) source : ecb mfi interest rate statistics. notes : the indicator for the total cost of borrowing is calculated by aggregating short and long - term rates using a 24 - month moving average of new business volumes. the cross - country dispersion displays the min and max range over a fixed sample of 12 euro area countries after excluding the extreme values. the last observation is february 2015. bis central bankers ’ speeches chart 4 : market - implied path of 1 - year real rate in the euro area ( % p. a. ) sources : reuters and ecb calculations with other sources indicated in the legend. note : last observation is 26th march 2015 bis central bankers ’ speeches

and labour market slack can be weakened not only during a recession but also in the early phase of a recovery. while the decline in euro area wage growth during the recession was limited due to downward nominal wage rigidities, in the early phase of the recovery wage growth may remain subdued as a result of “ pent - up wage restraint ”. in other words, the wage adjustment which did not occur during the recession may cause employers to initially curtail wage increases as they do not see a need to attract suitably qualified employees by wage incentives. however, once this pent - up wage restraint has been absorbed, wages should begin to rise at a more rapid pace. see christina romer and david romer, ( 2012 ). see ecb monthly bulletin, july, 2014. gordon, r., “ the philips curve is alive and well and the nairu during the slow recovery ”, nber working paper, no 19390, august 2013. bis central bankers ’ speeches discriminating across such null hypotheses is hard. but with these caveats in mind, a study by banca d ’ italia finds, for example, that the phillips curve has undergone a structural break in both spain and italy, and for two reasons. first, nominal price rigidities have declined, possibly on account of the impact of structural reforms. again, this result can be interpreted in a variety of ways, including the idea that a temporary destabilisation of inflation expectations at some point started to influence wage contracts and produced a parallel drift in the curve. the second factor is a higher elasticity of consumer prices to the output gap. the underlying reason mentioned in the study is changes in the price setting behaviour of firms. this reflects the lower number of firms in the market in the aftermath of the deep recession and the reduction in strategic complementarities in price setting that this leaner retail sector brings about. this latter factor indeed comes very close to a new keynesian type interpretation of the higher sensitivity of inflation to the underlying economic conditions, where different degrees of strategic complementarities in price setting can indeed be viewed as influencing the coefficient attached to slack ( or, rather, the marginal cost of production ) in the phillips curve condition. this evidence could tentatively support the contention that what is observed in the data is indeed a structural shift. 5 it is important to remember that a steep ( er ) phillips curve is a curse for inflation stability on the way down, when cyclical unemployment is on the rise