##urably over the past few years and that, by and large, the output gap in the euro area has closed. chart 2 a uncertainty over the remaining degree of economic slack … euro area output gap ( in percent of potential output ) sources : european commission, imf, oecd last observations : 2022 ( imf ) ; 2021 ( ec, oecd ). alternative measures of the output gap paint a different picture, however. chart 2 b uncertainty over the remaining degree of economic slack … euro area output gap ( in percent of potential output ) source : jarocinski, m. and m. lenza ( 2018 ), “ an inflation - predicting measure of the output gap in the euro area ”, journal of money, credit and banking, vol. 50 ( 6 ), pp. 1189 - 1224. ecb staff, for example, have developed an indicator, based on a large set of economic variables, that outperforms other measures in its ability to forecast underlying inflation out of sample. clearly, this measure would point to continued substantial slack in the euro area economy. but such indicators come with two caveats. the first is that they “ reverse engineer ” – that is, inflation, or the lack thereof, is always and everywhere attributed to economic slack. and the second caveat is that they are difficult to reconcile with both survey - based and hard data - based indicators of slack in the labour market, which even point to growing signs of labour shortages. chart 3 … but growing signs of shortages in labour markets importantly, improvements in the labour market have not been confined to headline unemployment. over the past few years we have observed a marked decline in the number of discouraged workers and underemployed part - time workers ( slide 3, left panel ). ecb estimates suggest that current broad labour market conditions do not differ much from those observed just before the outbreak of the global financial crisis. the question, then, is why inflation remains so muted, which brings me to the third hypothesis : the view that other, mostly supply - side factors may currently be weighing on inflation. phillips curve estimates by ecb staff visualise this idea. chart 4 reduction of slack putting upward pressure on wages and prices these estimates, which are based on a large number of economic activity indicators, suggest that the erosion of economic slack – the yellow bars – has progressively contributed to pushing up both wages and prices. at the same time, however, these estimates currently leave a

##b will accelerate the development of new models and will conduct theoretical and empirical analyses to monitor the implications of climate change and related policies for the economy, the financial system and the transmission of monetary policy through financial markets and the banking system to households and firms. second, the governing council will adapt the design of its monetary policy operational framework in relation to disclosures, risk assessment, corporate sector asset purchases and the collateral framework. this reflects the principle that when adjusting its monetary policy instruments, the governing council will – provided that two configurations of the instrument set are equally conducive and not prejudicial to price stability – choose the configuration that best supports the general economic policies of the eu related to growth, employment and social inclusion, and that protects financial stability and helps to mitigate the impact of climate change, with a view to contributing to the objectives of the union. the action plan will be implemented in line with progress on the eu policies and initiatives in the field of environmental sustainability disclosure and reporting. chart 3 ecb climate change action plan sources : ecb. to support the economic analysis of climate change, there is a clear need to develop new statistical indicators. first, clarity is required in relation to terminology, classifications and the structure of statistical indicators. the eu has acknowledged the importance of harmonised definitions and standards and has undertaken a vast programme of standardisation in the area of sustainable finance, including – among others – legislative measures such as the eu taxonomy, the eu green bond standard and the corporate sustainability reporting directive. there is also movement on the international front : the international financial reporting standards ( ifrs ) foundation launched a new standard - setting board — the international sustainability standards board ( issb ) — aiming to deliver a global baseline standard for sustainability - related disclosures that provide investors and other capital market participants with information about sustainability - related risks and opportunities. all these developments will enable official statisticians to improve the availability and comparability of climaterelated data. only harmonised definitions and standards make it possible to produce diverse statistical indicators and yet be assured that the data source confirms to a common framework. this has an obvious advantage in that it will allow the combination of variables from different sources. notwithstanding the need for common classifications, data sources also need to be mutually coherent. currently - available sources, both from private and public sources, do not yet live up to this requirement. this is a significant concern for policymakers. data quality is also a concern due to the risk of “ green