and perceived inflation started to diverge after the introduction of the euro. while this is a feature which should not be ignored, since what consumers decide to spend depends on their perceived real income, it is now important to acknowledge that it was a temporary phenomenon, and that during the last year and half the gap between actual and perceived inflation has narrowed significantly. notwithstanding the many adverse shocks that hit the euro area in the past years, price stability has prevailed in the euro area. the success of the single currency in delivering price stability and stabilizing inflation expectations in the euro area can be explained by the european institutional framework and the principles followed by the european central bank. first, the european central bank is independent and has a clearly defined mandate given by the treaty to pursue price stability. second, the ecb has provided and made public an arithmetical definition of price stability corresponding to inflation rates below and close to 2 %. third, the medium - term orientation and the very nature of our concept of monetary policy contributes to a solid anchoring of medium and long term inflation expectations, in line with our definition of price stability. the best contribution that monetary policy can provide to economic growth is to maintain price stability. price stability ensures the transparency of the relative price mechanism, thus enhancing the efficiency of resource allocation. stable and low inflation supports private consumption via its positive impact on the real value of households ’ income and wealth. price stability reduces the borrowing costs for individuals and firms. as we all know, inflation erodes the purchasing power of the nominal return on long - term loan contracts or bonds. in case of high and uncertain inflation, savers or those who lend their liquid funds would require a higher rate of return from borrowers, in order to compensate for the higher risks related to the uncertainty about future inflation. this inflation risk premium implies that in an economy with high inflation, less investment projects will be profitable. in such circumstances, capital accumulation will be lower than it could have been in a situation of price stability and the potential output growth rate is consequently reduced. the challenge of economic growth let me now turn to some issues which still need to be addressed. the economic and monetary union has secured macroeconomic stability, has promoted financial integration and led to convergence of inflation and interest rates to low levels. the key question that naturally arises is the following : why has economic growth, nonetheless, remained subdued? in my introduction i have already hinted at my answer by referring to the need for completing structural reforms. let me now

- term interest rates, ” journal of international money and finance 54 ( c ), 186 - 204. for related evidence for the us, see francis e. warnock and veronica cacdac warnock ( 2009 ), “ international capital flows and us interest rates, ” journal of international money and finance 28, 903 - 919. 5 ralph sj koijen, francois koulischer, benoit nhuyen, and motohiro yogo ( 2016 ), “ quantitative easing in the euro area : the dynamics of risk exposures and the impact on asset prices, ” banque de france working 3 / 4 bis central bankers'speeches paper no. 601. 6 mario draghi ( 2016 ), “ the international dimension of monetary policy, ” speech, ecb forum on central banking ( sintra ), june 28. 7 dominick barrett, brian godfrey and brian golden ( 2016 ), “ new data collection on special purpose vehicles : initial findings and measuring shadow banking, ” central bank of ireland quarterly bulletin, 3 : 71 - 84 ; niamh hallissey ( 2016 ), “ interconnectedness of the irish banking sector with the global banking system, ” central bank of ireland quarterly bulletin, 1 : 66 - 82 ; brian godfrey, neil killeen and kitty moloney ( 2015 ), “ data gaps and shadow banking : profiling special purpose vehicles ’ activities in ireland, ” central bank of ireland quarterly bulletin, 3 : 48 - 60 ; oisin kenny, neil killeen and kitty moloney ( 2015 ), “ network analysis using emir credit default swap data : micro - level evidence from irish - domiciled special purpose vehicles, ” ifc bulletin 41. 8 the role of international financial factors in the irish boom - bust credit cycle is analysed in philip r. lane ( 2015 ), “ the funding of the irish domestic banking system during the boom, ” journal of the statistical and social inquiry society of ireland 44, 40 - 70. 9 joseph l. bower and clayton m. christensen ( 1995 ), “ disruptive technologies : catching the wave, ” harvard business review 73 ( 1 ), 43 – 53. 10 ben broadbent ( 2016 ), “ central banks and digital currencies, ” speech, london school of economics, 2nd march ; yves mersch ( 2017 ), “ digital base money : an assessment from the ecb ’ s perspective, ” speech, bank of finland