navigate the early stages. their development can be supported by policies, such as tax breaks ; one must acknowledge, however, that here policy can do little, at least directly, if firms continue to have little appetite for such services. • reallocation inevitably also depends on the process of creative destruction that pushes unviable firms out of the market. sound insolvency regimes are required to ensure fast, effective and fair liquidation and reorganisation procedures, thus preventing assets from becoming trapped in unproductive uses. this is a difficult issue, as in many societies financial default is traditionally associated with social stigma and a sense of personal failure. the length and wastefulness of bankruptcy procedures is also an issue in some jurisdictions ; italy is a well - known example. minimising the trauma and cost of bankruptcy for both debtors and creditors should be the key priority for any insolvency law reform. in an ideal world, default would be synonymous, not with failure, but with a fresh start and a clean slate. • labour market institutions are also central to ensuring that the reallocation of labour resources can happen in a reasonably smooth way, while protecting workers from socially unacceptable insecurity. societal values may differ somewhat in this respect across the world ; we europeans pride ourselves on a model that offers a high degree of social protection. this need not be a brake on labour reallocation, however, if protection is properly designed. the key is finding the right mix between protecting workers and protecting existing jobs. in societies that treasure social protection, effectively and reliably ensuring the welfare of workers that lose their jobs, while preserving the incentives for them to search for new job opportunities, is an essential precondition for allowing the labour market to adapt. • while some reallocation across firms and industries is necessary for increasing productivity economy - wide, the diffusion of innovation among existing firms is also extremely important. in many cases, it can be less disruptive, painful and polarising than reallocation. • fast technological progress, especially if coupled with network externalities, can easily generate winner - takes - all dynamics, which in turn may further increase productivity gaps across firms and raise difficult competition issues. laggards may be discouraged from investing in r & d, since they lose the hope of competing with the top performers ; leaders may divert resources from innovation to unproductive uses, such as defensive strategies for maintaining their rent. under the right conditions, diffusion can mitigate such effects. •

the “ art ” of central banking has evolved and to draw some lessons for a framework that can serve us well in the future. having, and communicating to the public, a well - defined framework, as opposed to what ben bernanke called the marcel marceau communication strategy – that is : watch what i do, not what i say – is particularly helpful whenever one sails into uncharted waters, i. e., when the public does not have enough examples of the central bank ’ s past behaviour and hence the information vacuum looms unusually large. a review of central banks ’ monetary policy strategies could serve this purpose ; many central banks are currently involved in doing precisely that. i am sure that this workshop will provide important insights on all these issues. among the many ways in which the term “ new normal ” may be analysed, i am happy to see that today ’ s papers tackle three questions that are of the utmost relevance in my view. the first concerns the optimal inflation target in a low rates environment. i am sure that the keynote speech by professor gali as well as the papers that will be presented in the opening session will help us deepen our understanding of the implications of a low interest rates and low inflation environment for monetary policy. a second issue is about the strategies that central banks should follow : should bygones be bygones? or should policymakers seek instead to undo past deviations of inflation from the target, adopting what are known as “ make - up ” strategies? this is one of the most momentous questions that is being discussed within the broad ongoing review of the monetary policy strategy by the federal reserve. i am delighted to have with us, as keynote speaker, paolo pesenti from the federal reserve bank of new york, and i am eager to hear his insight on these questions. the final issue is the new tools used after the outbreak of the global financial and sovereign debt crises. how do they influence the real economy? are there limits to their effectiveness? although the literature is flourishing with studies on unconventional monetary policies, little is known about the transmission mechanism of these tools to the economy. the papers that will be presented in this afternoon ’ s session will shed further light on these issues. let me conclude by saying that the new normal is already with us : returning to the pre - crisis status quo is not only unlikely, it is probably unfeasible. to deal successfully with this new normal, central banks must keep developing analytical tools