole, are: toprovide research results that are relevant for theformulation of policy advice on monetary policyand other Eurosystem tasks, and to design andimplement the respective models and analyticaltools; to maintain and use econometric modelsfor economic forecasts and the comparisonof the effects of alternative policies; and tocommunicate with the academic community,for example through the publication of researchresults in peer-reviewed scientific journals andthe organisation of research conferences.5.1 RESEARCH PRIORITIES AND ACHIEVEMENTSEconomic research at the ECB is performed in adecentralised way: all business areas can conductresearch projects according to their needs andexpertise. The Directorate General Research, aswell as producing high-quality research itself,plays a central role in coordinating research. TheDirectorate chairs the Research CoordinationCommittee, which aligns research activities atthe ECB with the requirements of the institution.The Committee sets broad priority areas foreach year.The following fields were identified as the mainresearch priorities for 2008: forecasting andmodel development; improving the monetaryanalysis; understanding the transmissionmechanism of monetary policy; financialstability; the efficiency of the European financialsystem; and international and fiscal issues.In the area of forecasting and modeldevelopment, a number of existing projectswere continued in 2008 and some new oneswere launched. The New Area-Wide Model(NAWM) was introduced into the projectionexercises and was used both in the constructionof the central projections and for scenarioanalysis. The Christiano-Motto-Rostagno modelwas further developed and was used in a numberof policy exercises focusing on the behaviourof financial markets. Both are examples of thedynamic stochastic general equilibrium (DSGE)models that are becoming increasingly commonin policy work at central banks. Other DSGEmodels were developed in house to tacklespecific policy issues. Work initiated in 2006-07on short-term forecasting tools was brought tofruition in 2008, with the introduction of thesetools into the regular economic assessment andpolicy preparation work. Research work onexisting and new forecasting tools will continuein 2009.A new method for the construction ofprojection ranges was introduced in the courseof 2008 and used in the ECB/Eurosystemstaff macroeconomic projections published inSeptember and December. Forecast uncertaintywill be a topic of interest also in 2009.Research on monetary analysis concentrated onthe development and use of quantitative methodsfor monetary analysis, with an emphasis onproviding high-quality analytical tools for thepreparation of policy decisions. Work focusedon developing money-based indicator modelsfor inflation and on analysing money demand,as well as on designing monetary scenariosfrom a structural perspective. In this context,the Christiano-Motto-Rostagno model was usedextensively. Particular attention was paid to theuse of different structural models and other toolsas cross-checking devices.With regard to the monetary policy transmissionmechanism, the Wage Dynamics Network(WDN), which consists of ESCB researchers,presented the results of its work at a conferencein June 2008. The WDN investigates the featuresand sources of wage dynamics in the euro areaand their relationship with prices, at both theaggregate and the micro level. One importantachievement of the network in 2008 was asurvey it conducted, covering 17 countries, onwages, labour costs and price-setting behaviourat the firm level.The euro area-wide household finance andconsumption survey (see Section 4 of thischapter), prepared by a Eurosystem network,will cover micro-level information on a wideECBAnnual Report2008127