m. h. pesaran and m. wickens ( oxford, k. : blackwell, 1995 ), 221 – 311. 13 sargent, t. j. ( 1993 ), ” bounded rationality in economics ”, ( oxford : clarendon ). 5 / 6 bis central bankers'speeches 14 see, for instance, garcia - schmidt, m. and m. woodford ( 2015 ), “ are low interest rates deflationary? a paradox of perfect - foresight analysis ”, nber working paper no. 21614 ; gabaix, x. ( 2016 ), “ a behavioral new keynesian model ”, nber working paper no. 22954 ; and farhi, e. and i. werning ( 2017 ), “ monetary policy, bounded rationality and incomplete markets ”, nber working paper no. 23281. 15 blanchard, o., g. lorenzoni and j. p. l ’ huillier ( 2017 ), “ short - run effects of lower productivity growth. a twist on the secular stagnation hypothesis ”, journal of policy modeling, 2017, issn 0161 – 8938. 16 blanchard, o., e. cerutti and l. summers ( 2016 ), “ inflation and activity – two explorations and their monetary policy implications ”, ecb, inflation and unemployment in europe, conference proceedings of the ecb forum on central banking, pp. 25 – 46. 17 for a summary see constancio, v. ( 2015 ) “ understanding inflation dynamics and monetary policy ” remarks at the federal reserve bank of kansas city economic symposium, jackson hole, wyoming. see also constancio, v. ( 2017 ), “ understanding and overcoming low inflation ”, remarks at the conference on “ understanding inflation : lessons from the past, lessons for the future? ”, frankfurt am main, 21 and 22 september 2017. 18 bernanke, b. ( 2010 ), “ the economic outlook and monetary policy ”, speech at the federal reserve bank of kansas city economic symposium, jackson hole, wyoming. 19 daly, m. c. and b. hobijn, ( 2014 ), “ downward nominal wage rigidities bend the phillips curve ”, journal of money, credit and banking, vol. 46 ( s2 ), 51 – 93. 20 christiano, l. j., m. s. eichenbaum and m. trabandt ( 2015

rules in courts. the long horizon of many measures should not reduce the sense of urgency and necessity. all of these reforms are essential not only for the resolution of europe ’ s npl burden, and also as prevention of the renewed build - up of npl in future cyclical downturns. financial benefits of speedy action may surface more quickly too. if these measures become credible, investors will recognise the shift in policy and should price higher expected future returns into loan valuations. let me conclude. while npls are rightly seen as a problem, their resolution could unlock significant benefits to the european banking system and the european economy. the benefits from resolving the npl problem are unquestionable, but a great deal of hard work is clearly needed, on many fronts, to deliver them. neither a partial solution, nor further waiting is an option. acting only on the supply side of the npl markets and forcing banks to sell may have serious financial stability consequences. the resulting transfer of value from banks to the investor community would put further pressure on bank profitability, instead of relieving it. for this reason, a comprehensive, co - ordinated effort on the part of several european and national authorities is now crucial. 1 based on the imf financial soundness indicator database. 2 according to the ecb supervisory banking statistics. 3 the value of collateral reported in supervisory statistics is capped at the value of the exposure, therefore the actual collateral pledged against npls is likely to be significantly higher. 4 see deloitte ( 2016 ), “ deleveraging europe 2016. h1 market update ”. 5 see g. akerlof ( 1970 ) “ the market for “ lemons ” : quality uncertainty and the market mechanism ” in the quarterly journal of economics, vol 84, no. 3, pp 488 – 500. 6 see fell, j., m. grodzicki, r. martin and e. o ’ brien ( 2016 ), “ addressing market failures in the resolution of non - performing loans in the euro area ”, special feature b in financial stability review, ecb, november 2016. 7 see ecb ( 2016 ), “ stocktake of national supervisory practices and legal frameworks related to npls ”, september 2016. 8 on the possibilities of interpreting the relevant european legislation see the recent ceps special report by bruzzone, cassela and micossi ( 2016 ) “ fine - tuning the use of bail - in