gdp per capita in the accession countries is, in terms of purchasing power parity, around 44 % of that of the euro area, and this figure is even lower when current exchange rates are taken into account. the size of the gap, combined with the limited growth differentials, suggests that the process of real convergence will be a very slow one, likely to continue far beyond the tentative dates for eu accession and for the adoption of the euro. hence, although differences in income levels are compatible with membership of emu, it is important for accession countries to progress in the process of real convergence with the euro area. in particular, real convergence can help to create economic cohesion within emu and promote integration between members states. further real convergence will also help to minimise the risks and the effects of asymmetric shocks. against this background, it seems crucial that accession countries pursue structural policies that enhance the potential output growth of their economies. 2. inflation developments with regard to inflation developments, i should like to stress that, on the whole, the accession countries have made remarkable progress in bringing inflation down to single - digit rates. inflation in the accession countries is expected to average around 6 % - 7 % by the end of this year. however, reducing inflation from relatively low levels to even lower ones is clearly a difficult task. evidence points to a number of micro and macroeconomic factors which affect current inflation rates in the accession countries. these include ongoing price liberalisation, privatisation processes, relatively expansionary fiscal policies and stubborn inflation expectations. inflationary pressures stemming from high productivity growth in the tradable sector of fast - growing economies – known as the balassa - samuelson effect – have also been cited as one of the main reasons for higher inflation in catching - up economies, such as those of the accession countries. a closer examination of inflation developments in the accession countries shows, however, that the balassa - samuelson effect alone cannot explain the persistence of inflation differentials vis - a - vis the euro area. moreover, notwithstanding its importance, the balassa - samuelson effect should not be overstated when explaining current inflation rates in the accession countries. indeed, most empirical studies estimate the balassa - samuelson effect within a range of 1 to 2 percentage points. this does not mean, however, that the pursuit of real convergence conflicts with further progress on disinflation. on the contrary, the process of disinflation should be advanced in the accession countries, at

support for aggregate demand was not worth the accompanying risks to u. s. money markets and the intermediation of credit. indeed, the maturity extension program – also known as operation twist – did not increase reserves at all. bis central bankers ’ speeches with the federal funds rate near zero and the fed creating and adjusting new asset purchase programs, it became difficult for the public to anticipate how the fomc would likely conduct monetary policy and respond to changing economic conditions. thus, the fomc began to rely heavily on enhanced forward guidance to communicate its intentions. forward guidance works in part because it also constrains the flexibility of decisionmakers when the time comes to make their future decisions. 9 nonetheless, a number of potential costs might be associated with unconventional tools. when interest rates are extremely low, risks to financial stability might grow. in addition, elevated securities holdings could reduce the fed ’ s income and remittances to the u. s. treasury when rates eventually rise. 10 further, the fed ’ s quantitative easing appeared significantly to affect foreign asset markets, and to have contributed to a surge of capital inflows to emerging - market economies ( emes ). 11 our asset purchase programs were even called a “ currency war. ” however, eventually, most emes seemed glad to receive those flows. interestingly, the asset purchases recently announced by the european central bank ( ecb ) appear to be putting downward pressure on longer - term interest rates in the united states. in addition, the ecb ’ s policy should increase growth in europe, which will be beneficial for u. s. exports. although some of these benefits may be offset by the recent appreciation of the dollar, much of that increase likely reflects other factors including the relatively strong performance of the u. s. economy. looking back, there is ample evidence that supports the view that the fed ’ s asset purchases contributed to a stronger u. s. recovery, by raising the prices of the assets purchased and close substitutes, as well as those of riskier assets. 12 our experience also shows that forward guidance helped better align market expectations of fed policy with the committee ’ s policy intentions. 13 in brief, unconventional policies helped bring down long - term yields both by reducing term premia and by lowering the expected path of future short - term rates. there is a long literature in monetary economics about time inconsistency. time inconsistency is the notion that, to achieve good outcomes, a central