exercise to compute “ normal credit ”, similar to the notion of potential output. the difference between the actual volume of credit and normal credit offers a measure of the “ credit gap ”, analogous to the output gap. not surprisingly, this exercise reveals that in non - stressed economies the credit gap is either insignificant or making a very small contribution to economic slack. in stressed economies, the same measure contributes to up to a third of economic slack. this analysis suggests that credit constraints are putting a brake on the recovery in stressed countries, which adds to disinflationary pressures. you can also see why the heterogeneity becomes a factor in assessing low inflation in the euro area. calibrating the policy response what is the right policy response to these developments? essentially, we are confronting three issues that might warrant a response. first, the common effect of exogenous factors, including the exchange rate, on euro area inflation. second, the asymmetric effect of endogenous developments, such as tight access to credit for parts and sectors of the euro area. and third, the risk that those effects combine to generate a more persistent regime of excessively low inflation. let me elaborate on those three issues. first, to the extent that developments in the exchange rate, money or capital markets result in an unwarranted tightening of monetary and financial conditions, this would require adjustment of our conventional instruments, so as to secure the degree of monetary accommodation intended by the governing council. at the other end of the spectrum would be a too prolonged downward departure of inflation and / or inflation expectations from our projected baseline scenario, for example due to the interaction between exchange rate developments and medium - term inflation expectations as i explained earlier. this would call for a more expansionary stance, which would be the context for a broad - based asset purchase programme. an intermediate situation is one where credit supply constraints interfere with the transmission of monetary policy and impair the effects of our intended monetary stance. this would require targeted measures to help alleviate credit constraints. i would like to dwell shortly on this contingency because it relates to the important question of whether weak credit growth results from low credit demand or supply constraints. weak credit demand in the early stages of an economic recovery is not unusual. credit growth typically lags the recovery by three to four quarters as firms draw down internal funds. but a recovery eventually results in growing credit demand. and at this point, for monetary policy to produce its full effects, there

of climate change and advancing work on nature loss and degradation. these focus areas will guide our exploratory and analytical work in the coming years. chart 5 the ecb has implemented several measures to incorporate climate change considerations into its activities source : ecb. complementarity with other policies notwithstanding these initiatives, it is important to emphasise that the primary responsibility for leading the green transition lies with elected governments, which possess more direct tools and the legislative power to enact the necessary changes. since there are important complementarities between these policies and monetary policy, the ecb stands ready to offer support by providing technical analysis and advice. this knowledge sharing lies squarely within the scope of our primary mandate insofar as these other policies, by mitigating climate change risks, will allow monetary policy instruments to more effectively preserve price stability. let me provide some examples of these complementarities. addressing supply shocks a first example is the complementarity with policies aimed at cushioning supply shocks. in particular, policies that support diversification away from fossil fuels and increase energy efficiency enhance the resilience of our economy to shocks stemming from energy commodities prices, thereby containing inflationary pressures. remarkable technological advances in recent years have greatly enhanced the efficacy and reduced the cost of sustainable technologies. notably, the period from 2010 to 2022 saw dramatic decreases in the cost of producing electricity from offshore wind, onshore wind and solar energy by 60 %, 70 % and 90 % respectively ( chart 6 ). chart 6 decrease in the cost of renewable sources of electricity between 2010 and 2022 ( usd / kwh ) source : international renewable energy agency ( 2023 ), “ renewable power generation costs in 2022 ”, abu dhabi. note : the cost of renewable energy sources is based on data for 2022. at the same time, efforts to secure the supply of key raw materials, jointly purchase them or support innovation to reduce dependency on them can help lessen our exposure to the price and availability of metals and minerals like copper or lithium that are critical for the green transition. likewise, measures to ease the impact on households and businesses of fossil fuel energy price spikes can be designed so as not to suppress the price signal, which is key for providing incentives to reduce consumption of and dependency on fossil fuels. mitigating the negative impact of climate change on productivity and potential output second, other policies can mitigate the negative impact of climate change on productivity and potential output. the eu ’ s emissions trading system (