##p to resolve problem banks. without these vital amendments, we will be unable to properly enforce the reforms embedded in the regulatory changes. these are very basic arrangements that are widely adopted internationally, precisely to achieve a healthy banking system. the bsp is likewise spearheading the initiative to establish a world - class credit information system. we have recommended a bill to congress creating such a system anchored by central credit information bureau that will have the ability to collect, consolidate, and distribute credit information to credit providers and analysts. world bank studies and other independent studies have established that a good credit information system will significantly increase access to credit especially by small borrowers, lower credit transaction costs, lower cost of borrowing, and improve management of credit risk. these are the two major pieces of legislation that the bsp is prioritizing in its advocacy with congress. we hope that the finex collectively can help us in this effort that is so vital to strengthening the financial system. there are other pieces of vital legislation that we should all be working closely together on to have enacted. one of these is an improved bankruptcy framework through the proposed corporate recovery act. we are in critical need of a modern framework for orderly resolution of failed organizations that even - handledly settles potentially conflicting interests of borrowers and creditors. a bias for the former will lead to a weak financial system while a bias for the latter will sow the seeds of inequity and instability. other important pieces of legislation are oriented to furthering the development of the domestic capital market. these include the proposed rica and pera bills. even more basic is the necessity to re - think the whole approach on the taxation of the various financial instruments to encourage a deep capital market that is able to offer a wide array of investment outlets catering to diverse risk preferences and investment objectives. i understand this is now the subject matter of a comprehensive study in preparation for a specific legislative proposal. the high degree of interconnectedness of our financial system has compelled the bsp to play a more active role in developing the domestic capital market and to collaborate more closely with other financial regulators. let me mention a number of key initiatives. one initiative is to broaden the array of available capital market instruments such as tier 2 paper, ltncds, documented repos, structured debt, collateralized debt obligations, and credit derivatives. we have gone out of our way to overhaul our regulations to allow financial innovation but under appropriate risk management standards. on the demand side, we have initiated a major

when there was no significant up - or downward trend in inflation. figure 1 euro area hicp inflation and its trend percent notes : the trend is estimated by an unobserved components model of hicp inflation and the unemployment rate for the euro area, see bonam et al. ( 2019 ). second, not only has inflation been subject to a downward trend, but also its inertia – or persistence – has increased since the crisis [ figure 2 ]. after having declined gradually between the mid - 1980s and the early 2000s, inflation persistence is now back at its long - term average. figure 2 euro area hicp inflation and its persistence percent notes : inflation persistence is estimated from a time - varying autoregressive model over a 30 - quarter moving window for seasonally adjusted, quarter - on - quarter euro area headline inflation. the graph shows hicp inflation ( in percent ) together with the inflation persistence parameter. the vertical bar shows the start of the gfc. for details, see bonam et al. ( 2019 ). the million dollar question is then what these developments signal for central banks ’ ability to control inflation. let me explain my take on this issue. notwithstanding the ongoing debate on its validity, i still regard the phillips curve as a relevant analytical framework to structure our thinking. according to the standard view, the phillips curve explains the inflation process in terms of three main elements. the first element is expectations of future inflation. expectations can be forward - looking, in which case inflation is self - equilibrating ; or backward - looking, in which case inflation is more persistent. the second element is economic slack, which captures the impact of aggregate demand. while slack has traditionally been measured by an output gap or unemployment gap, recent research suggests that more granular indicators of labor market conditions are needed to better capture phillips curve relationships in the data. 1 the third element is shocks. these shocks can in principle have a positive, negative or ambiguous effect on inflation. if shocks are more permanent, inflation will be more inertial. if we look back at the euro area over the past decade, most of these shocks appear to have been quite persistent and have 1 see e. g. aaronson, s., cajner, t., fallick, b., galbis ‐ reig, f., smith, c. and w. wascher ( 2014 ). labor force participation : recent developments and future prospects, brookings papers on economic