longer run. bis central bankers ’ speeches because the evolution of the economy is uncertain, policymakers need to carefully watch for signs that it is diverging from the baseline outlook and respond in a systematic way to stabilize the economy. accordingly, for both our purchases and our forward guidance, we have tried to communicate as clearly as possible how changes in the economic outlook will affect our policy stance. in doing so, we will help the public to better understand how the committee will respond to unanticipated developments, thereby reducing uncertainty about the course of unemployment and inflation. financial stability in addition to our monetary policy responsibilities, the federal reserve works to promote financial stability, focusing on identifying and monitoring vulnerabilities in the financial system and taking actions to reduce them. in this regard, the committee recognizes that an extended period of low interest rates has the potential to induce investors to “ reach for yield ” by taking on increased leverage, duration risk, or credit risk. some reach - for - yield behavior may be evident, for example, in the lower - rated corporate debt markets, where issuance of syndicated leveraged loans and high - yield bonds has continued to expand briskly, spreads have continued to narrow, and underwriting standards have loosened further. while some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date – particularly at the largest banks and life insurers. more generally, valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms. in addition, bank holding companies ( bhcs ) have improved their liquidity positions and raised capital ratios to levels significantly higher than prior to the financial crisis. moreover, recently concluded stress tests mandated by the dodd - frank act have provided a level of confidence in our assessment of how financial institutions would fare in an extended period of severely adverse macroeconomic conditions or a sharp steepening of the yield curve alongside a moderate recession. for the financial sector more broadly, leverage remains subdued and measures of wholesale short - term funding continue to be far below levels seen before the financial crisis. the federal reserve has also taken a number of regulatory steps – many in conjunction with other federal agencies – to continue to improve the resiliency of the financial system. most recently, the federal reserve finalized a rule implementing section 165 of the dodd - frank act to establish enhanced prudential standards for large banking firms in the form of riskbased and leverage capital

. 18, pp. 3 - 26 ; and also gordon, r. j. ( 2004 ) : “ two centuries of economic growth : europe chasing the american frontier ”, cepr discussion paper, no. 4415. eurostat data. oecd employment outlook 2005. figure is estimated for 2005. see, for example, genre, v., r. gomez - salvador and a. lamo ( 2005 ) : “ european women : why do ( n ’ t ) they work ”, ecb working paper series, no 454, march 2005. eurostat data. for a further extension of this topic see european commission ( 2004 ), “ the link between product market reforms and productivity : direct and indirect impacts ”, the eu economy : 2004 review. the course of the 1990s, hourly labour productivity grew on average by 8. 5 % in the euro area over the period 1996 - 2003 compared to 6. 9 % in the us. 16 policies that are needed to further improve the functioning of product markets include the extension and deepening of the eu internal market. with service - related activities representing around 70 % of value added and employment in the euro area ( against almost 80 % in the us ), much more competition in eu service markets is required. overall, a higher competition in services markets would promote a more dynamic economy, increase the growth potential of europe and of the euro area and create more jobs. on 16 february 2006, the european parliament approved a draft directive aimed at a free market for services in the european union. this is welcome as it goes in the right direction even if we would have preferred a bolder move. 17 i would stress particularly the necessity of a very rapid and expeditious implementation of the new directive on services. not only because as i have already said the reason why europe is lagging behind the us in terms of productivity increases is very much due to poor behaviour of the services sector in this respect, but also because improving productivity in “ nontradables ” would permit europe to contribute more efficiently to a cooperative solution of global imbalances. the third prerequisite for higher growth in the euro area is the unleashing of entrepreneurial potential by creating a business - and entrepreneurial - friendly economic environment. this includes lowering costs imposed by public sector administrations for existing firms and business start - ups. let me illustrate this with some figures. according to the world bank, in 2004, the average cost of starting a business with up