below our target since january 2013, declining from 2 % to −0. 1 % in march 2015. forecasters have repeatedly been surprised by this evolution. three main reasons have been put forward to explain this. a first explanation is that forecasting has been complicated by the fall in global crude oil prices and raw materials and its transmission to other sectors. in this regard, recent research conducted at the banque de france supports this view by showing that forecast errors for oil prices explain about half of the errors for headline inflation. the oil price futures used in our forecasts turned out to be poor predictors in volatile oil markets. 2 a recent bdf working paper argued that short - term unemployment is more meaningful than total unemployment when looking at the phillips curve in the us. cf. ferrara l. and sestieri g. in banque de france, quarterly selection of articles, no. 36, winter 2014 - 2015. bec, frederique and annabelle de gaye ( nov. 2014 ), “ how do oil price forecast errors impact inflation forecast errors? an empirical analysis from french and u. s. inflation forecasts. ” banque de france working paper 523. bis central bankers ’ speeches but downside surprises also occurred for core inflation suggesting the need for complementary explanations. one candidate is the continuous appreciation of the euro between mid - 2012 and the beginning of 2014, which has lowered prices of many imported non - energy industrial goods. one can expect this impact to be transitory as the euro has subsequently depreciated since the middle of 2014. this depreciation reflects the differences in the growth cycle between the euro area and its main partners and accordingly the differences in monetary policy. those explanations do not account for the slowdown in domestic prices, which must then be attributed to an increase in domestic slack. for the european commission the output gap widened from −2 % in 2012 to −3 % in 2013. this came as a surprise because realized gdp growth rates in 2013 and 2014 were about 0. 5 percentage points lower than forecasts made in 2012. 3 our analysis suggests that this economic slack contributed substantially to low inflation. for example, in the fourth quarter of 2014, if we assume no economic slack, hicp inflation would have been higher by around 0. 8 percentage points. such a counterfactual exercise is however surrounded by a large uncertainty. first, potential output is hard to estimate. that said, if potential output and domestic slack were lower than assumed

entered into negative territory in two steps ( – 20 basis points ). however, by january this year it was clear that economic recovery as well as monetary and credit indicators were too weak to bring medium term inflation close to but below 2 %. marketbased measures of inflation expectations, even if prone to liquidity shocks, had been falling further below the target and at longer term horizons. the governing council was determined to act boldly to counteract the risk of a too low for too long inflation. in this context, an expanded asset purchase programme was then launched. on march 9th, the eurosystem began purchasing public sector securities in the secondary market along the curve from 2 to 30 years, being mindful of being market neutral. purchases of securities at negative yield are permissible, as long as the yield is above the deposit facility rate. marketable securities purchased under this program will be made available for securities lending. this programme is intended to stimulate the economy through different channels. the first one is the portfolio rebalancing channel, in which the fall in yields on safe government bonds induces investors to buy riskier assets, thereby stimulating the economy. since the launch of the programme yields have dropped not only for the assets purchased but also for bank and corporate bonds and equity prices have continued to rise. a second channel works through lowering and flattening the yield curve. the purchase programme will continue until the end of september 2016 and beyond if we do not see a sustained adjustment in the path of inflation. this reinforces the guidance that interest rates will remain low for an extended period of time. a third channel is related to increasing credit supply. if the euro - system buys assets from non - banks or institutions, then these funds will reappear as deposits in the banking system. andrade and le bihan, 2013, inattentive professional forecasters, journal of monetary economics, volume 60, p. 967 – 982. bis central bankers ’ speeches this creates an additional source of funding for banks which in turn increases the supply of credit to the private sector. a last channel is the signaling effect. by acting decisively and more aggressively than anticipated, we hope to lift inflation expectations. conclusion let me conclude with my assessment of the impact of the qe. so far, recent indicators suggest that our quantitative easing has had a positive effect on inflation expectations. this is true when looking at market - based measures at short term horizons, although less so at long term horizons.