speaking, when inflation is above the objective, central banks raise short - term real interest rates above the natural rate to bring inflation down. symmetrically, when inflation is below the objective, central banks lower real interest rates below the natural rate. while the equilibrium real rate is a useful concept in order to frame policy discussions, it is unobservable in the real world, and various models used to construct it provide different answers resulting in a range of uncertainty. what is more certain, however, from these models is that the equilibrium real rate has been falling, both here and across other major advanced economies. by some estimates, it might even currently be negative in the euro area. 2 as i have mentioned previously, potential reasons for this decline include demographics and falling productivity growth. 3 policy rates need to shadow this decline in the real equilibrium rate, otherwise monetary policy would be too tight, dampening activity and causing inflation to undershoot our objective. how the ecb has responded to the crisis with these factors in mind, let me briefly summarise how the ecb has responded to the crisis. we have taken action within our mandate to ensure sufficient stimulus is in place to return inflation to our objective over our medium - term horizon, and to repair the transmission of that stimulus across the whole euro area in order to preserve the unity of monetary policy. in a conventional fashion, we gradually lowered our main refinancing rate to stimulate the 2 / 5 bis central bankers'speeches economy, eventually reaching 0 % in march 2016. however, the size of the stimulus required, combined with the lower equilibrium real rate, meant that this interest rate cut was not sufficient to bring inflation back to our objective. it was therefore necessary to introduce a number of unconventional measures. first, we introduced forward guidance. we communicated explicitly to the market our expectation that interest rates would remain at, or below, the current rate until inflation had sustainably returned to our objective. in doing so, we were able to influence market views of our future interest rates, thereby reducing interest rates across the curve. indeed, while economists tend to talk in terms of one natural rate, there is, in truth, a wide constellation of interest rates that are relevant for the consumption and investment decisions of businesses and households. second, we introduced an asset purchase programme. by buying bonds, including covered, sovereign and corporate bonds, we are reducing interest rates across a range of horizons. these lower interest rates encourage borrowing, either indirectly through banks or

in the euro area is resilient, but risks relating to the international environment remain elevated. we will continue to monitor closely the evolution of prices and costs in the coming weeks and months in order to assess any second - round effects of energy prices and also to judge the extent to which the increase in inflation represents a sustainable adjustment towards our objective. and let me make one final point. for the past few years, growth in the euro area has been sustained by substantial support from monetary policy. yet in the long run, growth is not determined by monetary policy, but by innovation and gains in productivity. structural reforms are needed in the euro area, and in each member state to improve the economic resilience to shocks and to boost productivity growth. higher productivity growth will raise equilibrium real interest rates and, more importantly, improve welfare for everyone in the euro area. 1 see ciccarelli, m. and osbat, c. ( eds. ), “ low inflation in the euro area : causes and consequences ”, occasional paper series, no 181, ecb, 2017, and accompanying discussion papers. 2 constancio, v., “ the challenge of low real interest rates for monetary policy “, lecture given at the macroeconomics symposium, utrecht school of economics, 15 june 2016. 3 cœure, b., “ assessing the implications of negative interest rates ”, speech given at the yale financial crisis forum, yale school of management, new haven, 28 july 2016. 4 / 5 bis central bankers'speeches 4 “ mfi lending rates : pass - through in the time of non - standard monetary policy ”, economic bulletin, issue 1 / 2017, ecb. 5 / 5 bis central bankers'speeches