past which central bankers should look at carefully, namely the great depression, japan ’ s lost decade and, more generally, previous experiences of post - financial crisis periods. we all certainly take a great deal of interest in, and inspiration from, these episodes. looking at other postcrisis experiences, like that in japan, some lessons can be learned. let me mention three : 1. after a financial and housing bubble has burst ( what about the primary commodities bubble? ), the growth potential is impaired, and possibly even reduced, for some time. according to all major international institutions, this also applies to the current period. 2. monetary policy can smoothen the transition to the new steady state, but it cannot by itself pull the economy back to the pre - crisis level, which was not in a sustainable equilibrium, within a short period of time. 3. the recapitalisation and restructuring of the banking system is far more important than monetary policy in avoiding a credit crunch. there are, of course, other lessons to be learned from past episodes. but in my view, we should also look at another important period of history, the period that preceded the crisis. in my view, there is much more to learn from the decade that preceded the crisis than from other experiences. to be sure, this crisis has confronted the economics profession with the challenge of rethinking its analytical basis. central banks cannot be immune from such an exercise. we should not be afraid of taking a critical look at the recent past. let me mention seven lessons from the recent past that may be useful for the future. 1. the growth recorded in advanced economies that experienced large current account deficits over the last decade was not sustainable. for macroeconomic policies to continue to be aimed at the attainment of similar rates of growth in the future would imply generating the same imbalances that led to the crisis. 2. very low levels of interest rates for a prolonged period of time can result in a misallocation of resources and encourage risk - taking that fuel asset price bubbles. there is now increasing evidence of this correlation ( see charts 4 and 5 ). i consider it not to be fair for central bankers to shift all the blame for the build - up of the bubble before the crisis to only regulators and market participants. 3. the view that monetary policy should not look at financial market conditions and should only intervene to counter the effects of the bursting of the bubble ( i. e. what has been

labelled the “ greenspan put ” ) has proved to be wrong. 4. interest rates were kept too low for too long before the crisis, mainly on account of fears that the economy would enter a japanese - style deflation, fears that turned out to have been mistaken. risk management - type monetary policy aimed at avoiding deflation is thus not without risk. 5. monetary policy cannot by itself transform a jobless recovery into a job - generating recovery. if anything, keeping the cost of capital excessively low may encourage capital - intensive investment, rather than labour - intensive capital expenditure. 6. core inflation is not a good predictor of headline inflation, nor of underlying inflationary pressures emerging in a global economy. 7. it is very difficult to measure output gaps. this is not a new finding, but it tends often to be forgotten. looking at the period before the crisis, what looked like as a large output gap in 2003 turned out to be a very small one a few years later. therefore, it is very dangerous to calibrate monetary policy mainly on the basis of this variable ( see charts 6 and 7 ). if we want to avoid repeating the mistakes of the past, we have to keep these lessons in mind. this leads me to the third point i would like to make. it relates to the position of central banks in the institutional framework underpinning economic policy - making in our societies. pisaniferry and posen argue that in countries where the relationship between the central bank and the government is “ unproblematic ”, the central bank is freer to go beyond its usual mission, in particular with respect to the adoption of non - conventional measures. in fact, the institutional framework underlying the ecb does not prevent it from taking nonconventional monetary policy measures of the type that other central banks have done. the ecb did not embark on large - scale purchases of government bonds of member states because it could not do so, but because we did not consider that to be an appropriate instrument in conducting monetary policy. the non - conventional measures we adopted relied more on the banking system, given its prominence in the transmission of monetary policy in the euro area. i have shown previously that our measures have been as effective, if not more effective, than others in providing liquidity to the financial system. selected purchases of government bonds were used only in exceptional circumstances, to address specific problems in the transmission of monetary impulses. it is clear that embarking on