investment tend to be substantial, and the “ demand switching ” effects of the lower exchange rate in enhancing external demand for the country ’ s goods are likely to be bis central bankers ’ speeches relatively small. indeed, one could argue that the spillovers to the rest of the world could be positive on net, as the enhanced domestic demand draws in substantial imports, offsetting the higher exports. matters are less clear in the circumstances we find ourselves in today, and with the unconventional policies countries are adopting. for instance, if the interest rate sensitive segments of the economy are constrained by existing debt, lower rates may have little effect on enhancing domestic demand, but continue to have demand switching effects through the exchange rate. similarly, the unconventional “ quantitative easing ” policy of buying assets such as long term bonds from domestic players may certainly lower long rates but may not have an effect on domestic investment if aggregate capacity utilization is low. indeed, as argued earlier, savers may respond to the increased distortion in asset prices by saving more. and if certain domestic institutional investors such as pension funds and insurance companies need long term bonds to meet their future claims, they may respond by buying such bonds in less distorted markets abroad. such a search for yield will depreciate the exchange rate. the primary effect of this policy on domestic demand may be through the “ demand switching ” effects of a lower exchange rate rather than through a demand creating channel. of course, if all countries engage in demand switching policies, we could have a race to the bottom, with no one any better off. nevertheless, countries may find it hard to get out of such policies because the immediate effect for the country that exits might be a serious appreciation of the exchange rate and a fall in domestic activity. the bottom line is that simply because a policy is called monetary, unconventional or otherwise, it may not be beneficial on net for the world. that all monetary policies have external spillovers does not mean that they are all justified. what matters is the net spillovers. one source of spillovers is through the trade channel, the relative magnitude of demand creating versus demand switching effects. another source of spillovers is through cross border capital flows, and their effect on financial stability elsewhere. of course, a country ’ s international responsibilities in this regard are murky, while the central bank ’ s domestic mandate is explicit. this leads to a possibly serious asymmetry in responsibility. if the central bank is in danger of falling below the lower bound of its inflation mandate

let me quickly reflect on the state of play of these long - term determinants of growth. concerning labor, the region has been facing constant shrinking of working - age population - 0. 5 % on average, per year in the last nine years, mostly due to unfavorable demographics and emigration. if we take into account estimates that 1 / 3 of the emigration is high - skilled labor, then obviously, this is not only an issue of quantity, but quality as well. in this context, global competitiveness report points to a large human capital gap of the region with an index rank of 62. 2, compared to 16. 7 for eu15. the health crisis emphasized even more the long - standing and burning issues that need to be tackled such as increasing participation rates ( that currently hover around 54 % ), rising life expectancy, skill mismatches, and in particular digital skills and " jobs skills of tomorrow ", although given the structural nature of the problem it will continue to weigh on the medium - term growth dynamics. concerning capital stock, data reveals that the capital stock in the region constitutes only one third ( 35 % ) of the capital stock in the countries of the european union. this calls for raising investment ratio and closing investment gaps. these gaps are particularly wide in infrastructure, looking at the average rank of 70. 5 for the region compared to 16. 7 for eu152. however, there is also a great scope for improvements in ict infrastructure, as a cornerstone of the new economy, in order to accelerate digital transformation of the economies. as for productivity, it remains low, about 1 / 3 of the eu average. in the last five years before pandemics, the average gdp growth of the region was 3 %, with tfp 2 / 3 bis - central bankers'speeches contribution of merely 0. 3 p. p. to increase productivity, the region must tackle structural and institutional obstacles that inhibit efficient allocation of resources. the evidence suggests that institutional reforms in emerging economies are associated with about 1 p. p. a year higher total factor productivity growth compared to " normal " years3. so far, fdis in the tradable sectors are one of the traditional venues that increase productivity that implies not only tapping additional external sources for growth financing, amidst low domestic savings, but also transfer of know - how and technologies. however, pandemics led to significant deceleration of fdis and trade flows, flagging up many vuln