favorable view of a phased - in, cap approach whereby reinvestments would be decreased gradually. participants favored this 2 / 4 bis central bankers'speeches strategy because a preannounced schedule would be gradual and predictable, limiting the magnitude of the runoff could help mitigate any adverse market effects, and the strategy would be relatively easy and straightforward to communicate. finally, as i noted earlier, we followed up in our last fomc meeting with the release of an addendum to our policy normalization principles and plans that outlined how our balance sheet normalization plan will work when it is implemented. we also said clearly in the fomc statement that if the economy evolves in line with our expectations, we expect to begin this process this year. in response, market participants have progressively increased the probability assigned to a change in reinvestment policy this year. yet, treasury and agency mbs markets have responded little at the time of these announcements — including those undertaken most recently. to me, this suggests that these communications have generally been effective in fostering an orderly adjustment in expectations about how we are likely to normalize our balance sheet. i also agree with helene about the important role of financial conditions in influencing economic activity. as i see it, financial conditions are a key transmission channel of monetary policy because they affect households ’ and firms ’ saving and investment plans and thus influence economic activity and the economic outlook. if the response of financial conditions to changes in short - term interest rates were rigid and predictable, then there would be no need to pay such close attention to financial conditions. but, as we all know, the linkage is in fact quite loose and variable. for example, during the mid - 2000s, financial conditions failed to tighten even as the federal reserve pushed its federal funds rate target up from 1 percent to 5¼ percent. conversely, at the height of the crisis, financial conditions tightened sharply even as the federal reserve aggressively pushed its federal funds rate target down toward zero. as a result, monetary policymakers need to take the evolution of financial conditions into consideration. for example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened. on the other hand, when financial conditions ease — as has been the case recently — this can provide additional impetus for the decision to continue to remove monetary policy accommodation. while i agree with helene in most respects, there are a few points where i am less convinced. while the global financial

to substitute labour, which had become more expensive due to wage increases outpacing productivity gains, in favour of capital, in the 1980s and early 1990s. the flagging of labour productivity in the euro area contrasts sharply with the very positive developments in other major economies, most noticeably the united states. up until the mid1990s, labour productivity growth was lower in the us than in continental europe. the second half of the 1990s saw, however, a period of sharp acceleration in labour productivity in the us, at that time seen by observers as permanent. in the eyes of many, this was driven primarily by innovations in the information and communication technology ( ict ) sector. the rate of growth of gdp in the euro area in the second half of the 1990s was significantly lower than in the us. nonetheless, advocates of the new economy, i. e. believers in the radical implications that the new technologies have for potential growth, expected that similar developments would take place on this side of the atlantic. the contributions from ict to labour productivity growth come from three main sources : a ) a direct impact from the production of ict capital, b ) an additional direct contribution from the use of ict capital in the production of other goods and services, and see maddaloni, a. ; a. musso, p. rother ; m. ward - warmedinger and t. westermann : “ macroeconomic implications of demographic developments in the euro area ”, ecb occasional paper no 51, august 2006 ). c ) possible indirect “ spillover ” effects from the use of ict capital. these spillover effects stem among other things, from the introduction of more advanced management techniques in production processes. when comparing the euro area with other major industrialised economies, we see that the direct contribution from ict capital increased everywhere between 1980 and 1995 and between 1995 and 2005, but remained at a higher level in the united states than in the euro area. in this respect, it is commonly acknowledged that the higher tfp growth, in particular in the us, reflects at least partly the spillovers from the development and adoption of ict technologies as a so - called “ general purpose technology ” that affects the entire production sector. 2 when looking at euro area productivity at sectoral level, we do not find any immediate evidence for such spillover effects in the non - high - tech ict producing sectors. first, the performance of traditional non - high - tech manufacturing industries deteriorated significantly. they are responsible for most of the labour