Designing reforms in the right way and creating a productivity-enhancing environment can maximise the former, and let me add: the faster, the better. But while the full benefits of these efforts are still emerging, aggregate demand should counteract the potentially destabilising effect of lower prices and higher real interest rates. This can be done by fiscal policy, when it is available without questioning long-term debt sustainability. And it can be done by monetary policy, even when interest rates have reached  18  For an explanation of this phenomenon in the US context see Bernanke, B (2005), “Productivity”, remarks at the C. Peter McColough Roundtable Series on International Economics, January 2005. 19  Andrews, D., C. Criscuolo and C. Menon (2013), “Do Resources Flow to Innovative Firms? Cross-Country Evidence from Firm-Level Data”, OECD Economics Department Working Papers, forthcoming. 20  Andrews, D., C. Criscuolo (2013), “Knowledge-based capital, innovation and resource allocation”, OECD Economics Department Working Papers No. 146. 21  World Bank (2013). 22  Veugelers, R. (2011), “Mind Europe’s early-stage equity gap”, Bruegel Policy Contribution 2011/18, December 2011. 23  See also speech by Cœuré, B. (2013), “Completing the single market in capital”, ICMA Capital Market Lecture Series 2014, Paris, 19 May 2014. BIS central bankers’ speeches  7  the lower bound, by expanding the central bank’s balance sheet and channelling liquidity to the real economy.24 This is what the ECB has been doing and will continue to do. It is sometimes argued that monetary policy can weaken the incentives to reform.

14  World Bank (2013), Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. 15  Foster, N., Poschl, J., Rincon-Aznar, A., Stehrer, R., Vecchi, M. and Venturini, F. (2013), “Reducing productivity and efficiency gaps: The role of knowledge assets, absorptive capacity and institutions”, in European Competitiveness Report, DG Enterprise and Industry, European Commission. 16  See for example Gomez-Salvador, R., A. Musso, M. Stocker and J. Turunen (2006), “Labour productivity developments in the euro area”, ECB Occasional Paper No. 53, October 2006. 17  Bourlés, R., Cette G., Lopez J., Mairesse, J. and Nicoletti, G. (2012), “Do product market regulations in upstream sectors curb productivity growth? Panel data evidence for OECD countries”, Review of Economics and Statistics, MIT Press, vol. 95(5). 6  BIS central bankers’ speeches  to have access to adequate initial and vocational training – something which on the whole US firms seem to have been able to do better than European ones.18 As part of this process, reallocation of resources is both unavoidable – as firms need to restructure – and essential – to concentrate resources where they are most productive. There are however important differences in the extent to which capital and labour flow to innovative firms. For example, researchers at the OECD have found that a 10% increase in the patent stock is associated with an increase in the typical firm’s capital stock of about 3% in Sweden and the United States; 1.5% in the United Kingdom and Germany; and a 0.5% in Italy and Spain.