which is a different aspect of what i referred to as a “ decline in capital productivity ” in my speech last summer. under such circumstances, while investment will be made in highly profitable new areas such as the it - related field, asset reduction will continue in existing low profit areas in order to raise roe and roa. according to the economic planning agency ’ s survey on corporate behavior, about half of listed firms responded that it would take more than two years for their real estate, buildings, and production facilities to return to appropriate levels. with respect to corporate restructuring and the it revolution, there is no knowing how they will lead to an improvement in corporate profitability and increase in investment. even if higher profitability and larger investment were realized, there is a possibility that the polarization seen in the economy might become, albeit temporarily, more apparent. for example, while there are industries regaining profitability supported by restructuring and it demand, not a few firms will be left behind in traditional and domestic demand - oriented industries. in this regard, public utilities, which have experienced a series of deregulatory measures, continue to suppress investment, and small and medium - sized wholesalers and retailers who are susceptible to the effects of the distribution revolution have been slow to exhibit a business recovery. regarding employment, there is a possibility that while demand for workers who have skills compatible with the new era increases, demand for workers who lack such skills declines. in this context, the unemployment problem might become an issue. these negatives can be termed the “ shadow of structural reform ”. since it is difficult to forecast the impact of it on corporate profitability and growth, we should bear in mind that there may be large swings in the stock market which tends to strongly respond to a variety of forecasts. in fact, strong expectations last year for the growth of it - related industry led to a substantial increase in the prices of it - related stocks. on the other hand, while the improvements in japan ’ s economy is becoming distinct, it - related stocks in japan have recently been bearish reflecting the worldwide correction of it - related stocks. these swings are unavoidable to some extent when the market is trying to identify growth industries and the key firms which lead such industries. the swings in stock prices will reveal promising new technologies and firms which incorporate these technologies, and nurture them. the bank of japan continues to pay due attention to stock price developments, and, in so doing, we think it important to calmly

has prompted some economists to suggest the existence of a ‘ european model ’ and a ‘ us model ’, related to the trade - off between labour use and productivity. 13 in their view, lower levels of gdp per capita growth in europe reflect european preferences for more leisure. there is no doubt that we are lucky to live in a peaceful and culturally diverse environment, and therefore we have very good reasons to value our leisure time. however, we should bear in mind that lower participation rates are not necessarily simply associated with our personal preferences but are also triggered by our legal and regulatory environment, our tax systems and our social institutions. this may, for example, explain the low participation rates of women in europe. measures aimed at reconciling motherhood with professional life, such as maternity leave, may raise participation rates, and the use of flexible forms of work may also provide a further incentive. 14 the empirical literature has also found evidence showing that economic growth is linked with the degree of development and structure of the financial system. 15 well - developed financial systems help to channel resources towards the most rewarding activities and therefore encourage the most efficient allocation of capital. in recent years we have also found that the financial structure is also important. most euro area countries have sophisticated banking systems, but their equity markets are less developed. it is an empirical fact that high - risk capital investments have been much larger in countries like the us, with a more developed venture capital market, than in other countries. riskier, these investments involve high - tech projects with potentially high returns and speed up the overall structural transformation of the economy triggered by science and technology. a sound macroeconomic policy setting is also the key to sustainable long - term growth. in particular, recent studies have emphasised the benefits of maintaining low and stable inflation and preventing unsustainable deficits and debts. empirical evidence confirms the highly damaging effect of inflation on long - term growth, even with moderate rates of inflation. recent analysis suggests that higher average inflation harms growth and welfare, whereas higher inflation volatility has a harmful impact on welfare and is likely to negatively affect growth. 16 there is also empirical evidence showing that oecd ( 2003 ) : the sources of economic growth in oecd countries. oecd, paris. see blanchard, o. ( 2004 ) : “ the economic future of europe ”, the journal of economic perspectives, vol. 18, pp. 3 - 26 ; and also gordon, r. j. ( 2004