lucas ( 1988 ) memorably wrote : the consequences for human welfare involved in questions like these are simply staggering : once one starts to think about them, it is hard to think about anything else. i. what drives growth in the long run? so let ’ s start to think : what does drive growth in the long run? in fact, growth theory – much like central banking – has come a long way. as everyone knows, solow ’ s work in the late ’ 50s produced two startling insights. 1 first, that smooth factor substitutability could rid us of the harrod - domar boom - bust cycle. this, in fact, paved the way for a proper analysis of solow ( 1956, 1957 ). bis central bankers ’ speeches sustainable growth. 2 his second insight was that growth was driven not only by factor accumulation but also by technological progress. fundamentally, technological progress and innovation are, over the long run, the prime drivers of economic growth and also important reasons for differences in international economic performance, even though demographic differences are also very relevant. higher growth rates of technical innovation raise output and can lower the non - inflationary rate of unemployment. but what is technical change? cracking open the solovian black box of technical progress has taken us from theories of learning - by - doing, to the impact of r & d on product variety and quality. the latter theories being underpinned by paul romer ’ s reflection on the fact that ideas are fundamentally non rival. 3 this concept, by the way, was not really new. the famous letter of thomas jefferson to isaac mcpherson expressed it very clearly in 1813. 4 the bottom line in all of this is that knowledge spillover between open, dynamic economies could benefit everyone. not surprisingly, these new developments in growth theory came replete with policy prescriptions. a more recent but allied literature suggested the following : how close an economy is to the technological frontier and whether its institutions facilitate convergence to that frontier are vital considerations. 5 in effect, a laggard country gains by implementing ( or jumping to ) frontier technologies. 6 ] but an economy near the frontier – or with an appetite to define that frontier – should increasingly favour innovation over imitation. like many close to european policy7, i find this an attractive framework. indeed, following world war ii, the european economies were remarkably catching up in productivity and technological terms and today are leaders in many fields, in particular as concerns the embedding of

and bank credit conditions. it is also multifaceted, because we take a sufficiently granular view that enables us to detect movements in specific market segments in a timely manner. last week, as it received a new round of staff projections, the governing council conducted a joint assessment of these multiple set of indicators against the evolution of our inflation outlook since the last projection exercise. we concluded that the increase in risk - free market interest rates and sovereign bond yields that we have observed since the start of the year could spur a tightening in the wider set of financing conditions, as banks use them as key reference points for determining credit conditions. therefore, if sizeable and persistent, increases in those market interest rates, when left unchecked, may become inconsistent with countering the downward impact of the pandemic on the projected path of inflation. based on this joint assessment, the governing council announced that it expects purchases under the pepp over the next quarter to be conducted at a significantly higher pace than during the first months of this year. while records of our weekly purchases will continue to be distorted by short - term noisy factors – such as occasionally lumpy redemptions – the step - up in the runrate of our programme will become visible when ascertained over longer time intervals. purchases will be implemented flexibly according to market conditions and always with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. in addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. if favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the pepp, the 2 / 4 bis central bankers'speeches envelope need not be used in full. equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. the pepp is not the only tool the ecb is using to support favourable financing conditions over the pandemic period for all sectors of the economy. the third series of targeted longer - term refinancing operations ( tltro iii ) remains an attractive source of funding for banks. the tltros ’ built - in incentive structure ensures that banks have access to ample funding at very favourable conditions if they maintain their lending to the real economy. this supports bank - based financing conditions for