this broader measure of slack also appears to be less sensitive to gdp growth than traditional measures : it has declined rather less than the reductions in the unemployment rate over the course of the recovery – a broader version of okun ’ s, law if you will. and our analysis suggests that this might help explain why underlying inflation has been so sluggish recently. rerunning our phillips curve models using this broader measure of slack, or equivalently, a measure of “ core ” employment only, leads to the prediction errors for inflation becoming measurably smaller. look at how the gap between actual and predicted inflation largely disappears on slide 5, in particular for the recent history. all this essentially means that it may take longer for inflation to gain steam and wage pressure might only start to rise meaningfully once adjustments in the “ intensive margin ” take hold – that is, once those who want to work more hours also succeed in doing so and once those who are still willing to work, but not currently counted as unemployed, are reabsorbed. indeed, hours worked per employee have not recovered since the double - dip recession. so what is the link between these developments and hysteresis? to be sure, the increasing prevalence of part - time and temporary work reflects several factors – including, in part, important structural reforms in many euro area economies that have helped strengthen the resilience of the euro area. 4 / 9 bis central bankers'speeches yet, the compositional effects we are seeing in the labour market may also reflect more crisisrelated factors, in particular uncertainty about the strength and durability of the recovery and pessimism about the long - term impact of the downturn on growth. as blanchard and co - authors have recently postulated, a revision to future potential growth prospects may cause firms to cut back on investment plans, causing muted growth expectations to become self - fulfilling. 11 on the right - hand side of slide 5 you can see blanchard and co. ’ s analysis replicated for the euro area. and we see signs that such effects might have also been at play in the euro area : there is a positive correlation between potential growth revisions and investment error forecasts. this might suggest that investment, and therefore demand, is influenced by long - term animal spirits – changes in expectations concerning the steady - state path of the economy. but the logic may also run in reverse and create a vicious feedback loop : this would be the case if the pessimism - induced

we need to take a provision. that collateral is not really worth what ’ s on the face of it. is this one issue you think europe can speak with a common voice on? i would hope so. i know it ’ s difficult. there are some countries that are still heavily coaldependent but i would hope so. just as europe has moved, and is moving the world, on data protection, as it also has moved the world in relation to safety. everybody complained about reach at the time. reach was this legislation that actually helped better regulate chemicals that could be dangerous for people. there are a lot of goods that are used on a daily basis around the world that are safer because of that directive. so in that sense, europe – which is often criticised for being too bureaucratic, too government - intensive – is also helping people. 4 / 5 bis central bankers'speeches but is this one thing that will deliver the real fiscal spending that you and your predecessor have been asking for, for a long time? well, i ’ m watching! i don ’ t have a voice concerning fiscal policy, so to speak, but i have a voice to say ; our monetary policy is much more effective if you leash out, where you have the space, on some fiscal tools as well. when i look at some countries, they are beginning to put money on the table. christine lagarde, i know you have to go, so a final question : if you look at the central bank stance around the world, there is a lot of talk that central banks are coming to the end of the tools that they have. can somehow fiscal spending across the world make up for that? first of all, i don ’ t think that the central banks have exhausted their tools. when conventional policy was heading towards very low rates, then new tools were invented. these were challenged but eventually they were validated. so i think that creativity also applies to central banking, number 1. number 2, they won ’ t be a substitute ; i think it ’ s a coordination, an amplification of one by the other. if you look at how markets have reacted, do you worry that they ’ re out of kilter actually, so markets are going up and the world economy is in a little bit of a standstill? there are times when i think so. is that because they don ’ t price risk? i think that some of them clearly do not price the climate change risk