##i ) sector remain elevated, despite some portfolio rebalancing towards higher - quality assets. the sector is vulnerable to asset price corrections, macroeconomic uncertainty and market volatility. these factors could contribute to rising outflows from open - ended investment funds, which can exhibit significant mismatches between asset liquidity and redemption terms, or to potential margin calls for investment funds, insurance companies and pension funds. additionally, parts of the nbfi sector also display significant financial and synthetic leverage, which can propagate liquidity shocks to the wider financial system and amplify stress. recent market episodes including the turmoil in march 2020, commodity market tension in 2022 and uk government bond market stress in september 2022 underline the need for international coordination to strengthen the nbfi policy framework, also from a macroprudential perspective. international cooperation we welcome the imf's continued support for ukraine, in particular its recent approval of the third review of the extended fund facility arrangement, marked by ukraine's strong performance under very challenging conditions. timely disbursement of external support by all donors will be critical for the future of ukraine's programme. we also welcome the conclusion of the 16th general review of quotas in december 2023, which strengthens the quota - based nature of the imf at the centre of the global financial safety net. the priority now is to implement the review by mid - november 2024. we look forward to the upcoming evaluation by the fund's independent evaluation office on the evolving application of the imf's mandate. focusing on the imf's mandate and its cooperation with the world bank will be important, also in their implementation of the resilience and stability trust. 3 / 4 bis - central bankers'speeches geopolitical tensions are increasingly giving rise to economic and financial fragmentation and pose a significant risk to global prosperity. a world divided along geopolitical lines would be more prone to adverse supply shocks and reduced trade, possibly leading to higher inflation and lower welfare. we also see a greater deployment of trade - restrictive measures targeted at sectors considered strategically important for technological progress and the green transition. however, legitimate concerns about security and supply chain resilience should not lead to a spiral of protectionism. if we are to preserve the unparalleled achievements in global growth and poverty reduction made in the past decades, multilateral cooperation is more important than ever. the cop28 global stocktake has clearly shown that the world

not to say, however, that forces that are structural in nature and unrelated to monetary policy cannot influence the inflation trajectory for what might be a protracted period of time. for example, a supply shock that reduces firms ’ pricing power by either weakening barriers to entry or by increasing price transparency can result in a mark - up squeeze for firms, triggering a drawn - out process of disinflation that can last for years. but once firms have adjusted to the new competitive landscape and their selling prices stabilise around a lower equilibrium level, the mark - up squeeze will cease to drive aggregate inflation down. inflation – once more – will start fluctuating around the level that the central bank chooses for the medium term. the traditional phillips curve connection between current inflation, expectations of future inflation and the cycle will re - assert itself. eurosystem staff analysis confirms that the phillips curve remains alive and well in the euro area. today, that empirical regularity says that, while being on a gradual reabsorption path, some remaining slack continues to restrain underlying inflation in the euro area. 2 by ensuring accommodative financing conditions, monetary policy supports domestic demand, which creates the environment necessary for the mobilisation of idle resources to bring output back to its potential level. this will lead to a build - up of price pressures and ultimately pull inflation up. monetary policy also plays a pivotal role in anchoring inflation expectations, which are an important explanatory factor of actual inflation. after all, inflation expectations determine the intercept of the phillips curve. under normal conditions, longer - term inflation expectations should remain unaffected by transitory shocks that typically dissipate over the medium term, such as those related to oil prices. however, recurrent shocks that lead to either a prolonged period of above - or belowtarget inflation can be misinterpreted as a lasting change in underlying inflation. in my earlier example, if the central bank tolerates a prolonged period of declining mark - ups, and headline inflation is weaker than the central bank ’ s target, then the phillips curve in all likelihood will reanchor around a lower medium - term inflation level. in the worst scenario, self - reinforcing spirals may result, as firms and households start to extrapolate from past inflation outcomes. their expectations become self - fulfilling through adaptive wage - and price - setting behaviour. today, an important element keeping underlying price pressures subdued is muted wage dynamics, which are shaped by