could cause. i can also assure you that we are aware of the risk. in particular, we are aware that it is difficult to put the deflation genie back in the bottle once it has come out. if signs of widespread problems emerge, we will act swiftly to counter them. an advantage of our measured monetary policy response to date is that we have plenty of policy room available to react if necessary. is there a risk to financial stability closely related to the question of deflation is the issue of financial stability. a period of deflation could be caused by, or contribute to, financial stability problems as real debt burdens rise and borrowers struggle to service their debt commitments. again, i expect that you know more about this than i do. however, let me give you my interpretation of recent developments in europe and their implications for financial stability. asset price declines one concern has been that recent stock price declines could trigger financial instability by weakening balance sheets across the economy. clearly there has been a significant adjustment in stock prices around the world over the past year or so. europe has also been affected. european stock prices are now back around the levels seen in 1998 and have fallen by around 30 % since the beginning of this year. nevertheless, to put this fall in perspective, stock prices remain well above 1996 levels, which was when chairman greenspan made his comments on irrational exuberance. this holds true even when you adjust for inflation. regardless of whether or not stock prices are too high, a decline of the magnitude we have seen is bound to have some impact on the macroeconomy. at the dutch central bank we have estimated that a sustained decline of 30 % would have a cumulative negative impact of just over ½ % on european growth over three years. our model implies that there will be an insignificant impact on prices. however, these estimates are for the direct influence of lower stock prices only and abstract from confidence effects. as an aside, it is interesting to note that the wealth effects from changing share prices are considerably stronger in the united states. for example, a fall of 30 % in us share prices results in a cumulative negative impact of over 3½ percent of gdp over the same three year period. there would also be a negative impact on consumer prices of a little over ½ % over three years. the different impacts stem largely from the lower extent of share ownership in europe than in the us. although direct share ownership is gradually spreading in europe, it remains considerably less widespread than in the

to reinvest maturing securities for an extended period of time, financial conditions will likely remain accommodative long after net asset purchases will have come to an end. in view of the above, we have to adjust our communication. with a medium - term focus in mind, we need to highlight patience and confidence in the measures that we have already taken, while at the same time remaining realistic about what our measures can and cannot achieve. we will need to cater for the possibility that a sustained adjustment in the path of inflation ( sapi ) can only be achieved well after net asset purchases will have come to an end. fortunately, our moreover, data since the 1960s show that once the recovery took hold, the first policy rate increase has typically taken place after 10 quarters in germany and 11 quarters in the us, on average. as indicated earlier, the current euro area recovery is enjoying its 19 th consecutive quarter of growth. mark carney, “ [ de ] globalization and inflation ”, 2017 imf michel camdessus central banking lecture, 18 september 2017. otmar issing, “ inflation targeting : a view from the ecb ”, “ inflation targeting : prospects and problems ” symposium st. louis, 16 - 17 october 2003. monetary policy stance is more encompassing, and all our measures are geared towards this objective. the focus in communication therefore needs to shift to the other elements of our policy toolkit, such as forward guidance on key policy rates, together with the ongoing stimulus provided by the stock of our asset purchases. conclusion let me conclude. our economy is in the midst of a strong cyclical upswing. farreaching policy measures have contributed to cement growth, avert deflation risk, and enhance the cohesion of the monetary union. although raising inflation towards our aim is taking longer than expected, current inflation rates are not a threat to price stability. with actual growth exceeding potential and labour market slack falling, inflationary pressures will eventually unfold. at the same time, the longer the phillips curve fails to assert itself, the more procyclical policy might become, and the greater is the likelihood of financial stability risks building up. patience and confidence should therefore replace suggestions of openendedness in our communication. absent deflation risk, a full phasing - out of net asset purchases from september 2018 onwards is warranted. preservation of existing stimulus will be more than sufficient to reach our inflation objective, albeit at a medium term that may be further away than