does the new economy measure up to the great inventions of the past, ” journal of economic perspectives ( forthcoming ) ; dale w jorgenson and kevin j stiroh, “ raising the speed limit : us economic growth in the information age, ” 1 may 2000 ; macroeconomic advisers, “ productivity and potential gdp in the ‘ new ’ us economy, ” september 1999 ; and stephen d oliner, and daniel e sichel, “ the resurgence of growth in the late 1990s : is information technology the story? ” working paper, federal reserve board, february 2000. specifically, we could increase the estimate of trend productivity growth, based on higher multifactor productivity and capital deepening - both due in large part to information and communications technology - and have a fairly good explanation of the remarkable performance of the us economy. this approach would explain the recent productivity performance without denying the continued relevance of old economy regularities, including the role of supply and demand imbalances as a source of inflation dynamics. the alternative - and the broader interpretation that often seems to underlie the new economy label - is that we are witnessing a more fundamental change in the paradigm. the old rules no longer apply. throw out the nairu. heck, throw out supply and demand. no limits, no business cycles. all right, this is a bit of an exaggeration, but you get the point that i am not especially partial to the broader interpretation of the new economy concept! still, to be fair, there are other potential and perhaps more far - reaching implications of the spread of information and communications technology, including the role of the internet and e - commerce. today, these are, in my view, best expressed as questions about future prospects rather than as principles underlying the present economy. for example, do these developments increase the competitiveness of markets, and, if so, how does this affect inflation dynamics? they appear to increase the speed and effectiveness of price discovery. what does this imply for pricing leverage and inflation dynamics? do they contribute to a permanent increase in sustainable utilization rates, perhaps by increasing the efficiency of the matching of available workers with available jobs? do they result in rapidly growing sectors dominated by increasing returns to scale, where increases in demand lower cost and hence prices? these are all provocative and important questions, but none of these developments, in my view, are powerful enough at this moment to support the notion that labor and other utilization rates can rise ever higher without triggering accelerating prices - the broader version of the

they suggest that surplus countries should shoulder at least part of the burden. but this criticism misses the point of what the correction of domestic imbalances actually means : as regards the lingering threat of a protracted deflation, it is rather a one - off reduction of prices and wages that is required, not a lasting deflationary process. in fact, frontloading reforms and necessary adjustment has proven to be more successful than protracted adjustment, as experience in the baltic states and ireland shows. and while not all countries can run a current account surplus, all can become more competitive – higher competitiveness due to productivity increases or lower monopoly rents in, up to now, overregulated sectors is not a zero sum game. structural reforms can unlock the potential to increase productivity and thus improve competitiveness without inducing deflation. there is no way around the fact that europe is part of a globalised world. and, at the global level, we are competing with economies such as the united states or china. to succeed, europe as a whole has to become more dynamic, more inventive and more productive. once the deficit countries start to become more competitive, surplus countries will adjust automatically. they will become less competitive in relative terms, exporting less and importing more. and we should acknowledge that this process has already been set in motion. exports of a number of peripheral countries have started to grow, bringing down current account deficits in the process. correspondingly, german imports from the euro area have grown strongly over the last two years, almost halving the current account surplus between 2007 and 2011. to facilitate the adjustment process, euro area members have committed significant funds within the framework of the efsf and the esm. germany is contributing the biggest share. bis central bankers ’ speeches this support is based on the high reputation germany enjoys among investors. we would put this trust in jeopardy if we were to give in to calls for fiscal stimulus in germany in order to raise demand for imports from the peripheral euro area. but weakening germany ’ s fiscal position would lead to higher refinancing costs and, therefore, either reduce the capacity of the firewalls or raise the borrowing costs for programme countries. moreover, studies by the imf suggest that positive spill - over effects from an increase in german demand to partner countries in the euro area would be minimal. so, instead of stimulating exports in peripheral euro - area countries, additional fiscal stimulus at a time when germany ’ s economy is already